Former executive Kevin Sullivan says GMP Capital Inc. should buy back more shares and draft a governance agreement before entering into a transaction with Richardson Financial Group to buy all shares of Richardson GMP.
Sullivan, a GMP founder and former CEO who owns about 4% of GMP Capital common shares, filed an information circular and letter to shareholders on Tuesday laying out his concerns with the proposed transaction and calling for shareholders to reject the deal at an Oct. 6 meeting.
He also proposed a slate of five new directors to try to renegotiate the transaction.
Under revised terms announced last month, Richardson Financial Group will have an estimated aggregate ownership position of approximately 40% following the deal, up from 24.1%. 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.
In his shareholder letter, Sullivan said a governance agreement would ensure that Richardson doesn’t use its ownership position “to take actions that are contrary to the interests of GMP’s post-closing minority shareholders.”
He also said a renegotiated deal should return $40 million to GMP’s pre-closing shareholders through a share buyback. This would be in addition to the $0.15 per share special dividend that’s part of the proposed transaction.
GMP Capital outlined the deal’s benefits in its information circular and letter to shareholders last week. The payout “strikes the right balance” between shareholders and retaining capital to fund the firm’s future growth, the GMP letter said.
The transaction would provide the firm with working capital to recruit and retain advisors, and to invest in the wealth management business, the GMP letter said. If the deal falls through, GMP’s business would be “in limbo.”
On Tuesday GMP responded to Sullivan’s circular by publishing a list of advisors who support the transaction as proposed. The advisors represent 97% of the firm’s assets under administration, the firm said.
A statement from Marc Dalpé and Neil Bosch, advisor representatives on the Richardson GMP board, said advisors have been advocating for the transaction for years.
“We are certain that if the RGMP transaction is rejected, the outcome will be deadlock and downside risk to RGMP’s business as we expect investment advisors will leave for Richardson GMP’s competitors,” the statement said.
Sullivan said more capital should go to shareholders. Richardson GMP has operated with less than $30 million of capital on its balance sheet “with no growth initiative or desire to hire additional investment advisors being missed because of capital constraints,” Sullivan’s letter said.
Anson Funds, a firm that manages investment funds that collectively hold approximately 8.5% of GMP Capital’s minority shares, came out against the proposed deal earlier this month. The firm said the deal would result in de facto control of GMP going to the Richardson Family “at significantly less than fair value and without paying a control premium.”
Sullivan said he believes in consolidating Richardson GMP’s ownership under GMP on “fair terms.” The board nominees, whom he’s urging shareholders to elect at the special meeting on Oct. 6, “have a plan and vision to create shareholder value at GMP whether or not such a transaction can be achieved,” he said in a release.
The five board nominees are John Chambers, Edward Goldthorpe, David Goodman, Cameron MacDonald, and Cindy Tripp, a founding partner of GMP Securities.