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The incredible shrinking ice cream company Add to ...

The one-storey brick building in an industrial park just north of Toronto sure doesn't look like the head office of what was, as recently as three years ago, North America's third-largest ice cream company, with revenues of $450 million (U.S.). On a crisp February morning, just five cars are parked amid dozens of empty spots in the lot in front of the main entrance. On the other side of the building, the employee lot is completely vacant. The main doors are locked; a handwritten sign requests that visitors press an intercom button. When you do, a recorded announcement asks you to leave a message.

Welcome to CoolBrands International Inc.-or what's left of it. The company has packed an astonishing series of ups and downs into the two decades since brothers Michael and Aaron Serruya, then aged 20 and 18, opened their first Yogen Früz frozen yogurt stand at the Promenade Mall north of Toronto. At the peaks, in 1998 (when the company's share price on the Toronto Stock Exchange soared over $14) and in early 2004 (when the price hit $27), it was an inspiring Canadian entrepreneurial success story. This family-controlled business acquired the rights to such marquee American ice cream brands as Eskimo Pie, Chipwich, Godiva and Weight Watchers, and then competed head-to-head with two Goliaths called Unilever NV and Nestlé SA.

At the low points, in 2000 and late last year, CoolBrands' share price sank below $1. Both times, the slide was accelerated by often-fierce criticism on Bay Street of CoolBrands' governance, particularly the multiple voting shares that allowed the Serruyas and other executives to maintain control, despite their modest ownership stake. And in both cases, family intervened in an attempt to arrest the slide.

It seems there won't be another recovery. Now, all the marquee brands are gone-the last of them sold off by chairman and CEO Michael Serruya in late 2006 and early 2007 as bankruptcy loomed.

How did the CoolBrands empire melt so quickly? Serruya declined to be interviewed. But conversations with company insiders, as well as with analysts and money managers who have followed CoolBrands over the years, suggest some classic lessons: The U.S. market is not a pushover. Don't count on buying your way to greatness. Turning over your family-built firm to professional managers is like crossing the Rubicon. Consumers are fickle. Investors are too, especially when you're getting rich and they're not.

And, oh yeah: When everything goes wrong, blame the dead guy.

The Serruyas arrived in Canada from Morocco in 1966, escaping growing anti-Semitism. Michael and Aaron's father, Sam, launched a successful typesetting business in Toronto. As teenagers, the brothers, already budding entrepreneurs, shared a paper route and sold T-shirts. After Aaron saw how popular frozen yogurt stands were on a visit to Florida, the siblings decided to launch one of their own in 1986. They made up the name Yogen Früz, which, like Häagen-Dazs, sounds classy and European, but means nothing. Financing was provided by Sam Serruya.

After the first stand in the Promenade Mall was a hit, the brothers decided to franchise the concept. They avoided the U.S., which was well supplied with both yogurt stands and franchise opportunities, and concentrated instead on South America and Asia. In 1989, their younger brother, Simon, then just 18, joined the business in a junior role (he eventually dropped out of the company). By the end of 1995, the Serruyas had almost 1,000 stores. That expansion required hardly any debt, because the franchisees bore all the start-up costs, including the equipment and supplies they had to buy from the company. However, Yogen Früz's profit potential was limited-Canadian franchisees paid royalty rates of 6% on revenue, foreign ones just 2%.

Emboldened by success, the Serruyas figured they could keep expanding rapidly, even into the U.S., if they went public. In 1995, Yogen Früz debuted on the Toronto Stock Exchange at 50 cents a share. The brothers used the proceeds of that issue-$30 million-and a private placement afterward, to acquire more franchise businesses. In June, they picked up Bresler's Industries Inc., a frozen-treats franchiser, for $8 million. Buying the I Can't Believe It's Yogurt! and Java Coast Fine Coffees chains for $14 million (U.S.) doubled the size of the company in the U.S. in 1996. The deal added 1,344 outlets in the U.S. and Europe, as well as a 35,000-square-foot ice cream and yogurt packing plant in Dallas. But the substantial fixed costs of that plant, and of several others acquired over the next few years, boxed in the Serruyas. It was now a game of scale: To keep making money, the company had to push as much product as possible through the plants, whether its own brands, or those they'd bought licences for.

