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Browning West, a U.S. investment firm demanding leadership change at Gildan Activewear Inc., GIL-T is dropping its request for a special meeting of shareholders but vowed to push on with its effort to replace a majority of the board.

The Canadian clothing maker called the development a “spectacular failure” by one of its biggest shareholders, and proof the firm isn’t fit to run the company. It says it remains ready and willing to engage with all shareholders to cement a solution that avoids further escalating the corporate drama over Gildan’s leadership.

What’s happening at Gildan? A timeline of the months-long CEO corporate battle

Los Angeles-based Browning West is heading up a campaign of dissident shareholders that want a new board voted in at Gildan in order to bring back ousted chief executive Glenn Chamandy. He was dismissed by Gildan in a shock announcement in December and replaced by former Fruit of the Loom Inc. executive Vince Tyra.

Browning West had been seeking a special meeting of shareholders as a quick way to remove eight of Gildan’s 11 sitting directors and replace them with its own nominees. It filed a formal request to Gildan on Jan. 9 for that meeting but the company has challenged its legal validity.

Browning West, which calls the legal challenge a waste of Gildan’s money, now says it will present its board slate at the annual general meeting instead, which Gildan scheduled earlier this week for May 28. It wants that date moved up though, to align better with Gildan’s early May meetings of recent years.

“The board responded to our January 9th requisition by spending three weeks disregarding the feedback of numerous long-standing shareholders, leaking misinformation about Glenn Chamandy, and waging a low-road smear campaign and incessant legal harassment of shareholders,” Browning West founders Usman Nabi and Peter Lee said in a statement Wednesday.

“In our view, the board has completely forfeited its right to make material decisions between now and the annual meeting.”

On Monday, Gildan announced it would call two shareholders meetings for May 28, one a special meeting and the other an annual meeting. It also said it filed an application seeking a Quebec Court ruling on whether the Browning West request for a special meeting is legitimate. It’s unclear now whether Gildan will withdraw that filing, maintain it or modify it.

Under Canadian law, investors can requisition a special meeting of shareholders only if they hold more than 5 per cent of a company’s shares. Gildan says it believes Browning West violated U.S. antitrust law when it built up its 5-per-cent Gildan stake, invalidating its meeting request.

The investment fund bought a stake without making a regulatory filing and without complying with a mandatory 30-day wait period under the U.S. Hart-Scott-Rodino Act, Gildan says. Browning West’s stand is that it is not obligated to file under the HSR Act as the fund’s parent entity is not incorporated in the United States and Gildan is not based in the U.S.

Gildan’s claims have not been tested in court.

“Browning West, an activist hedge fund, has pulled their requisition after being caught illegally purchasing Gildan shares,” Gildan spokesman Simon Beauchemin said in an e-mailed statement. He called it a “spectacular failure” that highlights the company’s belief that Browning does not have the basic competencies to run a slate of directors, let alone run Gildan.

Gildan continues to investigate the scope of Browning West’s alleged misconduct, Mr. Beauchemin said. That includes the implications of its share purchases on its capability to nominate director candidates and its capability to vote, he said.

Montreal-based Gildan was founded by Mr. Chamandy’s family, and he had led the company as CEO for 20 years, delivering significant returns for investors over much of that time.

But Gildan says the businessman sought to entrench himself as CEO and that the board had lost faith in his ability to lead the company, in part because he had become distracted by personal pursuits, including the development of a golf course in Barbados.

Led by Browning West, nine dissident institutional investors holding an estimated 35 per cent of Gildan’s stock have called publicly for Mr. Chamandy’s reinstatement. They say the board failed in its duties because it abruptly terminated a proven CEO and installed a replacement who’s not qualified for the job.

The board says the current situation could have been avoided, but that Mr. Chamandy refused to co-operate in a smooth transfer of leadership.

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