Struggling French Connection under pressure to sell
Gatemore Capital Management, which together with OTK Holding and Zoar Invest controls 15 per of French Connection’s shares, is calling for the company to make significant changes, including a sale of the business to “the highest possible bidder”.
In its financial results for the 12 months to January 2017 the high street chain posted a full-year pre-tax loss of £5.3 million, the fifth year of consecutive losses. Group revenues were down 6.7 per cent to £153.2 million, with French Connection citing weak performance in its wholesale and licensing divisions.
Despite this the company said it had seen an “improvement in performance”, with UK like-for-like sales up 4.4 per cent and operating losses trimmed to £3.7 million from £4.7 million. The chain is in the process of closing unprofitable stores and wants to have 30 full price French Connection stores by January 2019.
Yet its major shareholders have expressed a lack of confidence in the firms’ ability to turn things around. In February, asset management house Schroders sold its 11 per cent stake in the chain to Mike Ashley’s Sports Direct, making the sports retailer French Connection’s second-largest shareholder.
Major shareholder Gatemore is spearheading a shareholder rebellion, describing the results as “dismal”.
Among its concerns is that chief executive and chairman Stephen Marks, who owns 41 per cent of the business, holds the two most senior posts at the company - described as “not acceptable for modern-day governance practices”.
Liad Meidar, managing partner at Gatemore, said: "We are disappointed, but unfortunately not surprised, that French Connection have failed to improve on last year's dismal results.
"The board is a mockery of modern corporate governance. With the resignation of Christos Angelides, there are no independent directors in place and the chairman/CEO, Stephen Marks, is refusing to split his role and is running the business with no regard for shareholders."
In January Gatemore, OTK Holding and Zoar Invest sent a letter to French Connection’s board calling for top-level changes that would bring about “an experienced set of directors who can act independently in the interests of all shareholders - not just the founder”. Otherwise, “we would welcome the board to engage an investment bank to run a sale process and seek the highest possible bidder for the company”.
Today the Times reported that members of French Connection’s senior management, excluding Mr Marks, held a meeting with Gatemore yesterday, although it is not yet clear what the outcome was.
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