Coup or coincidence? Analysts struggle to understand Esprit's string of resignations

PUBLISHED : Monday, 25 June, 2012, 12:00am
UPDATED : Monday, 25 June, 2012, 12:00am


The situation at Esprit is settling down. The share price of the Hong Kong-listed global fashion house has stabilised after it dropped 32 per cent in two days following the resignation of the chief executive, on June 12, and the exit of the chairman, on June 13.

A conference call was hosted on June 14 to soothe investors and that seems to have worked.

The stock is climbing back but questions remain. Were the resignations triggered by some sort of boardroom battle?

The company says the departures were for personal reasons, there was no conflict among the board, and the timing was purely coincidental.

CEO Ronald van der Vis' explanation for his resignation on the conference call convinced many. He said the job was taking him away from his family, he was spending too much time in hotel rooms, and continuing with Esprit would have required a relocation to Hong Kong or Germany, which his family was not willing to consider.

But the resignation and immediate exit of former chairman, Dr Hans-Joachim Korber, and his not being at the conference call, were hard to fathom.

'It's my guess that there has been some kind of power struggle,' says Robert Jakobsen, an Esprit analyst for the Danish firm Jyske Markets.

'The sudden departure of two very senior executives obviously raises serious concerns regarding ... the stability of the management team,' Mizuho Securities Asia wrote analyst Peter Tang .

Evidence for the boardroom-conflict theory is circumstantial, but compelling. The resignations came during a two-day board meeting in Shanghai, and in the middle of a difficult business restructuring (Esprit's 'transformation plan').

At the end of the first day, van der Vis resigned. At the end of the second day, Korper resigned.

Esprit says board members discussed the resignations at the meeting, but that the meeting was not a cause for the resignations.

The resignations also coincided with aggressive share-buying by the Connecticut-based fund Lone Pine Capital, which has doubled its stake in Esprit in the past year and bought HK$155 million of Esprit shares on June 13-15. Lone Pine is the Esprit's largest shareholder, with a 14 per cent stake.

The fact the recent resignations followed the departure of chief financial officer Chew Fook Aun (who left on May 1) suggests all the events are related.

'You've had three major departures this year - the CFO, the CEO and the chairman - within a relatively short stretch of time. They have all left for personal or family reasons, which on face value we have to accept. But I would argue that the probability of there being zero connection among the three departures is quite low,' says Aaron Fischer, head of Asian consumer and gaming research for CLSA.

Esprit, which has a record of strong governance and especially good transparency, is standing by the official story that the three departures are coincidental. 'The resignations of the chairman and the CEO were unrelated and solely due to personal reasons. It was unfortunate that the timing of the events was so close. Both the chairman and the CEO confirmed that there was no disagreement with the board,' said Esprit in a written response to queries.


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