Michael and Aaron had settled into different roles. Michael was chairman, CEO and strategist. Aaron was the No. 2, concentrating on franchising. The risks the company had taken on notwithstanding, the smiling and enthusiastic Serruyas and the Yogen Früz story were hard for Bay Street to resist. In the summer of 1997, Yogen Früz's share price soared above $6. An even bigger leap lay just ahead.

"It catapults our company into an entirely new playing field," said Michael Serruya in October, 1997. He was announcing Yogen Früz's merger with Integrated Brands Inc., a Long Island-based company that marketed frozen treats such as Tropicana juice bars and Betty Crocker desserts under licence. The stock-swap deal essentially doubled Yogen Früz's annual revenues, to $90 million. More important, Integrated's customers were mostly big stateside retailers like supermarkets. These customers offered the prospect of much higher revenues than franchisees did. But again, the game was getting riskier: Going into grocery stores meant battling giants such as Nestlé and Unilever for limited shelf space.

Michael Serruya and Integrated Brands' CEO, Richard Smith, agreed to share the chairman and CEO jobs. Smith, then in his mid-50s, looked like an ideal complement to the youthful Serruyas. "He was a crusty, tough, New York-style businessman-larger than life," recalls a CoolBrands insider. Smith's grandfather had sold milk from the back of a horse cart, and Smith seemed to have the ice cream business in his blood. He worked 18 to 20 hours a day. Bottles of Pepto-Bismol were a fixture on his desk.

The Serruyas and Smith played hardball with shareholders to entrench 10-for-1 multiple voting shares, which allowed them to maintain control of the company while owning less than 15% of its equity. Out of a total of 7.5 million multiple voting shares, the Serruya family received 4.7 million. Another 1.8 million were divided among Smith, his son David, and David Stein, an Integrated Brands vice-president who was a mild-mannered alter ego to Smith senior. The junior class of shares, numbering 35 million, had just one vote apiece. The upshot was that the handful of insiders had far more votes than all the other shareholders put together. Shareholder rights activists such as Toronto's Fairvest Inc. cried foul. Michael Serruya threatened to scuttle the deal if shareholders didn't accept it-and offered them a 5% premium if they did. "If you liked the merger, you had to swallow the garbage with it," Fairvest president Bill Mackenzie said later.

The deal went through in March, 1998, and Yogen Früz's share price shot up from about $10 that month to a peak of $14.30 in May. But more flare-ups with Bay Street soon followed, and a long, punishing slide in the share price commenced. That September, a Dow Jones report questioned the company's accounting, driving the share price down 16% in one day. The report said the company had fudged its cash position by putting off paying $4.5 million of the cost of an acquisition, Golden Swirl Frozen Yogurt, until the day after the end of its 1997 fiscal year. Yogen Früz responded by saying it had complied with accounting rules.

The company's bid to buy its way into the freezers of America would continue to unfold choppily-though not for lack of targets in the fast-consolidating sector. None other than Eskimo Pie Corp., which had invented the chocolate-coated ice cream bar in 1921, was particularly inviting. The Virginia-based company was ailing, which spelled cheap. In November, 1998, Yogen Früz launched a $36-million (U.S.) takeover bid-$10.25 (U.S.) a share. Eskimo Pie's directors balked, and even refused a $13 (U.S.) bid in December. The battle dragged on, with the directors hoping to keep their company, or at least attract a higher bid. But nothing satisfactory emerged, and in May, 2000, the 18-month contest ended when they agreed to sell for the original price of $10.25 (U.S.).

Along with a high-profile retail brand-one that it owned outright, rather than under licence-the Eskimo Pie acquisition gave the Serruyas yet another risk to contend with. "The business had always been debt-free up until that point," says a source within the company. After the merger with Integrated Brands, "the psychology changed a bit. In order to take the company to the next level, we needed to take on some debt"-$30 million (U.S.) borrowed from Chase Manhattan Bank.

While Yogen Früz was battling for Eskimo Pie, however, profits in its consumer and franchising businesses were being squeezed. In the fiscal year ended Aug. 31, 1999, revenues climbed by about a quarter to $112 million, but profit plunged to $3.1 million from $12.9 million. Michael Serruya attributed much of the decline to rising butterfat prices and the company's aggressive discounting. But two quarters later came an outright disaster-a $24.5-million writedown, much of it due to store closures and other problems with some of the franchise chains. The company also posted a $25.8-million loss.

