\nJANA Partners (\u201cJANA\u201d) today announced that it will be nominating four highly qualified candidates to Freshpet, Inc.\u2019s (\u201cFreshpet\u201d or the \u201cCompany\u201d) (NASDAQ:FRPT) Board of Directors (the \u201cBoard\u201d) for the 2023 Annual Meeting of Stockholders (\u201cAnnual Meeting\u201d).<\/p>\n
\nJANA\u2019s nominees bring extensive experience as executives and public company board members in the consumer sector.<\/p>\n
- \n
- Diane Dietz,<\/b> Former Chief Executive Officer of Rodan & Fields, EVP & Chief Marketing\/Merchandising Officer of Safeway and EVP at Procter & Gamble. She currently serves as a director of Whirlpool.\n<\/li>\n
- Timothy McLevish, <\/b>Former Chief Financial Officer of Kraft Foods and Walgreens, and former Executive Chairman of Lamb Weston and director of Conagra Brands.\n<\/li>\n
- Scott Ostfeld, <\/b>Managing Partner and Portfolio Manager of JANA Partners. He currently serves as a director of TreeHouse Foods and previously served as a director of Conagra Brands.\n<\/li>\n
- Kurt Schmidt, <\/b>Former Chief Executive Officer of Blue Buffalo, Chief Executive Officer of Cronos Group, deputy EVP at Nestle and Chief Executive Officer of Gerber Products. He currently serves as a director of Campbell Soup Company and previously served as a director of Blue Buffalo.\n<\/li>\n<\/ul>\n
\nJANA today issued the following public letter to Freshpet shareholders:<\/p>\n
\nMay 24, 2023<\/p>\n
\nDear Fellow Shareholders:<\/p>\n
\nJANA, along with our affiliates and partners, owns 9.3% of Freshpet, making us the Company\u2019s largest shareholder. Freshpet has consistently struggled to execute and failed to achieve its potential, leading to a 74% decline in its stock price in the year prior to our involvement in the Company.<\/p>\n
\nWe believe Freshpet\u2019s pattern of missteps stems directly from a Board that has disregarded its most basic duties to shareholders. While recent management changes are a step in the right direction, we have observed a Board that has, over multiple years, failed to properly supervise management as performance worsened, liquidity deteriorated and shareholder value plummeted. Worse still, these problems unfolded while more than half of Freshpet\u2019s independent directors pursued outside interests with corporate resources and key members of management.<\/p>\n
Freshpet Board\u2019s Repeated Dereliction of Duty<\/span><\/b><\/p>\n
\nWe believe the Board has failed in its duty to shareholders, including by:<\/p>\n
- \n
- \nRecklessly deploying capital, including rubber stamping management\u2019s $1+ billion CapEx program without articulating a credible plan to fund it, while at the same time investing tens of millions of dollars of shareholder capital in an unrelated money-losing venture;<\/p>\n<\/li>\n
- \nCreating liquidity problems by failing to secure adequate capital for its budgeted CapEx program and then allowing the Company to fall out of compliance with its debt covenants;<\/p>\n<\/li>\n
- \nChoosing \u2013 after months of discussing a capital raise \u2013 a highly fragile moment in the capital markets, only days after the chaotic collapses of Silicon Valley Bank and Signature Bank, to raise needed capital through an equity-linked convertible bond, in the process reneging on its commitment not to raise equity;1<\/sup><\/li>\n
- \nAllowing Freshpet management to repeatedly overpromise and underdeliver, highlighted by management consistently missing profitability guidance, reducing long-term margin targets and overseeing gross margin declines for five consecutive years, including a cumulative 1,300+ bps decline in gross margin and 600+ bps decline in EBITDA margin from 2019 to 2022;<\/p>\n<\/li>\n
- \nInstalling a misaligned management compensation program that has resulted in incentive compensation struck at ~$143 per share (more than 100% above the current stock price);<\/p>\n<\/li>\n
- \nAllowing key members of Freshpet leadership \u2013 the Company\u2019s President & COO and its Vice Chairman \u2013 to found, hold executive roles and devote time and Company resources to another company, Hive Brands (\u201cHive\u201d), which offers competing products; 2<\/sup><\/li>\n
