Investors enthusiastically welcomed the return of Gildan co-founder Glenn Chamandy at the helm of the Montreal clothing manufacturer on Friday, while the Caisse de dépôt maintains that its offer to invest 200 million in the company remains on the table at some terms.
Gildan shares rose 5% during the final session of the week to close at $51.41 in Toronto. This increase suggests that the return of Glenn Chamandy was probably not yet fully anticipated or discounted in the stock price.
Investors were reacting Friday to the wholesale resignation the previous evening of members of Gildan’s board of directors and the departure of Vince Tyra who left his role as CEO. These decisions bring to an end one of the largest proxy battles ever fought in the country.
A long saga began two weeks before Christmas after the surprise dismissal of Glenn Chamandy for reasons of strategy and succession caused the discontent of several institutional shareholders.
The American investment firm Browning West finally managed to rally enough support to bring the members of Gildan’s outgoing board of directors to yield and reverse the dismissal of Glenn Chamandy.
“The return of Glenn Chamandy as CEO is the best solution for everyone,” comments analyst Martin Landry of the Stifel/GMP firm.
“This is not a complete surprise,” he added in a note published Friday.
In his view, the support of the major voting advisory firms (ISS, Glass Lewis and Egan-Jones) was the tipping point signaling that Browning West would succeed.
From the start, he points out, Vince Tyra and the outgoing board had limited support. “Shareholders were surprised to find that Vince Tyra was the best candidate available, given his limited manufacturing expertise and limited experience running a publicly traded company. »
Martin Landry believes that two elements in particular have the potential to propel Gildan’s stock in the near term: Glenn Chamandy’s purchase of Gildan shares and Gildan’s repurchase of shares for cancellation.
If Glenn Chamandy were to repurchase the shares he sold in December, it would send a strong positive signal, he says.
“While I fully understand why Glenn Chamandy sold his Gildan shares, it nevertheless caused some irritation among shareholders. »
Martin Landry recalls that part of the strategic plan presented this spring by Browning West consists of increasing leverage and using cash to repurchase shares. Gildan could release around $700 million to buy back shares, according to calculations by Martin Landry.
“This would represent 19 million shares assuming a purchase price of US$36 or 11% of the shares outstanding. »
Agreement with the Fund
The Caisse de dépôt et placement du Québec entered the case at the beginning of May by evoking its intention to invest 200 million in Gildan and thereby supporting the outgoing board of directors as well as the now ex-CEO Vince Tyra.
The former Gildan administration agreed to issue $200 million in senior unsecured notes to the Caisse as part of a private placement.
To reach this agreement with the Caisse, Gildan agreed to maintain “solid” local management and its global headquarters in Quebec for at least seven years, in addition to committing to paying the global minimum tax which amounts at 15%. However, the transaction is not expected to close until June.
The Fund indicated to The Press Friday that despite the change of administration announced Thursday evening, it could still act as a lender and once again become a shareholder of Gildan to the extent that the conditions on fair taxation and presence in Quebec are met.
The Caisse’s decision to want to invest again in Gildan comes two years after Quebec’s largest institutional investor lost patience and sold all its shares in Gildan because, in its eyes, the company was not paying its fair share of tax.
Gildan said in early May that it wanted to use the money collected from the Caisse to finance its common stock buyback program and repay a portion of its maturing debt.
It was not possible to speak to Glenn Chamandy or a Gildan representative Friday. Gildan shareholders still have an appointment Tuesday morning to participate in their annual meeting.