U.S. investment firm Browning West takes Gildan to court over annual meeting in May

Open this photo in gallery:

The battle for control of Canadian T-shirt maker Gildan Activewear Inc. GIL-T is moving to the courts.

U.S. investment firm Browning West, a long-time Gildan shareholder now spearheading an effort to replace most of the company’s board of directors, said Monday that it had filed an application requesting that the Quebec Superior Court compel Gildan to hold its annual meeting scheduled for May 28 and not delay it. The firm also wants the court to approve the naming of an independent chairperson to oversee the meeting to ensure a fair and transparent process.

“We are concerned that the Board will seek to delay the annual meeting,” Browning West founders Usman Nabi and Peter Lee said in a statement. “While we expect Gildan to oppose Browning West’s application, we will not be deterred and will continue to do whatever is necessary to ensure that all shareholders have an opportunity to replace the directors whose decisions have destroyed shareholder value and who have failed to give due regard to the views of investors.”

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

In an e-mailed statement Tuesday morning, Gildan called the lawsuit “completely meritless,” noting the meeting date has been set. “The legal filing contains no credible arguments. The board will continue to act in the best interests of all Gildan stakeholders,” company spokesman Simon Beauchemin said.

The Montreal-based clothing manufacturer has been engulfed in an intense power struggle since December, when it dismissed its then-chief executive officer Glenn Chamandy after 40 years with the company, the past 20 as CEO. The company named former Fruit of the Loom executive Vince Tyra as his replacement.

Gildan’s board insists it was entirely justified in sacking Mr. Chamandy, saying it had gradually lost faith in his ability to lead the company, in part because he had become distracted by personal pursuits. Directors have said the current situation could have been avoided, but Mr. Chamandy refused to co-operate in a smooth transfer of leadership.

Investors, however, were taken aback by the C-suite switch, and several of them have signalled they want Mr. Chamandy back. Those shareholders say the board failed in its duties because it abruptly terminated a proven CEO and installed a replacement who is not qualified for the job.

Led by Browning West, nine dissident investors holding an estimated 35 per cent of Gildan’s stock have called publicly for Mr. Chamandy’s reinstatement. The current and former CEOs know each other and were friends, adding an extra dimension to the battle for control of the company.

Browning West’s lawsuit claims that Gildan and its board have done several things that have undermined the interests of shareholders, including leaking corporate documents and confidential information to the media without sharing them with investors. The lawsuit claims Gildan directors appear determined to “silence any criticism” from Browning West and deter the firm from pursuing its rights.

Browning West, which holds a roughly 5-per-cent stake in Gildan, 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.

The investment firm intends to present its board slate at the annual general meeting instead, which Gildan has scheduled for May 28. The firm said in Monday’s statement that it will now start taking steps to communicate with as many Gildan shareholders as possible in order to solicit their support, adding that it has begun mailing out an information circular to outline its position.

Browning West is also appealing to the court to address what it says is an effort by Gildan’s board to smother its right to nominate board candidates and create a pretext for delaying the May meeting.

According to Browning West, Gildan’s board filed an application on Feb.13 before Quebec’s Financial Markets Administrative Tribunal that takes issue with certain news releases issued by Browning West beginning in mid-December. In that application, Gildan says the May meeting is “subject to any adjournment or postponement,” according to the investment firm.

Gildan is arguing before the tribunal that Browning West’s news releases constitute “solicitation” of proxies from other shareholders. It wants an order prohibiting any representative of Browning West from standing for election as a director of Gildan, the Browning West lawsuit states.

Browning West says the news releases do not constitute solicitation. The firm counters that it is Gildan whose conduct has strayed into the territory of solicitation, for example by organizing meetings with shareholders in recent weeks in an attempt to garner support for Mr. Tyra and current directors.

Gildan and its directors “are now, and have been for some time, engaged in a proxy defence campaign,” the Browning West lawsuit says. “This campaign and these expenditures are not motivated by the best interests of the company, but by the self-interest of the incumbent board members.”

Gildan produces most of its clothing at factories in Latin America and recently began operating a new plant in Bangladesh. Incorporated in 1984, the company operates internationally but generates nearly 90 per cent of its sales in the United States and has an $8-billion market capitalization, making it one of Canada’s largest consumer product businesses.