Those results weren't announced until May. Even so, Yogen Früz's annual meeting in February was heated. The share price had sunk to not much more than $1. One shareholder, who claimed to have lost six figures, ripped into Michael Serruya. "I have to tell you, Michael, in this year you have failed. You are no longer the media darling and you [seem]to have lost the confidence of the institutions and mutual fund investors." Serruya ate crow: "We have failed over the past year." To set things right, he announced that he was quitting as co-CEO, but would remain co-chairman. David Stein became Richard Smith's co-CEO, and Aaron Serruya remained as executive vice-president. (Shareholders also approved changing the company name to CoolBrands.)

Smith and Stein, still based in Long Island, now had control of CoolBrands' day-to-day operations as well as most of the overall strategy. The share price continued to sag, to a low of 77 cents in December, 2000. The value of the Serruyas' holding was dissolving just like that of other shareholders. Someone had to step in to halt the decline, and that someone was a family member-Toronto mining billionaire Seymour Schulich, whose daughter had married Simon Serruya, and who'd become a mentor to the brothers. In 2001, with CoolBrands' share price stuck near $1, Schulich bought 7% of the common shares. He rejected suggestions of a bailout, however: "I don't put $3 million on the table to do anything but make money."

He didn't, at first. The share price continued to drift around a buck or two for most of the year. It would only revive after Smith and Stein made some clever deals and product innovations-and after they enjoyed a great deal of luck.

Americans are among the fattest people on Earth, and they're always looking for a new miracle weight-loss solution to that problem. It was fortunate for CoolBrands, then, that the Eskimo Pie acquisition included the rights to the Weight Watchers Smart Ones line of ice cream snacks. It was just five products-or stock keeping units (SKUs), as they are called in the supermarket business-with revenues of merely $18 million (U.S.) a year. But with millions of people enrolled in the Weight Watchers program and buying its food products, there was enormous untapped potential.

And that was before the wave hit: In 2002 and 2003, many more millions of North Americans got caught up in the low-carb Atkins diet craze. CoolBrands was in a sweet spot, in more ways than one. Through the deft use of artificial sweeteners and flavours, the company developed low-cal, low-fat, yet decadent-tasting treats. Slender Pie, a diet version of the Eskimo Pie, was soon outselling the original, even though a six-pack was priced at $4.99 (U.S.), versus $2.99 for the original. By 2003, Smith and Stein had expanded the Smart Ones line to 18 SKUs, which generated $95 million (U.S.) in yearly revenue.

Another hot new product line was almost a fluke. In the summer of 2003, a sharp-eyed CoolBrands sales rep, walking through a Safeway store in California, spotted some two-ounce cups of low-carb ice cream being sold under the Endulge label, owned by Atkins Nutritionals Inc. Stein quickly phoned the company and negotiated a licensing deal for CoolBrands to produce and distribute nine SKUs. Within months, the Atkins line was selling at an annual rate of $60 million (U.S.), according to a company source.

Industry consolidation was also creating a lucrative opening for CoolBrands. Both Nestlé and Unilever were gobbling up rivals: In 2000, even proudly independent hippie entrepreneurs Ben & Jerry's sold out to the Man, in the form of Unilever. And in early 2002, Nestlé, which already owned Häagen-Dazs, announced an agreement to buy Dreyer's Grand Ice Cream Inc. for $2.4 billion (U.S.). But U.S. anti-trust regulators objected, prompting the engorged company to sell off some brands.

Mr. Smith went to Washington, so to speak, and, in 2003, made a deal to buy Nestlé's Dreamery ice cream and Whole Fruit sorbet brands, as well as a licence for Godiva ice cream-a small but highly profitable so-called superpremium brand-all for $13.5 million.

The same year, CoolBrands bought a 50.1% stake in Americana Foods LP, which supplied ice cream and frozen yogurt to Wal-Mart and other chains. That acquisition gave CoolBrands another large plant in Dallas, operating at about 40% of capacity.

Together, the two deals catapulted CoolBrands into the No. 3 spot in the North American ice cream market, adding about $250 million (U.S.) in annual revenues to its existing $200 million (U.S). The company still had around 4,000 franchise outlets in dozens of countries, but they now generated only about 10% of total revenues. Even at No. 3, however, CoolBrands was earning only a fraction of the ice cream revenue of Nestlé or Unilever in North America. And that fact didn't capture the disparity in market muscle. When retailers deal with Nestlé, they're supplied not just with ice cream, but with baby formula, candy (Smarties), prepared foods (Stouffer's), pet food (Purina), beverages (Nescafé), bottled water (Perrier), dairy (Carnation) and more besides. Unilever's reach goes beyond the food aisles (Hellmann's, Knorr, Lipton, Slim-Fast, Becel) to personal products (Vaseline, Close Up, Lux, Dove) and household goods (Vim, Sunlight, Snuggle). The two companies' global sales in 2004 were roughly $70 billion (U.S.) and $50 billion (U.S.), respectively.

