Jana Partners, which owns more than 5% of the shares in Lamb Weston, is not happy with the current course of the company, to say the least. This is evident from a letter sent to the board of directors. According to the investor, there is structural mismanagement that has cost at least $400 million. The investment company believes that a radical change of course is needed.
While many potato processors – especially Belgian ones – are banging with their financial figures, the opposite is true for Lamb Weston. The globally operating French fry producer has been in dire straits for some time. In the past quarter of the fiscal year, profits fell by almost half. The company attributes this mainly to lower consumption worldwide. As a result, a factory in the US was closed with immediate effect.
Restructuring
The American Jana Partners completely disagrees. According to the investor, there is a healthy global market with a good demand for (frozen) potato products. According to him, the disappointing figures are the result of structural financial mismanagement. The situation requires a restructuring of the board of directors, it explains in a letter to the board. Only then can Lamb Weston show green figures and make a profit for its shareholders.
The shareholder has been in talks with the board members for some time to turn the tide, but without success. In the run-up to the new financial quarterly figures, he publishes a strong opinion on the ins and outs of the American manufacturer. "The last five years, the return has decreased dramatically and 2024 was disastrous", it reads. "With this, the company is throwing away its good name that it has worldwide."
Interference
In October, Jana Partners began actively interfering with Lamb Weston’s leadership. This resulted in a $1 billion increase in market value on Wall Street, which the company says shows how eager shareholders are for change. The board of directors turned out not to want to go along with the proposed changes. That is why they are now going public and taking a hard stand.
"The board wrongly blames the market for its own financial blunders." The list of allegations continues: "A failed board has led to chronic mismanagement and an inflated cost structure. Instead of a long-awaited mea culpa and recognition of the financial damage the board has blamed the market and supported management."
Depreciation of potatoes
Jana Partners estimates that the mismanagement has cost at least $400 million in Ebitda over the last 2,5 years. In addition, reliability has been compromised. Market share has declined and during the previous and current financial year, there has been a significant write-down in potato inventory, as a result of the incorrect assessment of the market. Hundreds of millions were pumped – over a period of almost ten years – into an ERP project that is still not running well. "This failed so spectacularly that customers did not receive any product at all for a certain period." To top it all off, the company struggled with quality issues, resulting in $80 million worth of products having to be recalled.
The list of allegations is much longer. It ranges from the CEO's misuse of his own plane to the drastic decision to close an entire factory in Washington. According to Jana, the situation has become unacceptable for him and other shareholders. That is why he wants to pull Lamb Weston out of the doldrums as quickly as possible. If the board is not open to this, then there is no other option than to divest branches of industry in order to reduce the risks and boost the financial figures again.