Legion Partners Issues Letter to The Chefs’ Warehouse, Inc. Shareholders Calling for Urgently Needed Board Change
Highlights Company’s Chronic Operational and Share Price Underperformance and the Need for New Skill Sets in the Boardroom to Help Chef Reach its Full Potential
Nominates Four Highly Qualified, Independent Directors Who Would Bring Valuable Experience in Operations, Finance, Information Systems, Capital Allocation and Strategic Planning to the Board
The full text of the letter follows:
Dear Fellow Shareholders,
We have made multiple efforts over the last seven years to engage constructively with the Chef management team and Board of Directors (the “Board”). During this time, our goal has remained the same: to help the Company sustainably improve profitability and enhance strategic discipline regarding acquisitions, ultimately to help the Company reach its valuation potential for all shareholders. Unfortunately, whenever that pressure has abated, the Board has seemingly returned to its old ways – including by shunning highly qualified members we have previously recommended and making undisciplined acquisitions that lead to sub-par margin and profitability performance. We believe this lack of progress is a result of a stale Board that lacks the skills and independence required to significantly improve results, and instead has enabled a culture of complacency at the Company’s highest levels.
Rather than seeking the expertise required to drive Chef’s long-promised – but never achieved – margin potential, this Board has remained hampered by long-tenured directors with little relevant experience who seem to have one common trait: a friendship with the Pappas family. Despite having sold the bulk of their shares, the Pappas family continues to control the Company and the Board. With an average director tenure of more than nine years, and a history of underperformance, we believe that substantial shareholder-driven change in the boardroom is long overdue and necessary at the 2024 annual meeting of shareholders (“2024 Annual Meeting”) for Chef to achieve its full potential. This is why we have nominated four highly qualified, independent candidates for election to the Board.
While we are concerned about Chef’s past performance, we are very excited about its potential future. We believe Chef has attractive end markets in specialty food distribution and a leading market position serving premier independent restaurant customers in both
The Board Has Presided Over Long-Term Share Price Underperformance
In our view, the case for meaningful change is readily evident when analyzing Chef’s perpetual underperformance – over several time periods – relative to its various peer groups, the Russell 2000 Index and the S&P 500 Index.
Share Price Performance |
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(TSR Include Dividends) |
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1 Year |
3 Year |
5 Year |
|
CHEF |
(17%) |
3% |
(5%) |
Core Peers (1) |
15% |
26% |
54% |
Other Distribution Peers (2) |
9% |
59% |
128% |
Proxy Peers (3) |
(2%) |
21% |
69% |
ISS Peers (4) |
(0%) |
18% |
65% |
Russell 2000 Index |
1% |
(9%) |
39% |
S&P Composite 1500 Food Distributors |
4% |
13% |
33% |
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CHEF Relative Performance: |
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|
|
Core Peers (1) |
(33%) |
(23%) |
(58%) |
Other Distribution Peers (2) |
(27%) |
(56%) |
(132%) |
Proxy Peers (3) |
(15%) |
(18%) |
(73%) |
ISS Peers (4) |
(17%) |
(15%) |
(70%) |
Russell 2000 Index |
(18%) |
12% |
(43%) |
S&P Composite 1500 Food Distributors |
(22%) |
(10%) |
(38%) |
Source: Capital IQ (as of 2/7/2024).
