Message to shareholders outlines benefits of proposed Richardson GMP acquisition, rebuts dissident view
The failure of a plan for GMP Capital to fully acquire Canadian wealth-management leader Richardson GMP (RGMP) would mean passing up massive benefits, as well as pose significant risks to common shareholders.
That was the crux of a message to shareholders that GMP put out through a management information circular, which included a letter to common shareholders.
“GMP believes the RGMP Transaction will best position the Company to capitalize on the considerable opportunities in the wealth management industry,” GMP said in a statement, referring to a plan it announced last week to acquire all the common RGMP shares that it doesn’t own for a total enterprise value of $420 million.
Since that announcement, several parties have come out in opposition. That includes Anson Funds, a manager of investment funds that hold a collective 8.5% stake in GMP minority shares, which panned the deal as “highly dilutive” and tilted against minority shareholders’ interests.
In the letter, Donald Wright, chair of the GMP board and independent special committee, said the three key pillars of the Richardson GMP wealth management business – “the best advisors, a powerful brand and a well-capitalized balance sheet” – would be protected and strengthened by the acquisition.
The letter acknowledged the existence of a dissident shareholder, which has signalled an intention to nominate an alternative board of directors to the GMP board in order to renegotiate the terms of the RGMP transaction – a goal that, according to the letter, would be beyond the alternate board’s abilities.
“The dissident's position boils down to a demand for a larger distribution than our proposed special dividend [of $0.15 per GMP common share],” it said.
GMP maintained that, aside from receiving the special dividend – which would be the second special distribution in less than a year – the acquisition of 100% of RGMP would offer the greatest potential for long-term value creation for common shareholders.
Aside from being well-capitalized, it said RGMP has the ability to achieve quick, relatively low-risk growth by leveraging its brand and its strong balance sheet to retain and aggressively recruit investment advisors. “Advisors representing approximately 97% of Richardson GMP's assets under administration have indicated their support for the RGMP Transaction by entering into non-binding acknowledgement and support letters,” the letter said.
If the proposed acquisition isn’t approved, GMP said its ability to generate profits and grow along with RGMP might be hampered as GMP’s business would be left in limbo; current and prospective RGMP advisors and key employees might be pirated by competitors through aggressive recruitment; and third parties and clients doing business with GMP and RGMP might turn to rival firms as they become unsettled by the deferral of negotiations between the parties.
GMP also warned common shareholders of risks should they seek a larger distribution. With a $0.15 per shareholder distribution, it said a successful acquisition of RGMP would leave it with enough working capital for important purposes, including bolstering the business’ resilience amid the uncertain economic environment; supporting its efforts to amass and retain advisors as well as clients; and positioning it to invest in technology and marketing as befits a national wealth manager, among other objectives.
“And yet, opponents will try to persuade you that GMP should deliver a still larger capital distribution, notwithstanding the downside risk,” GMP said. “Don't let them hamstring management's ability to achieve its growth objectives.”
The meeting for shareholders to vote on the transaction is scheduled for October 6 at 10 AM ET.
