(Alliance News) - Western Gate Private Investments Ltd on Monday responded to Stock Spirits Group PLC's recommendation not to approve a special dividend at its upcoming annual general meeting.
Western Gate, which holds a 10% stake in the central and eastern Europe-focused spirits business, requisitioned the resolution. Known as resolution 20, it calls for a EUR0.1219 per share special dividend to be paid March 20.
This would be substantially higher than the EUR0.0631 per share final dividend recommended by the Stock Spirits board.
Stock Spirits, also on Monday, noted that under its own articles of association, no dividend declared by shareholders via an ordinary resolution can exceed the amount recommended by its board. Given that Stock Spirits does not recommend the special dividend, an AGM vote in favour of resolution 20 would not compel Stock Spirits to pay.
According to Stock Spirits, a special dividend would limit the firm's ability to grow through mergers and acquisitions and organically.
"We do not believe that this is the right time, both from an M&A perspective and an organic business perspective. On the latter point, the expected excise duty increases in Poland and Czech from the start of 2020 require us to maintain our financial strength to ensure we can respond to market developments, which we expect will only become fully apparent by May 2020. Payment of a special dividend would place the company at a disadvantage at a particularly sensitive time," said Stock Spirits.
Western Gate, however, contended that Stock Spirits has "one of the lowest cash returns to shareholders amongst its peers, whilst trading on the lowest [price to earnings] multiple", an issue it has raised before.
The shareholder also noted Stock Spirits' declaration that it won't pay the special dividend even if shareholders approve it, believing it "shows a total disregard for shareholder rights and is a further red flag to shareholders that the company is run for the board and management rather than for the shareholders themselves".
According to Western Gate, "there is no economic behind the decision to recommend voting against the resolution" given that Stock Spirits would still have a net debt to earnings before interest, tax, depreciation, and amortisation ratio 20% below the upper level defined by the Stock Spirits board and 33% below the sector average."
Western Gate also expressed its dissatisfaction with an increase in director compensation, which is said doubled in the recent year, while the share price has dropped 15% over the past five years.
Shares in Stock Spirits were down 1.0% at 209.00 pence in London on Monday morning.
By Anna Farley; annafarley@alliancenews.com
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