Nothing neat about whisky brawl that put board on the rocks

Whisky is considered a gentleman's drink – reserved for times of congratulations and clever conversations with life-long friends.

So it is jarring that this drink should be at the centre of a brutal ASX-boardroom brawl that came to a head this week.

The business, Tasmanian-based Australian Whisky Holdings, produces some of the world's best whisky leveraging the Apple Isle's carefully cultivated image of bucolic colonial-era craftsmanship that has worked well for other food and liquor products. There is even a Tasmanian Whisky Trail.

The rewards can be large. International demand for Tasmania's healthy and unique foods has turned a small company like infant formula producer Bellamy's into a $1 billion business.

But AWH has been roiled in the past few months amid a shareholder civil war that has seen the board cleared out, a chief executive depart and the company's second largest investor seize effective control of the business.

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The key players are colourful and no strangers to corporate cut and thrust.

The man painted as the agitator behind the change is rich-lister turned activist investor Bruce Neill. On 14 March his company Quality Life requested a shareholder meeting to remove four of five directors. By May 20 he marshalled the 75 per cent support he needed to roll the $64 million company's board. And so the night before the May 21 meeting chairman Terry Cuthbertson, ex-Coca Cola executive, Peter Herd, and former Rene Rivkin sidekick, Gary Mares, all resigned as directors.

That left only two directors – Bill Lark, a man whose surname adorns one of the company's best known products and who is known as the "godfather of Australian whisky", and American and thoroughbred enthusiast Stuart Grant, whose horses are trained by his friend Gai Waterhouse.

Grant faced the music at the shareholder meeting at the Royal Automobile Club of Australia in Sydney on Tuesday. He was comprehensively voted off the board. Lark then carried through with a promise to quit in protest.

For good measure the company's acting chief executive and chief financial officer Brendan Waights also resigned. The entire board and top management gone in one malty gulp.

As the smoke cleared it became clear that Neill had leveraged his 9 per cent holding to get a firm grip on the company's direction. The three new directors have some impressive pedigree. David Dearie is a former senior executive at Treasury Wines while Geoff Bainbridge was co-founder of hamburger chain Grill'd.

Warren Randall has the unofficial title as the "King of Australian Wine" as the man behind the Seppeltsfield wine business in the Barossa Valley.

So what was the dispute all about? That depends on who you ask. The business itself bears all the hallmarks of a maturing enterprise.

It has been loss-making but acquisitive and over the past twelve months has increased its revenue from $179,000 in second half of 2017 to $2.82 million in the corresponding period last year as it swallowed the Lark and Nant brands and paid down debt.

"It was a contest to see who had a bigger dick between Bruce and Terry," says Grant.

"This is not two factions having different visions – this was all ego-driven."

Grant is a Delaware-based lawyer who owns about a dozen horses with Waterhouse and remains the company's sixth-largest shareholder with 3.5 per cent.

Grant says animosity had been simmering away for years, but a key turning point occurred last November, when the Cuthbertson-led board raised $5 million through a share placement to Hong Kong-based ACE COSMO Developments.

The strategy was designed to inject cash into the company for future expansion and draw on the Hong Kong shareholders' connections to push into Asian markets.

"Bruce felt the expansion diluted the 'Tasmanianness' of the business," says Grant.

"My view is that the Tasmanianness was key to the whisky itself but not the origin of the stockholder base … Bill Lark agreed, and you can't get more Tasmanian than Bill Lark."

Lark is certainly something of a legend. He is the only southern hemisphere distiller inducted into the World Whisky Hall of Fame, and was until recently an AWH board member. Its other brands include Overeem, Old Kempton, and Nant, which was purchased out of its own whisky barrel scandal.

Grant and Neill knew each other for years before their whisky connection as Neill is a part-owner of the Cressfield horse stud in New South Wales. The media-shy Neill entered his horse for the $13 million Everest race in 2017 along with high-flying Sydney racing identity Damion Flower.

Mr Flower was this week charged with cocaine trafficking. His lawyer has indicated he will contest the charges. The horse's name – Clearly Innocent. Neill has no connection to the cocaine charges.

Neill did not respond to requests for comment but announcements to the ASX may reveal some of his thinking.

In March, Neill demanded the resignation of four of the five incumbent directors in a bid to install directors nominted by him. At that point, AWH was already dealing with the recent departure of its chief executive Christopher Malcolm.

In November, 2018, Malcolm gave a presentation to board members at the company's George Street offices in Sydney titled "All Things Wonderful in Tasmanian Single Malt Whisky".

But then in February he abruptly departed the company effective immediately.

In Grant's telling Neill "went shareholder-to-shareholder for several months" including trips overseas, garnering support for his move.

In mid-May as Neill's manouvering became apparent the AWH board asked the Takeovers Panel – which regulates corporate activity – to intervene in what it believed may have been an "inappropriate" campaign by Neill.

"I don't know what promises were made to people for their vote," says Grant.

The board proposed a compromise where two directors would step down and two directors from Neill's camp would replace them. Lark would keep his spot.

The offer was rejected.

"It had got personal by that point," says Grant.

The incumbent leadership appealed to shareholders and defended its record.

The board had "reduced debt to strengthen the group's balance sheet" while "respecting the company's Tasmanian connection", according to company documents lodged with the ASX.

All of it culminated in Tuesday's showdown. Dearie chaired the dramatic meeting, which he describes as "odd".

"It was very official and straight to the point … the former directors were there and I spoke to each of them."

He says he was approached by Neill a couple of months ago about taking a board seat but claims some support from both sides.

Dearie says AWH needs clarity and direction, a cohesive capital structure, better branding and to move into key markets of Asia and America.

"I have got vast experience in the wine and spirits sector. I spoke with Bruce Neill and with Terry Cuthbertson and both were keen on me joining the board in some capacity."

Grant points out the new directors did not join without their own baggage.

Bainbridge went through an public acrimonious courtroom battle with his Grill'd co-founder, while Dearie resigned after three years as boss of Treasury Wines boss after the company struggled to turn around its American operations.

The new look board will be put to an immediate test finding a new CEO, presumably a gentleman.