Bubs boardroom feud: Founder-led attempt to remove board fails, Chemist Warehouse chief ‘disappointed’

By Tingmin Koe

- Last updated on GMT

Infant formula firm Bubs Australia conducted an extraordinary general meeting last Thursday, with most of the shareholders voted to retain the current board. ©Getty Images
Infant formula firm Bubs Australia conducted an extraordinary general meeting last Thursday, with most of the shareholders voted to retain the current board. ©Getty Images

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Australian infant formula maker Bubs’ nearly two-month long boardroom saga has come to a conclusion, with most shareholders voting against founder Kristy Carr’s attempt to remove the current board.

Carr is backed by Bubs’ second largest shareholder, Jack Gance, co-founder of discount pharmacy chain Chemist Warehouse. Gance had expressed disappointment with the voting results but said he would support the board moving forward.

An extraordinary general meeting was conducted last Thursday, July 27, where shareholders of the  Australian Securities Exchange-listed firm casted their votes on whether the existing board should be removed as per Carr’s proposal.

About 48 per cent of the company’s institutional and individual shareholders voted.

Current chairwoman Katrina Rathie announced that over 70 per cent had voted against Carr’s proposal in removing the current board, which consists of Rathie herself, directors Paul Jensen, Reg Weine, and Steven Lin.

Carr’s proposal to install James Jackson, Peter Nathan, and Rupert Soar as board directors was also rejected. Nathan, former CEO APAC at The a2 Milk Company, was also proposed to replace the interim CEO Richard Paine.

The proposal to overturn the current board was announced on June 2.

Carr, former executive chairman Dennis Lin, Infant Food Business Pty Limited, AZ Global Corporation Pty Ltd, and Willis Trading Limited, who collectively held about 5.04 per cent of the voting shares were behind the proposal. A ‘Save our Bubs’ campaign was also put forth.

Chemist Warehouse co-founder, Jack Gance, also the second largest shareholder of Bubs, was another supporter of Carr’s proposal.

Responding to NutraIngredients-Asia, ​Gance said he was “disappointed at the results”, ​but would nonetheless “support the board moving forward”, ​and pointed out three areas that the firm would need to focus on. 

Gance was also reportedly unhappy about the way the board had ousted Carr. “The way I understand it, the dismissal of Dennis and Kristy was terrible. That I am uncomfortable with. I’m wondering, is this the way the business will continue,”​ he told local media The Australian Financial Review.

Both Carr, the founder and former CEO of Bubs, and former executive chairman Lin were had thei roles terminated by the board on May 10.

Prior to this, Rathie, who has been with the board since July 2021, was elected as chairwomen on April 11, replacing Lin. Jensen and Weine also joined the board in the same month.

Deterioration in Bubs’ financial performance over the previous six months and the plan to change the firm’s governance framework were cited as reasons for the change in leadership.

Bubs’ largest shareholder is Alibaba-backed C2 Capital. The company enjoys 10.15 per cent shares in Bubs and is represented by the current director Steven Lin.  

The firm is expected to make a CEO appointment – tipped to be Reg Weine, formerly from Coca-Cola Amatil, Bulla Dairy, and Blackmores – next month.  

NutraIngredients-Asia ​has reached out to Carr and Lin for comments.

The three most important issues at hand

Asked the most important issues to be addressed at Bubs, Gance pointed out the need to “sort out China’s distribution”, “solidify the US market”, ​and “market Bubs in Australia.”

Following the voting results, Rathie also said that the firm would focus on growing its US business, as well as re-set its China business.

“Approximately 48 per cent of our institutional and valued individual shareholders voted. This is an excellent voting turnout for Bubs…Excluding the requisitioners’ votes, the Board received resounding support and a clear mandate from more than 70 per cent of the voted shares.

“It is very pleasing to have widespread shareholder support and a strong vote of confidence to move forward. With this shareholder action now behind us, we can now focus on what we set out to do: deliver on our Strategic Plan, grow our business with a particular focus on the USA, re-set China, and restore shareholder value in the medium term,” ​she said.  

Under Carr’s and Lin’s leadership, Bubs became the first Australian infant formula brand to enter the US market under the Enforcement Discretion for Regular Infant Formula​ last year, as the country attempted to keep up supply following Abbott’s closure of its Michigan facility​.

At one point, it was reported that Bubs’ products were available in more than 6,000 stores across 42 US states, with major retailers Walmart, Target, and Kroger on board. 

Bubs Australia has six products approved for continued supply in the US market as of February 27, including its stage one and two organic grass-fed, a2 beta-casein protein, and goat milk infant formulas.  

The firm reported in last September a record gross revenue of A$104.2m, up 123 per cent yoy, with revenue from the US up 202 per cent, while that of China exceeded pre-pandemic level.  Carr, who was the CEO back then, had said that both China and US infant formula were significant markets to the firm.  ​ 

Fast forward to February this year, the firm’s financial performance in China, had however, taken a turn for the worse.

Group gross revenue was down 28 per cent to US$10m, while gross revenue in China nosedived 66 per cent, the firm said in its Q2 FY23 report​. The underwhelming performance was said to be affected by the COVID-zero policy, which had dampened consumers’ purchasing activities.

The domestic Australian market had held up with 28 per cent growth in gross revenue, while the international markets, including US, grew by 26 per cent.

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