Former CEO encourages shareholders to reject Richardson GMP transaction

Kevin Sullivan, former president and CEO of GMP Capital Inc. has filed an information circular encouraging shareholders to vote against the proposed Richardson GMP transaction, calling the deal financially unfair to GMP’s shareholders.

The circular also urges shareholders to vote for the election of five new directors at the company’s upcoming annual and special meeting of GMP shareholders on Oct. 6, 2020. “The election of directors at the meeting will not be meaningful if the transaction is approved, as once that is completed, Richardson Financial Group Limited (RFGL) will own 40.1 per cent of GMP’s shares and be able to reconstitute GMP’s board as it wishes. The election of directors is, however, fundamentally important if the transaction is rejected,” Sullivan writes.

“It is not surprising that the terms of the RGMP (Richardson GMP Limited) transaction are overly favourable to RFGL. These terms were negotiated by a board that had already handed significant control over the affairs of GMP to representatives of the Richardson family,” he adds. “GMP’s board also allowed one of RFGL’s director nominees, Kishore Kapoor, to serve as GMP’s president and CEO throughout the negotiation of the RGMP transaction. This removed any possibility of GMP’s CEO developing or supporting any transaction or strategic alternative other than the RGMP transaction on terms supported by RFGL.”

In his circular, the former CEO says the RGMP transaction destroys value – the value of what independent GMP shareholders will own after the completion of the RGMP transaction is less than the value of what they own today. He also says the deal is structurally unfair to independent GMP shareholders and RGMP investment advisors who will become GMP’s minority shareholders. He also says RBC’s valuation of the deal is flawed, as it overstated the fair market value of RGMP’s common shares and understated the fair market value of GMP’s shares.

Sullivan adds that two principal changes are needed to make the transaction fair and balanced: In addition to the $0.15 per share dividend currently to be paid to pre-closing GMP shareholders, a further $40-million or $0.53 per share should be returned by way of a share buy-back at $2.42 per share. He also says a suitable governance agreement is required to ensure RFGL does not use its post-closing share ownership to take actions that are contrary to the interest of GMP’s post-closing minority shareholders.

“Inexplicably, as part of the RGMP transaction, GMP’s board has agreed to terminate the investor agreement and has not replaced it with any protections for the benefit of GMP’s minority shareholders.”

“While the concept of the RGMP transaction is a good one, the terms negotiated by GMP’s existing board are not. These terms are financially unfair to GMP’s shareholders and should be rejected by them,” Sullivan writes. “I have always believed in and vocally supported the concept of consolidated ownership of RGMP under GMP, that doing so is in the best interests of all parties, but it must be done on fair terms.”