(1) Core Peers: SYY, USFD, PFGC
(2) Other Distribution Peers: UNFI, SPTN, ARMK, LSE:CPG, WCC, MRC, DXPE, FAST, GWW, MSM, WSO, BECN, GMS, AIT, SITE, POOL, GPC
(3) Proxy Peers: FLWS, ANDE, AIT, BGS, BXC, CVGW, CALM, DXPE, STKL, GMS, HAIN, JJSF, JBSS, LANC,
(4) ISS Peers: AIT, BGS, BXC, CVGW, CALM, DXPE, GMS, JJSF, JBSS, LANC,
The Board Has Failed to Hold Management Accountable
For a decade, Chef’s management team has promised investors an adjusted EBITDA margin of 7%. However, we believe Chef has never achieved this goal due to an ill-conceived acquisition strategy that has led to multiple integration failures combined with a lack of focus on driving profitability. The Company has made numerous proclamations about hitting a 7% adjusted EBITDA margin goal:
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“I think the kind of 2-to-3-year and 5-to-6-year plan that we laid out, we reiterated on the Q2 call. I think that's still in play with a target of mid-6s towards 7% [EBITDA margin] over the next 5 years.” (CHEF CFO |
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“I said we're going to be a 7% [EBITDA margin] or higher company if we're growing slower. And the only thing that would, I think, deter us from achieving that type of margin is that if we're buying more companies …...So if we continue to -- if we went on our track right now and did nothing, I think that's an easy target.” (CHEF CEO |
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“If you look at our 3- to 5-year model, what we've talked about, it's |
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“We expect to achieve…an EBITDA margin of approximately 7% on a long-term basis.” (CHEF Former CFO |
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“…the 7% [EBITDA margin] right now is our first target and I think it's very realistic” (CHEF Former CFO |
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“We're looking at north of the 7% EBITDA, that is our first goal.” (CHEF CEO |
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These aspirations for improving the Company’s adjusted EBITDA margin have translated into little actual progress, as noted below:
Year |
Adj. EBITDA
|
Underperformance
|
2014 |
5.08% |
(192 bps) |
2015 |
6.17% |
(83 bps) |
2016 |
5.05% |
(195 bps) |
2017 |
5.06% |
(194 bps) |
2018 |
5.34% |
(166 bps) |
2019 |
5.59% |
(141 bps) |
2020 |
(3.86%) |
(1086 bps) |
2021 |
3.51% |
(349 bps) |
2022 |
6.04% |
(96 bps) |
2023E |
5.63% |
(137 bps) |
Note: 2023E Adj. EBITDA Margin (%) represents mid-point of Chef’s guidance.
Source: SEC Filings
We believe the incumbent directors have failed to effectively hold management accountable for achieving the target of an adjusted EBITDA margin of 7% and instead stood by and watched Chef’s executives deploy almost
Our Nominees Have Extensive Experience in Operations, Finance, Information Systems, Capital Allocation and Strategic Planning – and Are Well-Positioned to Create Significant, Long-Term Shareholder Value
Our accomplished nominees include:
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Richard N. Peretz – a senior strategic financial executive who served close to 40 years atUPS , including as CFO, and was responsible for severalUPS transformation programs involving the consolidation of operations in the US, the realignment of the finance function, and company-wide profitability and margin improvement.
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Keith D. Rohland – former Chief Information Officer atUS Foods , who was responsible for implementing an industry-leading customer digital experience, best-in-class tools and data for improving sales and operations, and tested cybersecurity and business continuity plans.
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Wendy M. Weinstein – a restaurant group board director, restaurant and food service consultant focused on strategic planning and capital allocation, and formerly an independent restaurant owner as well as an experienced senior marketing executive atSan Pellegrino and Pernod Ricard Wine and Spirits .
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Christopher S. Kiper – a capital markets expert with a proven investment track record inU.S. consumer-focused small-cap companies and possesses valuable board experience and corporate governance expertise.
Sincerely,
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***
LEGION PARTNERS’ FOUR NOMINEES
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Since
May 2021 ,Mr. Peretz has served as Operating Partner at Playground Global PE, an early-stage investment firm that invests across deep tech and science, where he leads, mentors, and advises Venture Capital Startups in early stage through Series C funding rounds. -
From 2015 until he retired in
February 2020 ,Mr. Peretz was the CFO of (NYSE:United Parcel Service , Inc.UPS ). - He also served as a member of the UPS Management Committee, setting strategies for long-term growth including the current capital structure realignment and transformation initiatives.
-
Prior to that,
Mr. Peretz served in several operational and corporate leadership positions atUPS since joining the company in 1981, including as Controller and Treasurer, along with leading the mergers and acquisitions group from 2007 to 2015 and serving as the International CFO from 2002-2007 while expanding operations inChina and acrossEurope . -
Mr. Peretz was also a member of the team that managed UPS’s initial public offering in 1999, at the time the largest inU.S. history. -
Mr. Peretz currently serves on the board of directors of (NYSE: AMPS) andAltus Power , Inc.Iris Acquisition Corp (NASDAQ: IRAA) and serves as chair of the audit committee for both companies. -
Mr. Peretz earned his Bachelor of Business Administration from theUniversity of Texas at San Antonio and his Master in Business Administration fromEmory University .
