The Chefs’ Warehouse, Inc. (CHEF) Reaches Cooperation Agreement with Legion Partners Asset Management

Key Summary: On January 26, 2017, Legion Partners Asset Management disclosed a 5.9% stake in the company, advocating for changes. By January 15, 2018, a Cooperation Agreement led to board expansion and appointment of new directors. Legion reduced stake to 3.3% on April 29, 2020. On February 8, 2024, they nominated four candidates to reverse underperformance, projecting growth with prudent spending. On March 1, 2024, the company agreed to appoint two new independent directors as per the Cooperation Agreement and plans to nominate a third at the 2024 Annual Meeting.

Market Cap: $1.5 billion | The Chefs' Warehouse, Inc. is a distributor of specialty food products in the United States and Canada.

Background

On February 8, 2024, Legion Partners Asset Management (3.3%) issued a public letter to the shareholders announcing its nomination of four candidates to the Board in order to reverse the Company’s chronic underperformance. Legion Partners stated that despite concerns, sees potential in Chef's markets.

Valuation Insight

“Chef can significantly improve its share price to more than $85 over the next five years and produce adjusted EBITDA of more than $320 million in fiscal 2028 – all without squandering any further capital on questionable acquisitions. We believe this price target and level of profitability is possible by achieving a 7% adjusted EBITDA margin (compared to 5.7% in 2023 – guidance midpoint), limiting additional acquisitions and implementing a prudent capital spending program.Projects share price > $85 and > $320M adjusted EBITDA by 2028, with prudent spending and margin improvement.”

Update

On March 1, 2024, the company entered into an agreement with Legion Partners Asset Management and pursuant to it, the Company temporarily increased the size of the Board to fourteen members and appointed two new independent directors, Richard N. Peretz and Wendy M. Weinstein, to the Board. The Company has agreed to nominate Mr. Peretz and Ms. Weinstein for election at the 2024 AGM. Further, as provided in the Cooperation Agreement, a third new independent director, Lester Owens, was appointed to the Board on March 4, 2024 and will be nominated for election at the Company’s 2024 Annual Meeting.

Past

On January 26, 2017, Legion Partners Asset Management disclosed a 5.9% stake in the company and recommended actions including adopting a majority vote standard for director elections and phasing out related party deals, while also urging a refocus on executive compensation to create sustained long-term value. Subsequently, on January 15, 2018, a Cooperation Agreement was entered, leading to an increase in the Board size and the appointment of two new independent directors. On April 29, 2020, Legion Partners Asset Management decreased its stake to 3.3%.