Bubs needs a turnaround strategy, otherwise boardroom battle is zero sum game with bruised egos

Leaked emails and ritzy expenses have intensified the battle to control Bubs, but no firm plan has been put forward to turn around the company’s fortunes.

There is no time for niceties in shareholder-led revolts and investors are seeing such brutality on full display at beleaguered infant nutrition company Bubs.

Emails obtained by The Australian appear to reveal the catalyst for Dennis Lin’s ousting as executive chairman: he did not provided detailed enough financial forecasts to warrant a $13m investment to manufacture infant formula in China for the Chinese market.

Current chair Katrina Rathie and non-executive director Steven Lin had been asking Dennis Lin for such information since last year. It was not until three days after the appointment of Paul Jensen as a non-executive director that Dennis Lin provided him with a “mud map” of yearly profit and loss estimates. Dennis Lin said he was working with his team to provide more detailed financial information. It hardly seemed like a hanging offence. After all, the board – which included Ms Rathie – approved the joint venture, which was announced to the market last September.

Yet it was framed as a catalyst for Dennis Lin’s demotion and then sacking.

Another reason he lost the confidence of non-executive directors was his opening of a bank account in China for the infant formula project. Dennis Lin says he emailed his fellow directors for confirmation before he opened the account, and then they changed their mind.

Meanwhile, The Australian Financial Review has reported details of a McGrathNicol report into executive spending habits that the Rathie-led board ­commissioned.

Bubs chair Katrina Rathie.

Former Bubs executive chairman Dennis Lin. Picture: Nikki Short

McGrathNicol highlighted a sample of 69 transactions, totalling more than $302,000, by Dennis Lin and former chief executive Kristy Carr, with purchases ranging from Giorgio Armani in Melbourne to a massage at the Ritz Carlton. Ms Carr said her expenses were never raised with her and they complied with company policy.

She is now suing the company, alleging she was bullied and that it didn’t provide a safe workplace.

The mudslinging is the start of a four-week countdown to a board spill led by Ms Carr, Dennis Lin and shareholders who own about 5 per cent of Bubs, including billionaire pharmacy baron Jack Gance.

Investors can expect more nastiness in coming weeks. There will be claims and counterclaims and more accusations hurled from both sides as the most primal of responses – self-preservation – comes to the fore. Which raises the question: what would happen if this much energy was devoted into getting Bubs back on track?

For Ms Rathie, Bubs is her first ASX-listed directorship and chairmanship. If she loses the spill, it won’t bode well for her resume or ego.

For Ms Carr and Dennis Lin – who both say they are not seeking a return to Bubs’s executive or boardroom ranks – the stakes are equally high. Ms Carr has most if not all her wealth tied up in the company she founded 18 years ago.

She and Mr Lin have also launched an advisory firm, TAKE Global, and prospective clients will be watching the Bubs battle closely.

Investors will be hoping for a swift resolution. Bubs shares have plummeted from a peak of $1.55 in May 2019 to 20c, while some analysts are forecasting a full-year loss of about $40m.

In the end, this fight is not about the details of who did what or said this or that. It’s about what’s needed to change the downward trajectory of Bubs and ensure its future to the benefit of all shareholders. Otherwise it is a zero sum game, with some severely bruised egos.