Activist Oasis may turn to a preferred playbook to help build value at Greencore

Business: Greencore Group is an Ireland-based manufacturer of convenience foods. Its segments include Convenience Foods UK and Ireland. Greencore supplies a range of chilled, frozen and ambient foods to retail and food service customers in the United Kingdom. The company supplies all of the supermarkets in the United Kingdom. It also supplies convenience and travel retail outlets, discounters, coffee shops, foodservice and other retailers. It has over 16 manufacturing and 18 distribution centers in the United Kingdom.

Stock Market Value: 531.2 million pounds (about 1.14 pounds per share)

Percentage Ownership:  n/a

Average Cost: n/a

Activist Commentary: Oasis Management is a global hedge fund management firm headquartered in Hong Kong with additional offices in Tokyo, Austin and the Cayman Islands. Oasis was founded in 2002 by Seth Fischer, who leads the firm as its chief investment officer. Oasis is an authentic international activist investor, doing activism primarily in Asia (and occasionally Europe). The firm has an impressive track record of prolific and successful international activism. Oasis has as many arrows in its quiver as any activist and has been successful in getting seats on boards, opposing strategic transactions, advocating for strategic actions, improving corporate governance, and holding management accountable.

On March 15, the Financial Times reported that Oasis Management has been building a stake in Greencore, approaching the UK’s 5% threshold, and that managing director Daniel Wosner has met with the board and management several times.

Greencore Group is a leading supplier of prepackaged and convenience foods in the UK and Ireland, serving customers including supermarkets, convenience stores, retail outlets, coffee shops and other retailers. The company reports segmental information in two categories: “food to go” and “other convenience.” In 2023, “food to go” accounted for 65% of the group’s revenue and “other convenience” generated the remaining 35%. A key inflection point in recent history for Greencore was the Covid-19 pandemic. Since then, the company has struggled to regain its footing and recover both its stock price and operating performance. The stock has fallen sharply since its pre-pandemic peak. In addition, the company’s adjusted operating profit of 76.3 million pounds and adjusted earnings before interest, taxes, depreciation and amortization of 132.8 million pounds have not caught up to its pre-pandemic levels of 105 million pounds and 142 million pounds, respectively. In addition, operating margins fell to 2% in 2020 and 2021, down from 6% to 7% in the years leading up to the pandemic. They have failed to recover completely, resting at 4% in 2023.

Compared to its peers, many of whom were similarly set back by the forces of the pandemic, inflation and a recessionary macro environment in the UK and Ireland, Greencore has particularly struggled to return to its former performance. First, Greencore has not reinstated its dividend since suspending it in 2020. Greencore’s peers currently offer dividend yields between 1% and 7%, averaging approximately a 3.5% yield. Some of them had also suspended payments following the outbreak of Covid-19, but resumed them shortly thereafter. In addition, Greencore’s operating and EBITDA margins are lower than those of its peers Premier Foods and Bakkavor, but it had better margins in both categories in 2019.

Oasis is known as an Asian activist, which is true – 90% of its activist campaigns have been in Asia. But the firm has selectively pursued activism in Europe two other times prior to this. Both times its returns have been incredible – averaging 108.75% versus 5.29% for the MSCI EAFE Index. Moreover, both of those investments were in similar businesses to Greencore: One was a direct peer, Premier Foods, and the other was The Restaurant Group. At The Restaurant Group, Oasis successfully agitated for the removal of the company’s chairman, as well as asset sales to accelerate medium-term strategic plans to increase adjusted EBITDA, and the company was eventually taken private by Apollo. The Premier Foods campaign was a three-act play. In 2017, after the firm accumulated an 8.3% stake, Premier invited Daniel Wosner, managing director of Oasis, to join the board of directors, but he submitted his resignation after just one year. In its second act, Oasis immediately began agitating for change, urging shareholders to vote against the re-election of then-CEO Gavin Darby, citing shareholder value destruction, poor financial performance, consistent missed targets, a lack of strategy and weak corporate governance. While Darby was re-elected in 2018, shortly thereafter he announced his resignation. In the firm’s third act, Wosner was invited back to join the board in February 2019, and the company announced that it would launch a strategic review.

Since Wosner’s reappointment, Premier and Greencore appear as a rising star and a falling comet, respectively. Premier Foods has generated a total return of nearly 300%, while Greencore is down 41.5% in that time. Premier has resumed its dividend, while Greencore has suspended it. Premier has EBITDA margins of approximately 20% versus mid- to high-single digits for Greencore.

It is hard to believe there is another investor more qualified to create shareholder value at Greencore than Oasis. The situation at Greencore appears amicable, and the company would probably be served well to offer Wosner an opportunity to join the board. Oasis could help put the company in a financial position where it can resume dividend payments or accelerate buybacks. In addition, at The Restaurant Group and Premier, Oasis pushed for the sale of non-core assets, which is consistent with streamlining operations and creating shareholder value. It’s not necessarily Oasis’ plan to push for the ouster of executives here, especially since Greencore’s CEO Dalton Philips was recently appointed in 2022 and CFO Catherine Gubbins was appointed to her role in 2023. But certainly, there need to be changes, and this should put management on notice. One Greencore director who Oasis knows well is Alastair Murray, the former CFO and once-interim CEO of Premier Foods. Indeed, Oasis had played a part in elevating Murray to replace former Premier CEO Gavin Darby in 2019.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.