Investor: Ingles in ‘Urgent Need’ of New Oversight

Gamco proxy demands independent board members, more shareholder input

The investment group that has nominated two representatives to stand for election to the board of directors of Ingles Markets Inc. said the company was in “urgent need” of independent oversight and better communication with its shareholders.

Gamco Asset Management, the Rye, N.Y.-based hedge fund in a filing with the Securities and Exchange Commission, this week said the board as currently constituted “may lack the objectivity and independence necessary to perform its critical oversight role and to evaluate opportunities on behalf of all stockholders.”

Gamco, which nominated board candidates Justyn Putnam and John “Jack” Lowden late last month, also indicated it had stepped up its purchase of Ingles stock and now holds approximately 2.3 million shares, or 16.5%, of the retailer's Class A stock. The Asheville, N.C.-based Ingles is classified as a “controlled company.” The Ingle family, including chairman Robert Ingle, owned 76% of the combined voting power and 28% of the total number of shares of the company’s Class A and Class B stock, II, as of the end of its fiscal year Sept. 30.

Ingles Class A shares are publicly traded on the NASDAQ exchange. Its Class B shares are not publicly traded.

All eight of Ingles’ current directors are up for re-election at the retailer’s annual meeting in February. Company bylaws call for two of the eight directors to be elected by a vote of the holders of Class A stock, and the remaining six directors elected by a vote of the holders of the Class B stock.

“If elected, our nominees will constitute a minority on the board and there can be no guarantee that our nominees will be able to implement the actions that they believe are necessary to maximize stockholder value,” Gamco said. “However, we believe the election of our nominees is an important step in the right direction for enhancing long-term value at the company.”

Gamco in the filing said it heard by email from Ron Freeman, Ingles’ CFO, shortly after informing the company of its intention to nominate board candidates, but that they hadn’t met yet. Freeman was not immediately available for comment.

Gamco’s proxy made a case for more independent oversight and shareholder involvement for the company, but it provided little detail as to how its directors would influence it to increase returns. Investors from time to time have argued that Ingles has unrealized value in its real estate portfolio, with the company owning nearly all its 199 stores and real estate and in many cases, the shopping centers where its stores are located. Ingles sales totaled $4 billion in fiscal 2017.

Ingles’ Carolinas market areas have been in the path of major investment from new and existing competitors, including Publix, Walmart and Lidl. Some sources have speculated Ingles could be an acquisition target for retailers expanding in the area.

Gamco said it was concerned that just three of Ingles’ board members were classified as independent, and that one of the independent directors, Brenda S. Tudor, was a former CFO at the company.

The investor also expressed concern that shareholders of the company are not given a voice to ratify its auditor, calling that a “fundamental” issue. Ingles’ Class A board members also own too little stock in the company, Gamco contended, putting its directors out of step with investors.

Finally, Gamco said, Ingles communicates too little with investors, citing its decision to eschew a quarterly conference call with investors in 2016, while further noting that Ingles officials were guarded on the calls as compared to many of its publicly traded peers. “We believe that the board should encourage management to engage with stockholders to highlight successes, address concerns and provide stockholders, investors and analysts with the opportunity to ask fundamental financial questions regarding the company,” Gamco said.


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