Investment firm JANA is taking the manufacturer to court for alleged financial breaches.
Investment firm JANA Partners (JP), which owns 9.3% of Freshpet, has expressed dissatisfaction with the pet food company’s performance, particularly regarding a dip in stock price and the company’s board of directors.
The firm has filed a complaint at the Court of Chancery of the State of Delaware against the actions that the New Jersey-based company took on 17 May, including changing the size and composition of its board from 4 to 3 directors.
The complaint requires a judgment on Freshpet’s “board’s recent actions to entrench itself,” which means that certain amendments made by Freshpet would become increasingly difficult or impossible to pass.
The manufacturer announced earlier this week that it postponed the 2023 Annual Meeting from July to October. “The Board believes this is the most practical path forward in light of JANA’s recent actions and in order to eliminate the disruption caused by the JANA litigation,” it says.
Fulfilling basic duties
The battle between JANA Partners and Freshpet has been ongoing for a while.
On 24 March, JP wrote a legal letter explaining the main issues they claim are affecting Freshpet’s performance. In this letter, JP claims that Freshpet is not fulfilling its basic duties to its shareholders.
To remedy the situation, JP proposed a slate of nominees to Freshpet’s board to be voted on at the company’s next annual general meeting (AGM).
Among the nominees were ex-CFO of Kraft Foods Timothy McLevish and Kurt Schmidt, the previous CEO of American pet food company Blue Buffalo. The two other nominees were the former CEO of marketing company Rodan & Fields, Scott Ostfeld, and Diane Dietz, who is the Director of multinational food processing company TreeHouse Foods.
Drop in shares
JP accused Freshpet of attempting “to frustrate shareholders’ ability to participate in a fair and democratic election of directors,” especially after the “significant short interest” in the company’s stock.
Some of JANA’s claims reflect their dissatisfaction with Freshpet’s stock price decline of 74%, which they stressed happened “prior” to JANA’s involvement in the company (before September 2022). The data reveals that Freshpet’s shares witnessed a drop of around $60 million (€56M) last year.
JANA’s Managing Partner Barry Rosenstein showed concerns that “shareholders may not be aware that their stock has been loaned by their prime broker(s).”
Unfounded claims?
Freshpet has fought back in a legal letter to their investors, writing that JP’s claims are “unfounded and erroneous.”
It says the company “has engaged with JANA extensively to understand their perspectives and address their concerns.” “Despite the difference of perspectives, the Board has attempted to reach a constructive resolution with JANA, but its offers were rejected,” it states.
Freshpet added that recent results and guidance demonstrate “strong operational momentum and growth” for the pet firm.
Freshpet also reiterated that their net sales increased in the first quarter of 2023, reaching $167.5 million (€156.8M), a 26.7% improvement.
Avoiding a proxy battle
A proxy battle could be the next step if the dispute is not resolved.
By definition, a proxy battle involves shareholders trying to convince other company shareholders to cast a vote to change the corporate governance of the business, in this case, Freshpet.
The Wall Street Journal reported on the rumors of a proxy battle, saying, “There is no guarantee JANA will go the distance on a proxy fight; activists and companies often settle their disputes before they go to a vote.”
“We remain hopeful of avoiding a distracting proxy fight as the management team continues to focus on driving growth and margin expansion as demonstrated in the recent quarterly performance,” Freshpet says.
The latest articles
Data reveals shifting trends in UK pet products and brands
GlobalPETS analyses a market report on the popularity of pet products and brands in the British pet industry.
Analysis: a new life for food waste in pet food?
Experimental projects in India, Australia and Germany are turning food scraps, meat waste and fungi into pet food.
Hong Kong government celebrates e-commerce shopping festival
Pet care retailers participated in the event to enhance their penetration into Mainland China, the world’s largest e-commerce market.
Weekly newsletter to stay up-to-date
Discover what’s happening in the pet industry. Get the must-read stories and insights in your inbox.