Proxy battle hits developer

Dissident shareholder eyes Genesis

A Calgary real estate development company says it is under attack by a group of dissident shareholders wanting to seize control of its board.

Genesis Land Development Corp. —which built the Genesis Centre in northeast Calgary and is the company behind planned communities such as Saddlestone, Taralake and Taravista — has written a letter to shareholders informing them of a looming proxy fight launched by activist investor Smooth water Capital Corporation, of Toronto.

Smoothwater, which was formed in May of this year by chair Garfield Mitchell and CEO Stephen Griggs, owns a 22.07 per cent share in Genesis. Mark Mitchell, Garfield Mitchell’s brother, sits on the board of Genesis and owns nine per cent of the shares.

Griggs is a former executive director for the Canadian Coalition for Good Governance, an organization which calls itself “the voice of Canadian institutional shareholders” and has done work on issues such as executive compensation, corporate voting procedures, and board engagement.

Genesis board member Bill Pringle — who heads up a company committee created to deal with the dissident action — said it was Mark Mitchell who first proposed an alternate slate of Smoothwater-backed director nominees for the company’s eight-person board. Pringle said Genesis has tried to calm the waters by supporting three of those nominees, as well as an agreed-upon independent nominee, but Smoothwater wants to hand-pick a fourth board member, as well.

“We’ve made numerous overtures and offers, but they are not prepared to compromise,” Pringle said. “They own a significant amount, and that certainly entitles them to significant representation on the board ... But I just don’t think two shareholders, that combined represent 31 per cent of the shares, should appoint their hand-picked people to the majority of the board.”

Smoothwater did not respond to the Herald’s request for comment, but on its website it calls itself an activist investor, saying it “works to effect change in targeted companies.” The website goes on to say that ideally, change can be negotiated with the current management and board but if not, “Smoothwater will seek to change the board and, if needed, management to ensure that the value maximizing strategy is implemented.”

In a news release coinciding with the company’s formation, Smoothwater said it will focus its energies on companies where there is an “identifiable path to significantly improve the share value,” either because of existing poor corporate governance, lack of a clear strategy, ineffective management, or other key drivers of share value.

Recent high-profile proxy battles at major Canadian companies like CP and Agrium have thrust the “activist investor” concept into the spotlight. Ari Pandes, assistant professor of finance at the University of Calgary’s Haskayne School of Business, said there may be more of this type of activity happening because corporate governance has become a higher-profile issue in the aftermath of the global financial crisis.

But while he said investors may be looking to shake up corporate boards or management, the odds are always stacked against a dissident shareholder.

“If you look at just the numbers, more often than not, they’re not successful,” Pandes said.

Pandes said it is also unusual to see a proxy battle launched by a Canadian activist investor, as there is a stronger tradition of such behaviour in the United States. (Both the Agrium and CP proxy fights were driven by hedge funds from south of the border).

“There’s a cultural thing. The Canadian market tends not to be very aggressive with these things, and the corporate culture is often seen to be quite clubby ... Nobody wants to rock the boat and upset anybody,” Pandes said. “So this could be a one-off, or it could be a sign of a greater trend.”

Shareholders will vote on the Genesis board of directors at the company’s annual general meeting on August 12.

Genesis shares closed up 1.95 per cent on the Toronto Stock Exchange on Wednesday, at $3.66. The stock has a one-year performance return of 18 per cent.