Gildan Activewear Inc. said in a release Sunday evening that Los Angeles-based Browning West violated U.S. antitrust law when it rapidly accumulated Gildan shares last month.Christinne Muschi/The Canadian Press
Gildan Activewear Inc. GIL-T says the U.S. hedge fund that’s leading an activist shareholder campaign to replace its board of directors amassed a stake in the Canadian T-shirt maker illegally, undermining the legitimacy of its right to request a special meeting.
The hedge fund counters that the claim is part of a series of “desperate and egregious” stunts by the Gildan board to entrench itself.
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Gildan said in a release Sunday evening that Los Angeles-based Browning West, which is aiming to replace a majority of Gildan’s board and bring back former chief executive officer Glenn Chamandy, violated U.S. antitrust law when it rapidly accumulated Gildan shares last month.
“Browning West’s illegal share acquisitions add to the many serious questions raised about the purpose, planning and prudence of Browning West’s campaign,” Gildan said in the release. “What is clear is that Browning West and Mr. Chamandy desire to seize control of Gildan as rapidly as possible, and it appears they will step over the law to do so.”
Browning West denies it acted inappropriately.
In a letter to Gildan shareholders, Browning West’s founders said it’s obvious the hedge fund poses no substantive antitrust concerns to any regulatory authority. They said Gildan’s claim amounts to a “desperate and self-serving attempt” to avoid holding a special meeting as Browning West asked.
“Rest assured that Browning West is in no way deterred or intimidated,” the founders said.
The developments add another layer of intrigue to what is already an intense conflict over the future of Gildan, owner of the American Apparel brand.
The Montreal clothing maker stunned investors when it announced Dec. 11 that it had dismissed Mr. Chamandy after a 40-year tenure at the company, the past 20 years as CEO. It named former Fruit of the Loom executive Vince Tyra as his replacement. The sacking has triggered a power struggle between the board and several investors, who say the CEO’s exit was unwarranted and Mr. Tyra is not qualified to take his place.
Browning West filed a formal request with Gildan on Jan. 9 to hold a special shareholders meeting without delay and vote in eight new directors, a majority of the company’s current 11-member board. The proposed slate is supported by five shareholders, including Montreal-based investment management firm Jarislowsky Fraser and New York-based Oakcliff Capital.
Gildan is now challenging the legitimacy of Browning West’s meeting request. Under Canadian law, shareholders can requisition a special meeting of shareholders only if they hold more than 5 per cent of a company’s shares.
Gildan says Browning West, already a top-10 shareholder, informed the company this past Friday that it bought another 1.2-per-cent stake in Gildan in the weeks after Mr. Chamandy’s removal, enough to take it above the 5-per-cent threshold. But the hedge fund bought the additional stake without making a regulatory filing and without complying with a mandatory 30-day wait period under the U.S. Hart-Scott-Rodino Act, Gildan says.
Browning West’s stance is that it is not obligated to file under the HSR Act as the fund’s parent entity is not incorporated in the United States and Gildan is not based in the United States. The hedge fund’s share purchases were made by BW Cayman based in the Cayman Islands, according to information obtained by The Globe & Mail.
Gildan’s stance is that Browning West violated the HSR act and that Gildan caught the violations. The T-shirt maker says without the shares acquired in alleged violation of the act, Browning West would have no legal rights to request a meeting.
Gildan’s board intends to “explore all avenues” in response to the alleged violation, including the possibility of legal proceedings in Canada and the United States, the company says. It says questions remain about the contact between Browning West and Mr. Chamandy before and after his removal as CEO, as well as contacts between Browning West and other investors, which might violate securities laws.
In their own statement Sunday, Browning West denounced what it said was Gildan’s mounting effort to deploy its corporate resources and money on “self-serving legal tactics” designed to insulate Gildan directors from accountability. The fund said Gildan’s board has hired at least three law firms, two investment banks, a public relations firm, a proxy solicitor and a private investor.
“This absurd level of expenditure is being borne by shareholders and deployed against our own interests for the simple reason that the board presumably knows that if a vote was held today, all eight of our director candidates would be elected,” Browning West said.
The hedge fund said Gildan has been trying to “silence vocal shareholders by sending them threatening and meritless legal letters.” And they said Gildan also hired the same law firm that Browning West has used since its inception, a “deplorable tactic that poses serious legal and ethical issues.”
Shares in Gildan have dropped 13 per cent since the announcement of Mr. Chamandy’s departure. The company has a market capitalization of about $7.4-billion.