Despite the long odds of CoolBrands' withstanding the clout of companies that were more than 100 times larger, investors were ecstatic at the company's acquisitions. In just over a month during the summer, CoolBrands' share price soared by more than $5, to $16.50, triple the share price at the beginning of the year.

That fall, however, the cheers on Bay Street faded. Regulatory filings disclosed that Michael and Aaron Serruya, Richard and David Smith, and Stein had cashed in 3.6 million stock options and sold the shares at $15.85 apiece, netting them a total profit of $43.6 million. The group had already taken heat a year earlier when they proposed to triple the pool of options that could be awarded to executives to 9.5 million. They scaled that back to 5.2 million after other large shareholders, such as Sprott Asset Management, objected publicly.

For many critics on the Street, the big payday turned CoolBrands' governance into the company's signal characteristic. The Serruyas, the Smiths and Stein had cashed in one-vote shares, but retained the bulk of the 10-for-1 voting shares that gave them a lock on the board of directors. The board had just six members-none other than the Serruyas, the Smiths and Stein, plus the sole independent director, Toronto developer Romeo DeGasperis.

It was also hard to separate hype from hard facts. Although Michael Serruya and Stein often talked to reporters, CoolBrands didn't hold regular conference calls with Bay Street analysts. "Management, no question, got a little carried away with respect to the promise of their company, and undoubtedly got a little too promotional," recalls Toronto money manager Andrew McCreath, who ran mutual funds that had holdings in CoolBrands.

That September, The Globe and Mail's annual corporate governance rankings judged 207 Canadian public companies in categories such as board independence, executive pay practices and disclosure. CoolBrands finished dead last. In response, Michael Serruya promised to hold calls for analysts.

The controversy died down in early 2004, however, when CoolBrands announced some very impressive profit numbers. In January, the company said that its first-quarter net earnings had almost tripled from the previous year to $7.6 million. Some analysts did quibble about puzzling aspects of the financial statements, such as why profit in the previous fiscal year had been less than the cash the company had thrown off. But most investors paid little attention, and the share price hit a high of $27 on March 1, 2004.

July 28, 2004, 3:23 p.m.: "CoolBrands International Inc. announced today that, as a result of the inability of Weight Watchers International and CoolBrands to conclude an extension of their existing licence agreement on mutually agreeable terms, the licence agreement will end on September 28, 2004. CoolBrands has the right to continue to market Smart Ones frozen desserts using the Weight Watchers name on its packaging for approximately the next one year and two months until September 28, 2005."

There wasn't much more to the press release than those two sentences, but the market grasped their importance within minutes-the cornerstone of CoolBrands' expansion had been yanked away. In the final half-hour of trading on the Toronto Stock Exchange that day, more than a million shares changed hands as the price plunged to $10.30 from $16.90 before closing at $12.35. After the market closed, regulators took the unusual step of cancelling every trade during the closing half-hour, noting that the company should have requested a trading halt itself.

Just a week earlier, Michael Serruya and Stein had held a conference call with analysts to discuss CoolBrands' third-quarter results. The day after the stock slump, Stein was back on the phone with analysts, saying that the company still had plenty of other brands and lots of time to pursue new ones. "We have options and we have time to develop them," he said. Investors weren't buying it, and the shares closed at $12 that day. A couple of weeks later, they sank below $10.

Yet Smith and Stein didn't seem distressed. "They felt the company would continue to go forward," said a source within the company. "Yeah, we could change, bring on some new licences and so on, and focus on different brands." Another source close to CoolBrands says that Smith was more than blasé, he was cocky: The Weight Watchers relationship had come undone because he'd pushed hard for higher royalties. "Basically, he overplayed his hand," says the source. "He didn't think they had anywhere to go for the manufacturing capacity, and they did." For the sake of a small hike in the royalty rate, Smith "destroyed the stock." In retrospect, "it was about as dumb as a sack of hammers."

