Newly revealed Majestic investor backs opportunity to sell business intact

An activist investment firm that has been snapping up shares in Majestic Wine is backing the hope that the ‘fundamentally strong’ retail and commercial business may be sold intact, with sources close to the matter saying it had initially criticised the combination of asset sales and store closures announced in March as  ‘muddled’ and ‘value destructive’.

CEO Rowan Gormley in the Mayfair Majestic store in April 2015

Investment firm Gatemore Capital Management has been quietly accruing shares in Majestic since the first quarter of this year, and this week announced it has a 3.79% stake in the company, making it one of the UK retailer’s top ten shareholders.

It is understood that the independent investment firm, which has a dedicated activism fund to improve the performance of UK-listed companies with solid underlying businesses but which may be undervalued due to corporate governance or strategy, has been actively engaging with the Majestic Board and management since becoming a shareholder.

Although the firm is said to believe the Majestic and Naked businesses are fundamentally different models that are neither logical or beneficial to operate under the same roof, sources close to the firm said it had initially opposed the board’s plans to essentially strip the Majestic retail business for assets to grow the Naked business as revealed on 25 March.

Db understands the initial strategy was described as “muddled, needlessly unclear and value destructive”, as the retail and commercial business was essentially a fundamentally strong company with a strong brand, a loyal customer base and around 40 freehold properties, which was likely to generate an attractive premium if sold as one entity and perform better as an independent focused proposition.

However, last Tuesday (21 May) the company responded to media speculation over its intentions, confirming it was exploring a range of options to release capital from the retail and commercial business, including the combined sale of its retail and wholesale operations.

“[It] is one of the possible options being considered and the Group has received a number of expressions of interest,” a statement from the company said. But it added that “there remains no certainty that the sale of Majestic Retail will proceed nor as to the terms upon which any disposal would take place.”

More information is expected when its full year results are released on 13 June, but last month a Majestic spokesman told db that “all options remain on the table, including closures, sales and transitions.”

Speaking to the drinks business in March, Majestic boss Rowan Gormley said that the Majestic name was ‘unlikely to disappear from the high street”.

“It may be split 10/90 one way, or 90/10 another way or 50/50, it doesn’t matter – but there will likely to be two businesses at the end of this, one of them is Naked, one of them is Majestic,”  he told db, adding that the ‘radical’ decision to sell now gave the group options while the business was profitable, rather than “when we’re against the wall in five years time”.

He also scotched speculation around the surprise decision, and denied that reversing the merger of the two companies had been inevitable, arguing that the logic that made them an “excellent strategic fit” three and a half years ago had changed over the last two years – namely that Naked no longer needed to be propped up financially by Majestic.

Last month the first Majestic store was rebranded as a Naked Wines stores, although the company confirmed to db that this was a trial.