The surprise announcement of Adam Fowle’s decision to quit as chief executive of Mitchells & Butlers (M&B) prompted shares in the company to fall 3.4% yesterday and is set to “prompt a blizzard of speculation” according to leading analysts.
According to a statement yesterday, Fowle’s departure was by “mutual consent”, with Jeremy Blood, a non-executive, appointed interim chief executive, reportedly with leading shareholder Joe Lewis’s backing.
However, Fowle’s exit comes just weeks after chairman John Lovering had resigned and with rumours circulating that they both found it hard to operate the business with Lewis looking over their shoulders.
Corporate governance advisers Pirc said: “[Ahead of this year's annual general meeting] we were concerned that the large minority shareowner of the company was exercising undue influence across the board. This latest development seems to confirm that assessment.”
In a note headed Fowle Play?, Nigel Parson of Evolution Securities asked, “Was he pushed? Did he jump? Are the hands of Joe Lewis and Elpida at work?...the soap opera that is M&B continues to run and run.”
Geof Collyer at Deutsche Bank, said: “We saw Fowle as being part of the group's operational DNA and a significant part of the reason why the trading business has held up so well. The group's strategy now being pursued since March last year was predominantly Fowle's design and had found favour with the market.
“Recent events such as the major shareholders voting down the directors' remuneration package at the recent AGM, or disagreements over M&A or when to reinstate the dividend could provide some background to today's announcement.
“We would expect the group to seek a new CEO with significant retail experience, but after the relative upheaval on the board in recent years, this process could take some time.
“There have now been, by our estimates, some 33 changes to the main board and senior directors at M&B since the end of FY'07 (4 chairmen, 3 CEOs and 3 FDs). Following the CEO's departure, we now see risk of further departures amongst the operating management tiers at M&B.
“The corporate governance issues that had dogged M&B over recent years and had, we thought, been resolved in recent months (a handful of shareholders control around half of the group) will now return to the fore. We see these factors - strategic uncertainty, corporate governance - as major impediments to finding new marginal buyers of the stock.
“We have downgraded our target price to an average EV/EBITA multiple since demerger (11.7x from 12x), moving from 410p to 390p. Despite the upside to our target price, we see the latest boardroom issues as unhelpful at a time when stability of management is required. As a consequence, we have downgraded from Buy to Hold.”
Douglas Jack at Numis, said: “The loss of CEO Adam Fowle is unlikely to be well-received and could reignite concerns over corporate governance.
“However, investors and M&B's Executive Committee have long-lived with turmoil at board level. The most important point is the right Executive Committee is continuing to successfully execute the right strategy. We believe the shares as undervalued and would buy into weakness.
“Either way, there are three reasons why selling the shares, based solely on this event, should be the wrong decision.
“Although the board appears to be in constant turmoil, the company strategy is right and accepted. The Executive Committee, which is arguably more important than the board, is more stable, built around Adam Martin (marketing & strategy director, joined 1996), Kevin Todd (managing director, City & Country, originally joined 1989) and Amanda Coldrick (managing director, Suburban, joined 1988).
“Despite numerous distractions at Board level since 2007, the Executive Committee has continued to drive the business forward, generating positive LFL sales in every year since 2003.
“The departure of the chief executive should not change the strategy or operational performance. With arguably the best quality assets in the pub sector, M&B should generate strong growth over the medium-term and resume dividends in the short-term. Given this, a 90% freehold estate, 7.6x EV/EBITDA and 12.9% equity FCF yield, we would use weakness as a buying opportunity.”
