The new board of Endeavour Brewing has recommended against a motion put by a former director to voluntarily wind the company up.
The board has instead supported a capital return to shareholders after a realisation of assets that is currently being investigated.
The recommendation was made yesterday at a Shareholder’s Information Presentation, held via Zoom, during which investors were given their first opportunity to hear the current management’s plans for the struggling business since the current board was appointed on 20th October 2020.
Motion to Wind Up
Former director, and co-founder, Dan Hastings is one of three shareholders who have requested an Extraordinary General Meeting of Endeavour Beverages to consider a special resolution to wind up the company.
Hastings, who was ousted from the board by a number of shareholders in October 2020, described the company’s future as “unstable and uncertain” in a statement accompanying the motion.
“Since the change in Board, the company lost its single biggest customer (Woolworths) which contributed approximately two thirds and more of the company’s total revenue,” the statement said.
“And the relationship with the company’s major equal Joint Venture partner in the Taprooms venue in The Rocks, Sydney, has deteriorated to an irreparable terminal state.
“And most significantly, available cash reserves have depleted significantly in that same period of time, with no prospect of future profit.”
“Sadly, a wind up, in our opinion, provides the greatest prospect of maximum shareholder return now and in the future.”
Yesterday the current board overviewed the business’ fortunes for the first time since the optimistic presentations made during the Equity Crowd Funding campaign launched in late 2018.
It shared a timeline refuting the suggestion that the businesses challenges outlined in the wind-up motion were due to decisions made by the current board and painted a picture of business relationships well removed from “the three blokes and 35 mates” of its brand story.
The board overviewed the challenges it says it faced getting access to the company’s accounts and they alleged they had not received access to the company’s Xero accounts until a month after their appointment.
The current board said it is currently working to establish the future direction of the company and whether to invest in a new brand and corporate identity to implement a pivot strategy, or realise existing assets and return capital to shareholders.
Investors heard that directors support a return of capital but that the current motion to wind up the company does not give due consideration to the realisation of assets or the company’s current lease commitments.
In December 2019 the company entered into an agreement for the sale of one of its intangible assets for $5 million, with the settlement of funds in January 2020. The intangible asset related to the settlement of a trademark clash with Endeavour Drinks Group. Woolworths Liquor Group changed its name to Endeavour Drinks Group in April 2016.
At that time Endeavour Brewing said both businesses would co-exist with the name and aimed to ensure that Endeavour Drinks Group wouldn’t be using Endeavour on any private-label beer.
Investors yesterday heard that contrary to the initial plans to co-exist, the conflict in the marketplace led to significant brand confusion.
They were advised that ‘past management’ had spent more than $176,000 on a refresh of the Endeavour brand, including advertising and a new website, following Woolworths Liquor Group’s change of name.
The meeting was told the company subsequently spent $64,000 on developing a new brand separate from Endeavour, only to learn that it also conflicted with a trademark owned by another brewer and the project was scrapped.
Endeavour Beer was required to present a new brand to Woolworths for a range review in November 2020, however, the meeting heard the former management had not created a new brand that was acceptable to Woolworths, leading to the deletion of the brand from Dan Murphy’s and BWS stores.
Sales through these stores were described as the company’s core business in the 2018 prospectus.
Confidential negotiations are still underway as to outstanding issues around the market confusion around the Endeavour brand and a future sale of IP assets is possible.
The Endeavour Taprooms joint venture, the 50-50 partnership between Endeavour and Applejack Hospitality, appears tenuous with investors hearing of a fraught relationship with the venture partner. Accounts for the business were only received on 11th May 2021, delaying the preparation of Endeavour’s 2020 consolidated accounts which are now overdue by seven months, and monies owed under the agreement.
Under the joint venture agreement, each partner has two seats on the board, with approval for board members required from the other partner. Investors heard Applejack Hospitality has refused Endeavour’s nominations for the board and Endeavour is not currently represented on the joint venture board and hasn’t been since February when former directors Hastings and Andy Stewart resigned.
The board is currently considering a buyout of Applejack’s interest, or sale to Applejack or alternatively a sale of the business to a third party. An independent valuer has been engaged to determine the value of the business.
Extraordinary General Meeting and Wind-up
The EGM has been called for 14th June and shareholders will vote on the wind-up motion.
Investors were presented a number of capital return scenarios, which under even ambitious asset realisation assumptions, would see investors receive significantly less than the $1 per share valuation that existing and Crowd-Sourced Funding investors paid in the 2018 equity raise.