Richemont board stands firm on rejection of activist shareholder proposals
The Richemont board has defended its decision to reject the proposals put forward by an activist shareholder, with chairman Johann Rupert saying the board ‘will not be blackmailed’.
In a letter to shareholders, Johann Rupert clearly sets out the logic behind the board’s choice to maintain the status quo at the multibillion-rand luxury goods empire that is Richemont. The information comes before the company’s annual general meeting in Geneva on Wednesday, 7 September.
While most of the matters up for resolution at the AGM are par for the course, such as the approval of the financial statements and the directors’ report for the year to end March, Bluebell Capital has been publicly agitating for changes at board level.
The biggest change Bluebell has proposed is the election of its representative, Francesco Trapani, to the board as a representative of the company’s “A” shareholders.
Rupert says that until this year, the Richemont board had not proposed to elect one specific director to represent the holders of its A shares, as it considers that directors must act in the interest of all shareholders and not only of one class of them. Swiss law, however, entitles Bluebell to request the appointment of such a representative. For this reason, A shareholders will this year be asked to formally designate one person to serve as a representative of all A shareholders on the board.
However, Rupert cautions that management does not believe Bluebell, with a relatively small stake in the company, has a legitimate position to represent all the A shareholders. In addition to that, as previously noted in Business Maverick, Trapani is not exactly an independent candidate.
He is the former chief executive of Bulgari, which was then bought by LVMH (Louis Vuitton Moet Hennessy). Trapani was on the LMVH board of directors until 2016, and also acted as adviser to the chairman of LVMH. He was later involved in a takeover of Tiffany’s in 2017, when he lobbied for an appointment to the board with activist partner Jana Capital.
Following his appointment to the board, Tiffany’s “merged” with LVMH and Trapani resigned from Tiffany’s board in November 2019, the day after Tiffany’s merger agreement with LVMH was executed. The modus operandi seems to be getting Trapani on the board and then executing what is effectively a takeover.
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“LVMH is one of our company’s key competitors. The board may not responsibly recommend to shareholders to let a person who has a long history of association with that group — as well as a personal relationship with that group’s main shareholder — become a director of our company and intervene in our company’s decision-making process,” Rupert says.
The Richemont board has put forward Wendy Luhabe to represent the A shareholders — she was voted into this role on 4 August. Luhabe currently serves as non-executive chair of Pepkor and Libstar. Although Luhabe maintains that the boards she serves on do not make unreasonable demands on her time, she has indicated that she is considering stepping down from one of the boards when her mandate comes to term.
Bluebell had also requested changes to the composition of the board, with the minimal number of board members to be increased from three to six and that each board member be either a representative of A or B shareholders, with an equal number of representatives for each type of shareholder.
However, Rupert says this will create a regime in which directors are not expected to act in the best interest of the company and its stakeholders as a whole, but only in the interest of either the A or the B shareholders.
“This narrow and limited definition of the role of a director is inconsistent with the board’s values of collegiality and conception of company stewardship, which has presided over Richemont’s value creation and success over the past decades.
“The company’s capital structure makes it possible for Richemont to plan for the medium and long term and to create value for shareholders, employees and their communities, while being protected from speculators’ short-term considerations and demands,” he concludes.
Rupert told a Swiss newspaper last week that although the Richemont board may be slower and more conservative compared with others, he would not be blackmailed into changing the regime.
Shareholders have seen total returns of 54% over the past five years and Richemont reported total sales of R88-billion for the quarter from March to June this year, on the back of increased tourism in Europe. BM/DM