As CoolBrands' share price continued to drift below $10 in the fall of 2004, analysts and investor activists resumed firing at the company's governance. CoolBrands finished last in the Globe's governance rankings for the second year in a row. In a scathing report entitled "We're Outta Here," Dundee Securities announced that it was dropping its analyst coverage of CoolBrands. One of its complaints concerned lucrative side deals that insiders had with the company. Smith's Calip Dairies, for instance, had a management contract with CoolBrands that was worth $1.3 million (U.S.) annually as of 2003.

Worried about the barrage of criticism in general, and, specifically, how the company's increasingly American shareholder base would feel about a board so dominated by insiders, in the fall of 2004 CoolBrands nominated five new directors. The expanded board of 11 would have six independent members. "We're going to listen and respond to the input from our independent directors," promised Stein.

He and Smith also scrambled to replace Weight Watchers. In December, they bought licences to create four frozen dessert brands-Care Bears, Justice League, No Pudge! and Snapple. A few weeks later, CoolBrands said it would spend $59 million (U.S.) to buy Kraft Food Inc.'s yogurt lines, including Breyers Fruit on the Bottom, Breyers Light and Breyers Creme Savers. The brands had generated about $90 million (U.S.) a year in revenue for Kraft-roughly what Weight Watchers had been worth to CoolBrands at its peak.

Weary shareholders could be forgiven for thinking that perhaps now, finally, there would not be another shoe to drop in the CoolBrands story. But then came the biggest footwear fall of all: Smith died in January, 2005, at age 62, from complications due to an undisclosed surgical procedure. At CoolBrands' annual meeting the following month, the board was reduced to nine members. The company dropped two independents, but hired another one to replace Smith, meaning there was still a majority of independents. Stein carried on as solitary CEO.

Things had been up and down. But after Smith's death, they were only down: Just about every external development hurt CoolBrands, and the reversals made its fundamental weaknesses nakedly apparent. First, nothing took up the slack after the loss of Weight Watchers. The Atkins diet craze fizzled almost as quickly as it had caught fire. Stein boasted that the No Pudge! line would sell more its first year than the Weight Watchers Smart Ones. It didn't. And lower sales of just about everything else meant less product flowing through the company's plants, which squeezed profits. "They just couldn't come up with a couple more dynamite brands to feed the system," says Bob Gibson, an analyst with Toronto-based Octagon Capital Corp.

CoolBrands was now reporting in U.S. dollars, and for the fiscal year ended Aug. 31, 2005, revenues declined sharply to $385 million (U.S.) from the peak of $450 million (U.S.) in fiscal 2004. The company lost $74 million (U.S.), compared with a profit of $23.5 million (U.S.) the year before. The share price slid to around $3.

And it was becoming clear that Stein wasn't the leader that Smith was. A company insider says that Smith had the ability to "look at the landscape, locate the players and set out the road map from A to B." Stein, by contrast, was good at following a road map, but "he's not a vision guy."

That industry landscape was shifting dramatically in 2005 and early 2006. Size and brand strength were becoming more critical, and the gap between No. 3-ranked CoolBrands and leaders Nestlé and Unilever was widening. Both multinationals had several so-called pull brands that supermarkets wanted on their shelves, such as Häagen-Dazs and Drumstick for Nestlé, and Ben & Jerry's and Klondike for Unilever. To get them, stores were willing to take new or less popular brands as well.

CoolBrands, however, had lost its pull-Weight Watchers-and that made it tougher to win shelf space for any of its brands. Competition was heating up in the grocery business, too-most chains had begun to rely more on so-called slotting fees to boost their revenues. Getting a new SKU on an American chain's shelves these days can cost $750,000 (U.S.) for the first year, after which the chain may drop the product if it doesn't sell. A company insider says CoolBrands spent more than $20 million (U.S.) over two years on slotting fees.

Nestlé and Unilever created even more grief for the company. After years of being what one source close to CoolBrands calls "good little oligopolists"-that is, being content to co-exist-the two multinationals started taking the gloves off in price wars. That forced CoolBrands to cut prices as well.

The Serruyas now had little to do with running the business. Over the years, they had invested in many other ventures, including the Fairweather women's clothing chain and the short-lived Toronto Phantoms indoor football team. In the fall of 2005, Stein and the board decided to spin off the franchise operations on which the company had been founded. Aaron Serruya bought them in December for $8 million (U.S.) through a company he controlled, International Franchise Corp. He stepped down as CoolBrands' executive vice-president, but remained as a director. The company also said it would eliminate the multiple voting shares in May, 2007.

