Liquor Stores stake is a moving target

COMMENT

Of the hundreds of pages of documents filed in the proxy battle at Liquor Stores N. A. — the Alberta- based company is under attack from Toronto- based PointNorth — one matter stands out: a dispute about the ownership held by PointNorth, a private equity fund.

On the surface it should be simple: Go to the information circular prepared by PointNorth and look it up. On page 48 this was said: “As of the record date, PointNorth owned 2.75 million shares,” or 9.91 per cent of the shares outstanding. In a proxy contest, the record date has significance because a shareholder, as of that date, can vote. ( The record date also comes into play when dividends are being paid.) For the target’s June 20 meeting the record date has been set as April 21. So far so good. But t hat percentage doesn’t square with what Liquor Stores — which operates 252 retail liquor stores in two Canadian provinces and in four U.S. states — is saying. In a May 18 release, for instance, it referred to PointNorth, as “a recent 9.7-per-cent shareholder of the company.”

While the difference may seem marginal, it could be significant if the proxy vote is close. ( This week two institutional shareholders, LOGiQ Institutional Partners, and JC Clark Ltd., which own about nine per cent, indicated their intent to support of the dissidents.)

So we placed a call to the company and asked them to square the circle. In return, we received an 18-page letter it had received from PointNorth. The letter was dated May 15 and was sent to the company to meet its advance bylaw provisions. ( In effect PointNorth had to file documentation before Friday indicating its intention to launch a proxy contest.)

In that letter, PointNorth confirmed that as of April 21 ( the record date) it “beneficially owned or controlled or directed, directly or indirectly” 2.75 million shares, or 9.91 per cent of the outstanding.

PointNorth also indicated that as of May 15, it beneficially owns or controls or directs, directly or indirectly, 2,679,800 shares — or 9.66 per cent of the outstanding.

Accordingly, PointNorth’s share ownership f ell by 70,200 shares over the period April 21 to May 15.

So what gives? In an email response, PointNorth said that as the largest shareholder of Liquor Stores, its “position is outlined in its circular. PointNorth will continue to hold shares until the company earns the long-term returns it should.”

While that response may not have answered the question, it’s not known how typical it is for a company to reduce its ownership — but not necessarily the amount of shares it voted. One possible explanation is that PointNorth sold some stock to cover the costs of the proxy battle.

PointNorth’s stake in Liquor Stores has been something of a moving target. According to SEDAR, the world first heard of its investment on Nov. 15 when it filed an early warning report and issued a release. In the release, PointNorth said it had increased its equity interest to above 10 per cent through t he purchase of 1 5, 000 shares. As a result it owned 2.767 million shares, or 10.01 per cent. In the same release, PointNorth announced that it had also sold 17,000 shares, a transaction that reduced its stake to 2.75 million shares — enough to take its stake to 9.95 per cent.

Advantages apply to being a less than 10-per-cent shareholder, one of which is that there is no need to file early warning reports.