Activist Oasis Could Turn to a Favorite Playbook to Help Create Value at Greencore

Business: Greencore Group is an Irish ready meals manufacturer. Its segments include Convenience Foods UK and Ireland. Greencore supplies a range of chilled, frozen and ambient foods to retail and foodservice customers in the UK. The company supplies all supermarkets in the UK. It also supplies convenience and travel outlets, discounters, cafes, food services and other retailers. It has over 16 manufacturing centers and 18 distribution centers across the UK.

Stock market value: 531.2 million pounds (around 1.14 pounds per share)

Ownership percentage: n / A

Average cost: n / A

Comment from an activist: Oasis Management is a global hedge fund management company headquartered in Hong Kong with additional offices in Tokyo, Austin and the Cayman Islands. Oasis was founded in 2002 by Seth Fischer, who leads the company as chief investment officer. Oasis is a genuine international activist investor, campaigning primarily in Asia (and occasionally Europe). The firm has an impressive track record of prolific and successful international activism. Oasis has as many arrows in its quiver as any activist and has managed to gain board seats, oppose strategic transactions, advocate for strategic actions, improve corporate governance. company and to hold management accountable.

On March 15, the Financial Times reported that Oasis Management had taken a stake in Greencore, approaching the UK’s 5% threshold, and that chief executive Daniel Wosner had met with the board and management on several occasions .

Greencore Group is a leading supplier of pre-packed and ready-to-eat foods in the UK and Ireland, serving customers including supermarkets, convenience stores, retail outlets, cafes and other retailers. The company presents information segmented into two categories: “food to go” and “other amenities”. In 2023, “catering to go” represented 65% of the group’s turnover and “other amenities” generated the remaining 35%. A key inflection point in Greencore’s recent history has been the Covid-19 pandemic. Since then, the company has struggled to regain its footing and regain both its share price and operational performance. The stock has fallen sharply since its pre-pandemic peak. Furthermore, the company’s adjusted operating profit of £76.3 million and adjusted earnings before interest, tax, depreciation and amortization of £132.8 million have not caught up to their pre-pandemic levels of £105 million and £142 million, respectively. Furthermore, operating margins fell to 2% in 2020 and 2021, compared to 6% to 7% in the years before the pandemic. They have failed to recover completely, settling at 4% in 2023.

Compared to its peers, many of which have also been hurt by the forces of the pandemic, inflation and a recessionary macroeconomic environment in the UK and Ireland, Greencore has particularly struggled to return to previous performance. First, Greencore has not reinstated its dividend since it was suspended in 2020. Greencore’s peers currently offer dividend yields between 1% and 7%, with an average yield of around 3.5%. Some of them had also suspended their payments following the Covid-19 outbreak, but resumed them shortly after. Additionally, Greencore’s operating and EBITDA margins are lower than peers Premier Foods and Bakkavor, but margins were better in both categories in 2019.

Oasis is known as an Asian activist, which is true: 90% of its activist campaigns have taken place in Asia. But the company has selectively carried out its activism in Europe two other times before. Both times, its returns were incredible – averaging 108.75% compared to 5.29% for the MSCI EAFE Index. Additionally, both of these investments were in companies similar to Greencore: one was a direct peer, Premier Foods, and the other was The Restaurant Group. At The Restaurant Group, Oasis successfully campaigned for the removal of the company’s chairman, as well as the sale of assets to accelerate mid-term strategic plans to increase adjusted EBITDA, and the company ultimately privatized by Apollo. The Premier Foods campaign was a play in three acts. In 2017, after the company accumulated 8.3% stake, Premier invited Daniel Wosner, chief executive of Oasis, to join the board, but he tendered his resignation after only a year. In its second act, Oasis immediately began advocating for change, urging shareholders to vote against the re-election of then-CEO Gavin Darby, citing destruction of shareholder value, poor financial performance, consistently missed targets, lack of strategy and weak corporate governance. While Darby was re-elected in 2018, he announced his resignation shortly after. In the company’s third act, Wosner was invited back to join the board in February 2019, and the company announced it would launch a strategic review.

Since Wosner’s reappointment, Premier and Greencore have emerged as a rising star and a fallen comet, respectively. Premier Foods has generated a total return of almost 300%, while Greencore is down 41.5% over this period. Premier resumed its dividend, while Greencore suspended it. Premier has EBITDA margins of around 20%, compared to a figure between 5% and 10% for Greencore.

It’s hard to believe that there is another investor more qualified than Oasis to create shareholder value at Greencore. The situation at Greencore appears amicable and the company would likely benefit from offering Wosner the opportunity to join the board. Oasis could help put the company in a financial position to resume paying dividends or accelerate buybacks. Additionally, at The Restaurant Group and Premier, Oasis has pushed for the sale of non-core assets, which is consistent with streamlining operations and creating shareholder value. It’s not necessarily Oasis’ plan to push for the ouster of executives here, especially since Greencore CEO Dalton Philips was recently named in 2022 and CFO Catherine Gubbins was appointed to her position in 2023. But it is certain that changes are necessary, and this should put management on notice. One Greencore director Oasis knows well is Alastair Murray, former CFO and interim CEO of Premier Foods. Indeed, Oasis had played a role in Murray’s elevation to former first CEO Gavin Darby in 2019.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist investments.