Aryzta to Replace Founder Owen Killian After Earnings SlumpThomas Mulier and Corinne Gretler
CEO, CFO, head of Americas unit to leave roles by July
Stock surges as chairman’s action leads to short squeeze
Aryzta AG founder Owen Killian and two of his closest deputies are to be replaced as new Chairman Gary McGann seeks to restore stability and arrest declining profits at the Swiss maker of Otis Spunkmeyer cakes.
Chief Executive Officer Killian, Chief Financial Officer Patrick McEniff and John Yamin, head of the Americas business, will step down at the end of July, Aryzta said Tuesday. The company also is studying options for its 49 percent stake in French frozen-food retailer Picard, an investment that has drawn investor criticism. The news spurred a surge in the stock, which has been a target of short-sellers.
Killian’s departure ends more than a decade of leadership during which he transformed the company from an Irish agricultural business into an international food group. The later stages of his tenure have been marked by falling earnings as the company struggled to cope with its rapid expansion. McGann, a former CEO of packaging company Smurfit Kappa Group Plc, was installed in December and has sought to convince investors he can get the business back on track.
“Investors were extremely unhappy with the management, and there hasn’t been a good word about the CEO in a long time,” said Urs Beck, a fund manager at EFG Asset Management in Zurich who owns Aryzta shares. “McGann listens to investors and I’m sure he heard the same from everyone: get rid of the CEO and stop the Picard adventure.”
The shares rose as much as 21 percent in Zurich and were up 12 percent at 33.11 francs as of 11:46 a.m. Almost 9 percent of the company’s stock is shorted, according to Markit Securities data. Shortsellers borrow shares with the obligation to return them later, hoping to make a profit if the stock loses value.
Tuesday’s developments come less than a month after Aryzta said earnings could drop 20 percent this year, erasing 1.3 billion francs of market value in a single day. The Zurich-based company has said it misjudged the consequences of expanding its Otis Spunkmeyer brand in the U.S.
Killian’s resignation ends a four-decade career that began when the 63-year old Irishman joined IAWS Plc, a Dublin-based food company. He worked his way up to become CEO in 2003, then formed Aryzta in 2008 when IAWS merged with Switzerland’s Hiestand.
His recent performance has sparked investor ire. Last March, Killian sold more than half his shares in Aryzta for 19 million francs in the two days after the company reported earnings that missed its own forecasts and warned growth would be erratic going forward.
His compensation -- which exceeded 6 million francs in 2014 -- was reduced to 1.5 million francs last year as Aryzta withheld a bonus pending a resumption in earnings growth.
Investors such as Beck are placing their faith in McGann, who previously led a turnaround as CEO of Smurfit Kappa.
“That he’s bidding adieu to a whole trio, but also taking on an overseeable transition period, proves a long-missed long-term view and the courage for radical change,” Beck said.
Still, analysts said it will be hard for Aryzta to recoup its 447-million euro ($474 million) investment in Picard since it’s struggling to raise cash and reduce debt. The company said last month it needs to refinance 600 million euros of loans. Aryzta said it’s started talks with Lion Capital, which owns 51 percent of Picard, to decide what to do with its stake.
“It’s a tricky situation for Aryzta, because Lion Capital knows they’re in a weak position,” said Jean-Philippe Bertschy, an analyst at Bank Vontobel. “All options are on the table, from selling 100 percent or selling its stake at a lower price, or an IPO.”
Aryzta said it will hire an international recruiting company to replace the departing executives, and appointed three chief operating officers to run the business for now. Dermot Murphy will be responsible for Europe, Ronan Minahan the Americas and Robert O’Boyle Asia Pacific. Between them, they’ve worked for more than four decades at the company and its predecessors.
Other highlights include:
- Co. agreed with lenders to raise its existing covenant of 3.5 times net debt to Ebitda to 4 times; covenant applies to test dates of July 31, Jan. 31, 2018 and July 31, 2018
- No extra financing costs related to covenant change; Aryzta remains at 3.5 times currently
- Financing costs would increase 40 to 50 bps if Aryzta’s debt goes within 3.5 to 4 times range
- First-half results scheduled for March 13