Failed Richardson GMP deal would leave advisors open to poaching, says GMP Capital

“Richardson GMP’s investment advisors are the engines of the business,” said the letter to shareholders from GMP Capital chair Donald Wright. “Their support is critical for future success and a well-capitalized business is essential to their commitment. Their endorsement is a testament to the merits and balance of the Richardson GMP transaction.”

The firm said advisors representing roughly 97% of Richardson GMP’s assets under administration have entered into non-binding acknowledgement and support letters for the revised deal announced Aug. 13.

The transaction would provide the firm with working capital to recruit and retain advisors, invest in wealth management technology, explore acquisitions, and add asset management and insurance capabilities, the letter said.

“[O]pponents will try to persuade you that GMP should deliver a still larger capital distribution, notwithstanding the downside risk,” it said. “Don’t let them hamstring management’s ability to achieve its growth objectives.”

If the deal falls through, the letter warned that GMP’s business would be “in limbo” and advisors could “succumb to inducements from aggressive recruitment efforts by competitors.”

Last week Kevin Sullivan, a GMP founder and former CEO, said the proposed transaction “unduly favours” Richardson Financial Group at the expense of GMP’s other shareholders. He said he would vote against the deal and propose new directors for election at GMP’s shareholder meeting on Oct. 6, when the vote on the transaction is scheduled.

Sullivan holds about 4% of GMP’s common shares. Anson Funds, a firm that manages investment funds that collectively hold approximately 8.5% of GMP Capital’s minority shares, also opposes the deal, calling it “highly dilutive” and unfair to minority shareholders.

In the letter, Wright acknowledged a “dissident shareholder’s” plan to propose an alternate board, and said a different board wouldn’t be able to renegotiate the transaction’s terms.

The revised terms take the Covid-19 pandemic into account, valuing Richardson GMP at $420 million, compared with $500 million under a deal announced in February.

Richardson Financial Group will have an estimated aggregate ownership position of approximately 40% following the deal. Existing GMP Capital shareholders (other than Richardson Financial Group) and Richardson GMP advisors will hold 31.4% and 28.5%, respectively, of GMP common shares.

The shareholder letter said the board secured concessions from Richardson Financial Group during negotiations that will “assist GMP in retaining necessary capital to grow the business and facilitate the payment of the special dividend.”

GMP maintains that opposition boils down to the size of the “special dividend” in the proposed transaction. Upon approval, shareholders would receive a $0.15 dividend per common share. The payout “strikes the right balance” between shareholders and retaining capital to fund the firm’s future growth, and to service debt and preferred share obligations, the letter said.

Anson Funds said in its release last week that the transaction appears to value the GMP preferred shares at a 40% premium to their pre-announcement trading price, and that the reference value of GMP common shares should be roughly 20% higher.

GMP’s letter noted the “special dividend” would be the second paid to common shareholders in less than a year.

“Collectively, the two special distributions represent the vast majority of the proceeds received from the divestiture of GMP’s capital markets business last year,” it said.

The Richardson GMP transaction must be approved by a simple majority of common shareholder votes, excluding the votes attached to common shares held by Richardson Financial Group and related parties.