Endeavour Group peace only comes with a scalp – the chairman’s

Dragging this out to an extraordinary general meeting and potential board spill at the busiest time of year for Endeavour’s bottle shops and pubs, when the company and its advisers know it is not just Mathieson calling for change, would be misreading the room.

Hearl’s biggest problem is Mathieson, Endeavour’s biggest shareholder.

Mathieson’s tactics may be hostile and uncouth, but everyone knows he’s had more success running pubs in the past 20 years than just about anyone in the country. Can he do that for the next 20 years? Maybe, maybe not. The point is when he talks hotels, gaming and bottle shops, others are listening.

And no chairman can afford to have a war with investors, particularly a legitimately large shareholder. It is dysfunctional.

Mathieson’s campaign to get Wavish elected will flop. He couldn’t convince institutional investors or proxy advisers that appointing the former Woolworths, Myer and Dick Smith executive was in all shareholders’ interests. There are links between the pair, which cast doubts about independence and control, and in whose interests everyone was acting.

However, fund managers didn’t need convincing that there was a need for change. They know there were elements of Mathieson’s campaign and Endeavour’s defence that were right, but nothing changes that the company has been a big disappointment since it was spun out of Woolworths as a half-baked orphan in June 2021.

Yes, Endeavour was severely knocked around by the COVID-19 pandemic, is running into ESG headwinds and is still reliant on Woolworths for support services, but it is also lacking some fundamentals.

Investors have concerns around management’s short-term incentives, for example – tied to sales and EBIT just like Woolworths’, and not profit or total shareholder return – a lack of focus on like-for-like sales, and its powerhouse chain Dan Murphy’s’ shift upmarket.

The fact that Endeavour’s shares are down 32 per cent in the past 12 months, at a time when investors have wanted bankable companies with relatively defensive earnings streams, tells the story.

So what does peace look like?

Boardroom succession is a good place to start. Changing the chairman would allow the board to rethink the company’s management team and strategy.

It is already in the market for two non-executive directors, and will also be looking to replace former Woolworths executive Colin Storrie.

Stepping on to Endeavour’s board wouldn’t be for the faint-hearted. Fund managers know that, and have been lobbying their favourite retail and pubs-types to join the board. That is a good sign.

Mathieson and his BMG are staying out of that debate, supposedly happy for other investors to lead their campaigns and not wanting to cast any more doubts about trying to take control of the board without paying for it. Whoever steps up would want to meet both Bruce snr and Bruce jnr (an existing Endeavour director) before agreeing to take the reins.

Endeavour managing director Steve Donohue looks safe, at least while the boardroom changes play out. That should buy him time to show investors he is listening, and give the new board time to think about things such as strategy and incentives. He may be in Mathieson’s sights longer term, but Bruce senior isn’t likely to go to war a second time if the share price is headed in the right direction.

The other thing is that Endeavour needs to properly separate itself from Woolworths. It spent $657.2 million on transactions with Woolworths last financial year, up 5 per cent on the prior year, including for store-level format development, refurbishment and IT asset projects, according to Endeavour’s annual report.

That stings its big shareholders, particularly when Woolworths tells them it will back Endeavour’s board and management team.

There are plenty of discussions taking place behind closed doors in the lead-up to Tuesday’s annual meeting. Endeavour and its bankers are keeping close to the group’s major shareholders – AustralianSuper, Perpetual, Wavestone Capital, Wilson Asset Management, Martin Currie and First Sentier.

If it is really listening, this will be Hearl’s final AGM in charge. Investors are sick of losing money on their shares, and the situation needs a circuit-breaker.