- \nPermitting two Board members \u2013 David Basto and Olu Beck \u2013 to benefit from Hive\u2019s success by serving as a director and a formal advisor, respectively, and appearing in Hive fundraising \/ marketing materials;<\/p>\n<\/li>\n
- \nAllowing director David Basto, a Partner at Carlyle, to also serve on the board of Compana Pet Brands, a Carlyle portfolio company that offers competing products; and<\/p>\n<\/li>\n
- \nAllowing long-time Freshpet directors \u2013 newly promoted Chairman Walter George, retiring Chairman Charles Norris and Compensation Committee Chairman Daryl Brewster \u2013 to utilize Freshpet\u2019s Vice Chairman as the Chief Financial Officer of a blank check company they registered to launch (on top of allowing him to simultaneously serve as Chief Financial Officer of Hive).3<\/sup><\/li>\n<\/ul>\n
Freshpet Board\u2019s Extraordinary Efforts to Avoid Accountability<\/span><\/b><\/p>\n
\nJANA invested in Freshpet in September 2022 to help address the Company\u2019s underperformance, capital allocation and governance, prompting Cowen research to note that \u201cJana’s position potentially invites a much-needed narrative shift for the stock\u201d<\/i>4<\/sup><\/b><\/i>and leading to a 16% one-day increase in Freshpet\u2019s stock price. Indeed, following JANA\u2019s investment, Freshpet\u2019s share price saw a sustained and dramatic reversal of its downward trajectory, with the stock significantly appreciating in the month following our involvement and its price rising more than 70% to $67.35 per share in the eight months since.5<\/sup><\/p>\n
\nUnfortunately, rather than acknowledge the core governance issues and undertake remediation actions, including our suggested addition of new directors not hand-picked by the Board, Freshpet is instead attempting to avoid shareholder accountability by taking actions to entrench the Board, including:<\/p>\n
- \n
- \nAbruptly scheduling the Annual Meeting in July, more than two months earlier than prior years, in a thinly veiled effort to compromise the ability of shareholders to nominate directors and pursue Board change;<\/p>\n<\/li>\n
- \nImproperly reducing the number of Board seats up for election in 2023 by removing one director slot from the 2023 Board class;<\/p>\n<\/li>\n
- \nAppointing as Chairman Walter George, the head of Freshpet\u2019s Nominating and Governance Committee who directly oversaw the Company\u2019s litany of governance failures;<\/p>\n<\/li>\n
- \nAppointing a new director who, while a highly capable supply chain executive, is insufficient to address Freshpet\u2019s governance and capital allocation issues, having never served on a public company board and who comes with an overlapping private board with the new Chairman;<\/p>\n<\/li>\n
- \nUndermining Freshpet\u2019s claim to be \u2018de-classifying\u2019 the Board beginning in 2023 by appointing the newly added director to the 2024 class; and<\/p>\n<\/li>\n
- \nTaking action directly at odds with the Company\u2019s prior declarations that it \u201crecognizes the benefit of providing stockholders an annual opportunity to express their satisfaction or dissatisfaction with the actions of the Board\u201d<\/i> and that \u201cthe Board believes it is important for it to maintain stockholder confidence by demonstrating that it is responsive and accountable to stockholders.\u201d<\/i>6<\/sup><\/li>\n<\/ul>\n
JANA\u2019s Director Nominees Bring Much Needed Change<\/span><\/b><\/p>\n
\nTo address the damage Freshpet\u2019s Board has already inflicted on shareholders and help the Company achieve its full potential, we are nominating Diane Dietz, Timothy McLevish, Scott Ostfeld and Kurt Schmidt to Freshpet\u2019s Board at the Annual Meeting. We believe these four highly qualified director candidates are far better equipped to oversee management, governance and capital allocation, address conflicts of interest by putting a stop to corporate resources being diverted toward management and Board member pet projects, and evaluate potential buyer interest in the Company.<\/p>\n
\nSincerely,<\/p>\n
- Timothy McLevish, <\/b>Former Chief Financial Officer of Kraft Foods and Walgreens, and former Executive Chairman of Lamb Weston and director of Conagra Brands.\n<\/li>\n