Michael Serruya was still co-chairman, but Stein was now running what was essentially a wholly American company. (In early 2006, CoolBrands had about 2,500 employees in the U.S., but only two in Canada.) And Serruya was apparently getting frustrated. To appease the critics on the Street, he'd given them the independent directors they wanted. But only one of those directors, Joshua Sosland, owned CoolBrands stock-just 4,030 shares. "Are their interests aligned with the rest of the shareholders?" asks one company insider, thinking back to that period. "When the stock goes down, do they feel the same pain as the shareholders?" The answer was no. And there was plenty of pain on the way.

Another July, another CoolBrands share slide. On July 21, 2006, a few days after it reported a third-quarter loss of $11.8 million (U.S.), the company announced that an unnamed subsidiary had violated a covenant in a loan agreement with JPMorgan Chase Bank. The covenant gave the bank the right to call the loan if the subsidiary's operating earnings dipped below a certain level. CoolBrands shares plunged by 60 cents, to close at just 88 cents.

A few days later, the company disclosed more details, and the big picture became clearer: The decision years earlier to borrow for U.S. expansion had come back to haunt CoolBrands. The troubled subsidiary was Americana Foods. In the announcement on July 21, Stein said, "It is unfortunate that this event has occurred, but the company is working with its subsidiary and JPMorgan to resolve the situation."

In fact, the two sides weren't resolving anything. The bank wanted its money, period. Americana Foods could be forced into bankruptcy. That would likely cause CoolBrands to hit the wall as well. Stein moved fast and sold off Eskimo Pie's Value America flavours and ingredients division for $8.3 million (U.S.) in September. But CoolBrands shares continued to stagger under $1. In October, Americana Foods ceased operations and began liquidating its assets under Chapter 7 of the U.S. Bankruptcy Code.

In November, Michael Serruya couldn't stand it any longer. He took over from Stein as CEO and announced that Stein and four independent directors had been replaced on the board. A scaled-down board would be comprised of three independents and the Serruya brothers. In April, 2006, CoolBrands had consolidated its debts in two credit lines (one of them for Americana) worth a total of $73.5 million (U.S.). Now Serruya spent $21.7 million (U.S.) of his own money to buy the Americana credit line from JPMorgan. In exchange, CoolBrands was obligated to use proceeds from any asset sales to pay back Serruya and cover any shortfall on the other credit line. He also received warrants that would entitle him to buy 5.5 million company shares for just 50 cents apiece.

The company also issued a release announcing that Seymour Schulich had bought 1.1 million shares, raising his total to six million, or roughly 12%, making him the largest shareholder. And Ron Binns, CFO of Schulich's Nevada Capital Corp. Ltd., was a new CoolBrands director. Word that the savvy billionaire was back in the picture helped push CoolBrands' shares back above $1. He had sold the 7% stake he bought in 2001 years earlier, but he apparently started buying again in late 2005. (Schulich declined to be interviewed for this story.)

Since then, Serruya has methodically sold off practically all of CoolBrands' remaining businesses. In early January, he sold the fresh yogurt holdings-mainly the Breyers products-to a U.S. private equity firm for $45 million (U.S.) in cash, $5 million (U.S.) worth of notes and some warrants to buy stock. Then he sold Eskimo Pie, as well as the Chipwich trademark, to Nestlé's Dreyer's Grand Ice Cream unit for $18.9 million (U.S.).

By the end of February, all that was left was Whole Fruit sorbet, Fruit-a-Freeze, some other small licensed brands, and roughly 100 employees. That essentially left CoolBrands as a TSX-listed shell company with about $65 million (U.S.) in cash and some real estate. Insiders say Michael Serruya is considering new food-related ventures.

Indeed, he has done the groundwork for some sort of future for the company. In a management circular for CoolBrands' annual meeting, scheduled for March 29, Serruya proposed biting the bullet and making good on his 2005 promise to eliminate the multiple voting shares. That would reduce the Serruyas' voting stake to about 8%. "They probably recognize that their forte is not running public companies," says a source close to CoolBrands. But they also recognize that if they do approach the public markets again, supershares just won't fly. "Markets will never forgive or forget," says the source.

If CoolBrands rises for the third time in its history, and the share price takes off, shareholder rights advocates might still complain about Michael Serruya's 5.5 million warrants. It's a problem Serruya would probably welcome.

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