Dividend Stocks

FRPT Stock Alert: Activist Jana Gears Up for Proxy Battle With Freshpet

Pet food company Freshpet (NASDAQ:FRPT) added an even darker crimson tone to Wall Street’s midweek downcycle amid a report that activist investor Jana Partners plans to launch a proxy battle. Specifically, Jana nominated four directors to serve on the petcare specialist’s board. In response, FRPT stock slipped about 2% in the late afternoon hours.

Breaking the news, The Wall Street Journal reported that Jana accumulated a 9.3% stake in Freshpet, thereby representing the company’s largest shareholder. In September last year, the WSJ mentioned that the investment firm amassed its considerable stake in FRPT stock in a bid to push the underlying enterprise to boost its share price and explore a sale.

To be fair, no guarantees exist that Jana will take its fight to the limit. As the news agency pointed out, activist investors and their targeted companies settle their disputes before going to a vote. Still, the matter has been very distracting for Freshpet.

FRPT Stock Slips Under Heavy Criticism

Holding back no punches, Jana blasted Freshpet’s board, stating that it “disregarded its most basic duties to shareholders.” The investment group made the accusation in a letter to be sent to shareholders that the WSJ saw.

Underlying the concerns the activist has sits Freshpet’s disappointing financial performance. According to data from Gurufocus, Freshpet posted a net loss of $59.5 million in 2022. This figure represented an unfavorable doubling from 2021’s net loss of $29.7 million. In the pandemic-disrupted year of 2020, Freshpet incurred $3.2 million of red ink on the bottom line.

Moreover, the WSJ reported that “[a]t its peak, Freshpet, which specializes in refrigerated high-end pet food made with blends of meat, vegetables and fruits, had a market value of around $8 billion; it is now around $3.2 billion.”

Fueling tensions over FRPT stock, Jana called out Freshpet directors Olu Beck and David Basto. Notably, Jana stated that the latter is a partner at the private equity firm Carlyle. The issue is that Basto also serves on the board of Carlyle’s portfolio company and Freshpet’s rival Compana Pet Brands.

Freshpet Fires Back at Battle-Proven Jana

Not taking the accusations silently, Freshpet responded, noting that it attempted to address Jana’s concerns over the past nine months. A company spokesperson stated the following:

“Unfortunately, Jana has made clear to us that their sole purpose is to force a sale of the company without consideration to all potential paths to value creation. We are hopeful to avoid a distracting proxy fight as the management team continues to focus on driving growth and margin expansion as demonstrated in recent quarterly performance.”

Still, Jana left no apparent sign of willingness to back down from its position. In the letter to Freshpet shareholders, Jana wrote that its four candidates for the board 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.”

Weighing heavily on FRPT stock is that Jana carries a long history of corporate agitation. This list includes Whole Foods Market, which Amazon (NASDAQ:AMZN) acquired in 2017 and Pinnacle Foods, which was sold to Conagra (NYSE:CAG) in 2018.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.