Activist shareholders step up campaign at French Connection

Gatemore Capital Management has stepped up its pressure campaign on French Connection founder Stephen Marks in the past week saying the struggling high street retailer may run out of cash by the summer and is need of an urgent boardroom shake-up.

According to The Sunday Times, Gatemore, whose campaign to effect change at the business has been underway since last summer, has written to Marks to express deep concern "about the company’s utter lack of progress in improving its operating performance".

Last September French Connection posted a pre-tax loss of £7.9m on sales of £69.2m in the six months to 31 July. At that time it said that it had seen an uptick in like-for-like retail sales (though overall retail sales were down) and that wholesale had shrunk as accounts were losing confidence in the brand due to its financial performance.

Gatemore has now been joined in its campaign by fellow shareholders OTK Holding and Zoar Invest and together they represent 15% of shares. Marks, who founded the business in 1972, owns around 42%. The shareholders want Marks to split his role of chairman and chief executive, which contravenes corporate governance guidelines, but he is understood to be intransigent on the issue.

They also want to see the removal of two non-executive directors, Dean Murray (former CEO of Myriad Childrenswear Group) and Claire Kent (a former managing director of Morgan Stanley) who have been serving for nine years, arguing they can no longer be independent and have presided over a period of serious decline in the company's fortune.

It is believed the shareholders would like Christos Angelides, the highly respected former product director at Next who joined as a non-executive director last year, to oversee the board changes. It is understood Marks may be more amenable to this point.

Previous demands from the shareholders have included the ditching of the FCUK brad, which helped propel it to the height of its success in the 1990s but which also ended up being part of the reason for its fall from popularity by the mid 00s, speeding up store closures and focusing on a younger customer. They claim their requests to engage with the board have been "largely ignored".

They now claim the business could be in a zero or negative cash position by this summer and may be forced to sell valuable assets such as the leasehold on is Oxford Street store "unless decisive action is taken immediately".

French Connection's shares are currently trading at around 32.4p giving a market capitalisation of around £30m. Ten years ago its shares were trading at around £2.40. It is understood potential buyers, including private equity business Rutland Partners, were interested in a potential purchase of the business about this time last year but it is not clear how far their investigations progressed.