Until the pandemic, that is, when Nathan’s departure was tarnished by market concerns over excess inventories in the hands of third-party suppliers, making future sales harder to achieve (and leaving the company at risk of stock write-offs as expiry dates pass).
The pandemic was unexpected and it’s an industry-wide problem, defenders would say. Not least at A2 competitor Bubs.
In April, its board terminated Lin’s employment, citing February’s $44 million half-year loss (driven by a collapse in Chinese sales) and a need to improve its governance. The board launched a strategic review with a particular focus on the China strategy masterminded by the ousted executive chairman, who according to Carr’s LinkedIn (she soon followed him out the door) is the smartest man she’s ever met.
The foundations of this dispute were laid a year earlier in March 2022, when Lin and Carr had penned an exclusive distribution deal with Andy Zhang‘s “AZ Global” daigou vehicle. As part of the agreement, the daigou operator universally known as “A2 Andy” got an exclusive brand to flog in ‘Bubs Supreme’ while Bubs booked $50 million (later revised down to $44 million as it diverted stock to the United States).
The problem is, AZ Global didn’t sell all the product and is sitting on hundreds of thousands of tins of Bubs Supreme. That would be A2 Andy’s problem, were it not for the fact that all that inventory floating around makes it harder for Bubs to make its FY24 Chinese sales targets.
Coming to the rescue, perhaps, is 10 per cent Bubs owner C2 Capital, which has a seat on the Bubs board and is in turn part-owned by Chinese e-commerce giant Alibaba, the purveyor of yet another infant formula distribution channel into the Chinese market.
A spokesperson for dissident shareholder Stable Charter alluded to this when saying this week that the board “appear[s] to be conflicted”, a reference to the argument C2 Capital doesn’t support the AZ Global partnership because it wants a deal that preferences its major investor Alibaba.
The Bubs board evidently disagrees and has its own take on the matter, which is that Bubs’ AZ Global deal leaves it overly reliant on a single distributor. AZ Global’s exclusive distribution arrangement with Bubs expires on June 30 (also the date the board’s strategic review is due). Unless the board is successfully spilled, it won’t be renewed.
Into this fray has entered Nathan, the ex-A2 executive proposed for Bubs’ vacant CEO position by Carr, Lin, and other shareholders like Chemist Warehouse co-founder (and EY Entrepreneur of the Year) Jack Gance.
As Asia Pacific CEO, Nathan built A2’s Chinese distribution chain (and much else). But he left under a cloud in May 2021 after a series of share sales, four earnings downgrades and alongside the announcement of a review of its China business.
AZ Global never had an exclusive agreement with A2 the way it does with Bubs. Still, it was a huge supplier. How else would Zhang come to be known as A2 Andy?!
As we repeatedly noted at the time, Nathan was one of several A2 executives to sell off large parcels of A2 shares near the stock’s record highs.
Nathan’s last sale (worth $4.6 million) occurred on August 27, 2020, a few days after the company maintained guidance while fielding analyst questions about its China inventories in an earnings call.
In response to JPMorgan analyst Shaun Cousins on August 19, Nathan said the company was “comfortable” with its levels of inventory. The Slater & Gordon class action alleges the company should have known and conveyed that its cross-border e-commerce channel faced headwinds by that date (A2 is fighting the suit).
Point being: no wonder Lin and Carr are keen on Nathan. He’s seen it all before and is unlikely to disagree on their strategy or choice of business partner. After all, he has plenty of experience with the same.