Emails show why Dennis Lin was sacked from Bubs as battle to control infant formula brand heats up

The Australian has obtained emails that show Bubs’ plan to make infant formula in China for the Chinese market fuelled the sacking of former executive chairman Dennis Lin.

Dennis Lin was progressing a joint venture, announced last September, to make infant formula for the Chinese market before he was sacked from the company. Aaron Francis/The Australian

Former Bubs executive chairman Dennis Lin labelled financial forecasts to produce infant formula in China as a “mud map” and opened a bank account in China to fund the venture, despite non-executive directors saying they halted such a move until due diligence had been completed.

Emails obtained by The Australian have revealed what appears to be the catalyst for the sackings of Mr Lin and founder and former chief executive Kristy Carr. But Mr Lin says he followed board directives at all times “to a T” and Bubs’s non-executive directors “changed their mind” about the JV ahead of his ousting last month.

The battle to control Bubs is intensifying, with a board spill led by Ms Carr, Mr Lin and shareholders, who own about 5 per cent of the company, to be held in four weeks.

The Australian obtained the emails as James Jackson — Ms Carr’s choice for the Bubs’s next chair — accused incumbent Katrina Rathie of making “misleading and malicious statements” about him in a letter to shareholders.

Bubs chair Katrina Rathie.

Questions have been mounting about why Ms Rathie — who had been a Bubs director since July 2021 — and three other non-executive directors sacked Mr Lin and Ms Carr, who are now suing the company over their dismissals. Ms Carr has accused the company of failing to provide a safe workplace and “aggressive and abusive criticism”.

A Bubs spokesman said the company rejected the accusations, will “vigorously defend” the lawsuit and is planning to file a cross-claim as early as Monday.

The emails obtained by The Australian show that non-executive directors began to lose confidence in Mr Lin, three days after Paul Jensen’s appointment to the board in March.

Mr Jensen — who was also appointed chair of the company’s risk and audit committee — emailed Mr Lin on March 23, asking for 15 months’ worth of profit/loss forecasts for the Chinese venture.

The project, which was announced last September, involved a partnership with Chinese manufacturer Heilongjiang Ubeite Dairy Group. It was described as a “landmark deal” that would give Bubs access to China general trade, which accounts for 80 per cent of the country’s $US12.24bn ($18.33bn) infant formula market.

Mr Lin replied to Mr Jensen that: “we have been discussing the business plan and there is nothing set in stone yet as there are details I need to work through with the team and our JV partner.

“However, for your benefit, here is the initial mud map — please do not consider these as accurate. They are merely guides I am working with the team on to get to further detail for the business plan and budget.”

Mr Lin said he expected the China joint venture to generate revenue of $12m-15m in its first year, rising to $25m-30m and $50-60m in years two and three respectively. By year four, it would leap to $80m-100m with “20 per cent year on year growth after that” and a gross margin of 30-35 per cent.

Mr Lin also requested $13m to fund the move and opened a bank account in China, despite non-executive directors blocking such a move until more due diligence could be performed on the joint venture.

But in an email sent to Ms Rathie and another non-executive director Steven Lin (no relation to Dennis) Mr Jensen said he could not agree to transferring the $13m.

“If this is the extent of the financial modelling we have done for the China Label initiative, at this stage I cannot agree to investing $13m in the strategy in the immediate future. Without a monthly China Label financial forecast, I cannot see how the 2024 group cashflow forecast can have any integrity.”

Kristy Carr and Dennis Lin with a plane loaded with Bubs baby formula to be flown to the US last year.

Mr Lin told The Australian that the bank account was a contractual obligation to the JV and he sent an email copying all the company’s directors before he opened the account. Further he said Ms Rathie specifically asked him to open and manage the bank account.

“I have written email correspondence because I remember needing to change my flight from returning from the US to go into China, just before Easter, to open the bank account, which was communicated with the board,” Mr Lin said.

“I then got a call from Paul (Jensen), saying can you not open the bank account. I said ‘Paul, I’m here in China and I sent emails and confirmed that you guys are OK for me to go ahead, so it’s a bit difficult for me now that the bank account is open to try to renege on it’.

“It’s one thing to say that I didn’t follow the directions but as mater of fact, I followed the directions to a T and then they changed their minds. It’s okay for the board to change their mind, because it’s business and I appreciate that. It’s just a bit difficult when it’s all done.”

Ms Rathie and another non-executive director Steven Lin also commissioned Mahon China to complete due diligence on the project. The Australian understands Dennis Lin and Ms Carr requested Mahon to pause that work on January 5.

Mr Lin said he didn’t stop Mahon’s work but told other directors that “I understand at this particular point in time, there’s nothing more to do for Mahon”.

Mahon continued to do the work and handed in its report to the board this month, advising that Bubs should find another joint venture partner in China.

Ms Carr, who founded Bubs 18 years ago, has accused Bubs’s biggest shareholder, Alibaba-backed C2 Capital of having a conflict of interest in how to sell its products in China.

She said Bubs’ products needed to be sold through a range of outlets in China, including rival online platforms such as JD.com, professional diagous, and the growing range of physical mother and baby stores in the country.

According to Federal Court documents, Ms Carr is also accusing Bubs’s board of failing to provide a “safe and healthy working environment”. In a statement of claim, Ms Carr said Steven Lin — who runs C2 Capital — “engaged in bullying and harassing behaviour” towards he and “other employees”.

“The bullying behaviour included aggressive and abusive criticism and questioning of these employees and other intimidatory conduct,” the court documents state. A Bubs spokesman said the company will defend the accusations.

Ms Carr and Dennis Lin say they are not seeking to return to the executive or board ranks at Bubs. Instead they have put forward former Elders deputy chairman James Jackson as their choice for Bubs’s next chair, Rupert Soar as a director, and former A2 Milk Asia Pacific boss Peter Nathan as its next chief executive.

James Jackson says comments made about him from Bubs chair Katrina Rathie are “misleading and malicious”.

Ms Rathie wrote in a letter to shareholders last week that Mr Jackson, Mr Soar and Mr Nathan had “little to no ASX-listed company director experience”. She wrote that Mr Jackson’s last ASX-listed company directorship was more than five years ago, prompting a stern response from him on Sunday via his own letter to Bubs shareholders.

“I am writing to you to put the record straight regarding several misleading and malicious statements directed at me in recent statements by Bubs current chairperson, Katrina Rathie,” Mr Jackson wrote.

“I have been a director of ASX listed companies for over 18 years and I have served on four public company boards. I have been chairman of two ASX companies and deputy chairman of one.

“The highlights of my career to date in my role as a chairman or a deputy chairman, include the recapitalisation and turnaround of ASX 200 agribusiness, Elders that resulted in a return to profitability, four times share-price growth, and resumption of dividends over nearly four years.”

Mr Jackson criticised Ms Rathie’s director experience, saying she had none other than her role at Bubs.

“She has no direct operational experience in the food and agribusiness sector; and she has no experience or track record in creating value for shareholders.

“In fact, in the time she has been a Bubs director the Bubs share price has declined by approximately 54 per cent.”

Ms Rathie advised Bubs as lawyer for several years and Mr Lin and Ms Carr invited her to join the board two years ago. She has also served on non ASX-listed boards, including SBS.