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Mr. Rohland currently serves as an executive advisor on revenue growth, strategy, mergers and acquisitions, technology, cybersecurity and process improvement. -
Mr. Rohland served as Chief Information Officer at (NYSE: USFD) fromUS Foods Holding Corp .April 2011 toApril 2021 and led the strategy development and implementation for the Information Technology function. -
Prior to joining
US Foods ,Mr. Rohland served in several leadership positions at Citigroup, Inc., an investment bank and financial services provider, fromMarch 2007 toApril 2011 , including Managing Director of Risk and Program Management. -
Prior to joining Citigroup,
Mr. Rohland held a number of leadership positions atFord Motor Company (NYSE: F), an automaker, fromJuly 1990 toMarch 2007 , including serving as Chief Information Officer ofVolvo Car Corporation (then owned byFord ) fromNovember 2005 toMarch 2007 . -
Mr. Rohland received a Bachelor of Science degree in Information and Decision Systems fromCarnegie Mellon University in 1990 and a Master of Business Administration degree from theUniversity of Detroit Mercy in 2001.
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Since 2000,
Ms. Weinstein has advised hospitality and beverage clients and their boards of directors as their outsourced fractional CMO, and her areas of competency include strategic planning, branding, budget development and deployment, digital marketing and technology platforms implementation. -
Ms. Weinstein currently serves as an independent director atNewport Restaurant Group (NRG), an employee-owned hospitality group inNew England with 20 restaurants, Relais & Chateaux hotel and events company. She has been a marketing consultant to NRG since 2018. -
From 2003 to
October 2019 ,Ms. Weinstein co-owned and ran Plates, an award-winning restaurant inLarchmont, NY , and oversaw its successful sale in 2019. -
From 1989 to 2000, she spent 10 years with the
San Pellegrino Group (Italian mineral water company, now part of Nestlé) and was most recently the Global Director of Marketing, based inMilan, Italy . Prior to that, she directed the marketing activities for the North American Division. -
Prior to San Pellegrino, from 1984 to 1989, she began her career as a Marketing Manager at Pernod Ricard where she was responsible for building the Orangina and Diet Orangina soft drink brands in the
U.S. ,Canada andFrance . -
Ms. Weinstein is a frequent speaker and guest lecturer for executives, marketing teams and culinary students. -
Ms. Weinstein received a Bachelor of Arts degree in Economics and French from TheUniversity of Pennsylvania in 1984.
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Mr. Kiper has served as a Co-Founder, Managing Director and Chief Investment Officer ofLegion Partners Asset Management, LLC (“Legion”), an investment fund focused on accumulating large ownership stakes in undervaluedU.S. small-cap companies, sinceApril 2012 and at Legion’s predecessor entities fromJanuary 2010 toApril 2012 . -
Prior to co-founding Legion,
Mr. Kiper served as Vice President atShamrock Capital Advisors , the alternative investment vehicle of theDisney family, where he served as Portfolio Manager of theShamrock Activist Value Fund , a concentrated, long-only, activist fund, fromApril 2007 untilJanuary 2010 . -
Before that,
Mr. Kiper founded and operated theRidgestone Small Cap Value Fund , a small-cap targeted activist fund in association with theRidgestone Corporation , an investment firm, fromJune 2000 toApril 2007 . From 1998 to 2000,Mr. Kiper served as the Director of Financial Planning atGlobal Crossing Ltd. , a telecommunications company that provided computer networking services. -
Mr. Kiper began his career as an Auditor atErnst & Young Global Limited , an international tax, consulting and advisory service, from 1994 to 1997. -
Mr. Kiper currently serves on the board of directors of (NASDAQ: LFCR).Lifecore Biomedical , Inc. -
Mr. Kiper received a B.S.B.A in Accounting from theUniversity of Nebraska in 1993.
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CERTAIN INFORMATION CONCERNING THE PARTICIPANTS
LEGION PARTNERS HOLDINGS STRONGLY ADVISES ALL STOCKHOLDERS OF THE COMPANY TO READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON THE
The participants in the proxy solicitation are anticipated to be
As of the date hereof, Legion Partners I directly beneficially owns 1,068,503 shares of common stock, par value
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CHEF@longacresquare.com
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