GMP shareholders battle with board over sale of Richardson GMP

By Kate McCaffery | September 25 2020 01:00PM

Photo: Freepik

Shareholders of GMP Capital Inc. and GMP’s board of directors are firmly embroiled in a battle of words and competing proxies, over the fairness of the proposed transaction to buy all shares of Richardson GMP from Richardson Financial Group Ltd.

GMP’s former president and CEO, Kevin Sullivan filed an information circular earlier this month, encouraging shareholders to vote against the proposed transaction, calling the deal financially unfair to GMP’s shareholders.

Additional shareholders who own 16.9 per cent of GMP’s outstanding shares added their support to Sullivan’s campaign on Sept. 21, saying they will vote against the RGMP Transaction and vote for the election of five new directors proposed for election by Sullivan.

“As former employees or principals, the GMP shareholders are deeply knowledgeable about GMP and Richardson GMP Limited (RGMP) and the respective value and future prospects of each company. Their only interest in the matters before the meeting is as common shareholders of GMP,” the group wrote in its statement. “The GMP shareholders have grave concerns about the current governance of GMP and believe that their interests as shareholders of GMP have been disregarded by the existing GMP board in favour of the interest of the Richardson family. Having carefully reviewed and considered the position of both the incumbent directors of GMP and Mr. Sullivan, the GMP shareholders have unanimously concluded to vote against the RGMP Transaction and for the election of shareholder nominees as directors of GMP.”

The statement goes on to say the deal significantly undervalues GMP, that the existing board has failed in its duties to protect GMP shareholders and has chosen to advance the interests of RGMP over the interests of GMP’s other shareholders.

GMP Capital fired back by mailing another letter to common shareholders calling the criticisms misguided, adding that its advisors would likely defect, destroying value, if the deal were not approved by shareholders.

“There is no room for a short-term focused and self-serving share buyback proposed by the dissident (Sullivan) or for the dissident’s misguided calls for the company to de-emphasize growth,” the company writes in a question and answer document accompanying its letter to shareholders. “At a very minimum, to enable us to continue this important business together with our wealth management platform, we need to maintain at least $20-million more than the dissident believes. To do otherwise would negatively impact our clearing business operations. That level of capital assumes status quo in both of those businesses, but our objective is to grow aggressively the wealth management business through recruitment and tuck-in acquisitions.”

“The board believes that any payment in excess of the $0.15 per common share special dividend will weaken one of the firm’s three key pillars of success, namely a well-capitalized wealth management business.”

Sullivan published his own rebuttal September 23. “As strong public endorsements from GMP’s shareholders against the RGMP transaction and for the election of the shareholder nominees continue to build, GMP’s existing board persists in their efforts to convince GMP’s shareholders to approve a transaction that is financially unfair and contrary to the interests of GMP’s shareholders,” he writes, adding that shareholders are being asked to approve a transaction that will reduce the value of their common shares when the transaction is completed. “GMP’s independent shareholders are also being asked to approve a transaction that effectively sees them acquire an additional 6.3 per cent ownership interest in RGMP for a grossly inflated price.”

If the transaction is to proceed, he says GMP should return $0.68 per share of its net working capital to GMP’s common shareholders by way of a special dividend and by way of a share buy-back at $2.42 per share.

“Shareholders who want to see who is telling the truth on GMP having adequate capital to distribute $51.3-million ($0.68 per share) to shareholders in advance of the closing of the RGMP transaction need to look no further than page 44 of GMP’s own management information circular. This shows that GMP’s own special committee proposed the payment of $0.67 per share special dividend to GMP’s shareholders, representing an aggregate return of capital of over $50-million, as recently as July 1,” Sullivan writes. “Shareholders should ask themselves how it is that GMP’s own special committee and financial advisor believed that GMP had adequate excess capital but now say that the payment of anything more than $0.15 per share would imperil the business.” He adds that the board’s current position about what it can afford is also inconsistent with the original terms of the transaction announced in February 2020. Sullivan says those terms contemplated the redemption of RFGL’s preferred shares and other immediate payments to RFGL that aggregated $38-million or $0.52 per share.

Shareholders will vote on whether to accept the terms of the deal at a special meeting of shareholders on October 6, 2020.

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