Gildan Activewear Inc. CEO Glenn Chamandy arrives to speak to the media following their annual meeting in Montreal, on May 28.Christinne Muschi/The Canadian Press
Fund managers who put Glenn Chamandy back in the driver’s seat at Gildan Activewear Inc. GIL-T after a nasty boardroom battle are reaping the rewards for their support by selling portions of their stakes in the T-shirt maker.
Gildan’s stock price has soared by 40 per cent since shareholders voted in May to reinstate Mr. Chamandy as chief executive officer and install a new board. Last December, the company’s previous board dismissed the then 61-year-old co-founder over succession issues, kicking off a six-month public battle for leadership of one of the world’s largest clothing manufacturers.
During the governance showdown, normally low-profile fund managers such as Jarislowsky Fraser Ltd., Turtle Creek Asset Management Inc. and Anson Funds waged public campaigns supporting Mr. Chamandy. Their faith proved justified.
Since Mr. Chamandy’s return, Gildan has boosted international sales and ramped up share buybacks, while rivals such as Fruit of the Loom Ltd. stumbled. Within months, Gildan’s stock price soared through analysts’ long-term targets. In November, Gildan’s share price hit all-time highs of $70 on the Toronto Stock Exchange, valuing the Montreal-based company at $10.8-billion.
Mr. Chamandy’s staunchest supporters took profits during the rally. Over the summer, Jarislowsky Fraser, Gildan’s largest shareholder, sold 703,000 shares worth roughly $40-million, according to U.S. regulatory filings made Sept. 30. Jarislowsky Fraser, an arm of Bank of Nova Scotia, continues to own 10.3 million shares or 6.7 per cent of Gildan, a stake worth over $700-million.
“Our view on Gildan is unchanged,” said Charles Nadim, head of research and portfolio manager at Jarislowsky Fraser, in an e-mail. “Any reduction in shares reflects portfolio considerations given the size of the position after such strong performance.”
In recent months, Turtle Creek sold 1.2 million Gildan shares worth roughly $70-million, according to filings. The asset manager continues to hold 3.1 million shares worth more than $200-million. In an interview, co-founder and CEO Andrew Brenton said Turtle Creek has owned Gildan for more than 10 years and continues to support Mr. Chamandy’s strategy but decided to sell a portion of its holding as part of the fund manager’s “continuous portfolio optimization strategy.”
“We remain committed to Glenn and his strategy, and we expect to continue to be Gildan shareholders for the long term,” Mr. Brenton said. Turtle Creek oversees $4.2-billion in client assets.
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Anson, a Toronto-based fund manager, built a 2 million share stake worth more than $100-million in Gildan during the proxy fight and publicly backed Mr. Chamandy. In its September letter to investors, Anson co- founder and chief investment officer Moez Kassam said while Gildan’s prospects are bright, the fund manager sold most of its stake after its value rose by 50 per cent. He said: “We believe Gildan will continue to take share from peers.”
Two other significant shareholders, Fidelity parent FMR LLC and Coliseum Capital Management LLC, also sold more than a million Gildan shares this fall. Over all, 11 of Gildan’s 25 largest shareholders have trimmed their positions since Mr. Chamandy’s return, while 13 institutional investors added to their stakes, according to filings.
Gildan’s third-largest shareholder, Browning West LP, kept its stake constant at 9.6 million shares or 6.2 per cent of the company. The Los Angeles-based fund manager led the campaign to bring back Mr. Chamandy.
“We believe Gildan has a strong value creation path ahead of it and look forward to being an engaged and supportive shareholder for many years,” Usman Nabi, Browning West’s managing partner and chief investment officer, said in an e-mail.
Gildan’s stock price is soaring as the company moves on from what proved to be an expensive boardroom fight. So far this year, the company has spent $82.3-million on lawyers and advisers in the proxy battle, according to the company’s financial reports. The total includes $9.4-million Gildan paid to Browning West to cover the asset manager’s expenses.
Gildan is still contesting outstanding bills. In August, advisory firm Kingsdale Partners LP sued Gildan for $2.3-million in alleged unpaid fees in the Ontario Superior Court of Justice.
Since Mr. Chamandy’s return to the top job, Gildan has introduced new products and expanded its reach. In a recent report, analyst Mark Petrie at CIBC Capital Markets said sales and profit margins rose after Gildan rolled out “soft cotton technology” to improve the feel and “printability” of its T-shirts.
“Gildan is taking market share and we believe product innovation and favourable competitive dynamics are important tailwinds,” Mr. Petrie said.
Prior to the boardroom fight, Gildan built new factories in Bangladesh to cut costs and better serve international markets. While revenue growth in North America is relatively modest – projected to be 5 per cent or less annually – Gildan’s international sales jumped 20 per cent to $64-million in the most recent quarter compared to the same period a year ago.
Over all, Gildan’s sales rose 2.4 per cent to a record $891-million in the quarter, while adjusted earnings rose 6.5 per cent to $138-million.
Mr. Chamandy returned to Gildan promising to ramp up repurchase of the company’s shares, potentially by increasing the company’s relatively low debt levels and has delivered. Since May, Gildan has bought back 14.3 million of its own shares. The company’s current repurchase plan, set in August, allows Gildan to buy back up to 16 million shares or 10 per cent of its float by August, 2025. Mr. Petrie forecast the company will reach that limit early in the new year.
Last Wednesday, Gildan raised $700-million in credit markets by selling notes maturing in five and seven years. The money is earmarked for “general corporate purposes,” which can include paying for share buybacks.
With a report from Robyn Doolittle