Eagle proxy battle goes Full Monty
Lost in the focus on major proxy battles at Granite REIT and Liquor Stores — where dissidents are looking to shake things up by adding new members to the boards of directors — is an even starker dispute shaping up at Eagle Energy Inc.
In fact, you might call it the Full Monty of dissident battles, because the unhappy shareholders at Eagle want to see the entire board (albeit made up of only four directors) sent packing.
Eagle has not been a shareholder favourite. Taken public at $10 per unit in late 2010 and after selling additional units at $ 11 in May 2012, it now trades at just $0.42 and has traded at an average price of $ 5.94 since being public. Last March it suspended its dividend. It has a market cap of $17.6 million.
Five weeks back, a concerned group of shareholders (led by Daniel Gundersen and Kingsway Financial Services) entered the fray following Eagle’s decision to take on additional debt and suspend its dividend. Gundersen is the former chief executive of Maple Leaf Royalties, a company acquired by Eagle in late 2015.
As a group, the concerned shareholders own about four per cent of Eagle — or nearly twice as much as the board and management own. They said they sprang into action because of Eagle’s actions, namely, taking on debt including a four-year term loan with a U. S. hedge fund. The group didn’t like the plan, suggested alternatives and when those ideas were rebuffed, went public with a proxy battle. ( Eagle said all those alternatives were considered or “in progress.”)
Monday the dissidents fired their latest salvo, a missive that was a response to what Eagle Energy had said Friday. And it chose to focus on three key parts of what Eagle had said: That the loan made to Eagle was in line with industry norms “given the current markets;” that Eagle’s compensation is in line with industry norms; and that Eagle’s operations remain on track.
On all three points the dissidents had a different view from the company. Against six comparable companies they highlighted, Eagle’s debt to enterprise value was more than four times higher; while the compensation paid to its chief executive was six times higher than the others.
But Eagle is unimpressed with what the dissidents want claiming that their plan “to sell Eagle’s best assets, pay down debt and cut costs,” will leave “Eagle as a shell with no reason for a continued existence and no ability to ever attract the attention of the investing community.”
Coverage is already lean: according to Bloomberg, Eagle is followed by only one analyst, Trevor Reynolds of Acumen Capital, who issued a note on April 19 with a buy recommendation and a $0.70 target.
Reached Monday, Eagle’s chief executive Richard Clark said we “are in one of the poorest disposition markets” in many years. The dissident’s plan “begs the question of how do they think they can make money for shareholders. What changes the metrics for the company is WTI (oil price).”
Aside from the merits, or otherwise, of their case, the dissidents have one advantage: the company seems to have little contact with its largely retail shareholders and to the extent the dissidents can make a connection then they could get over the line.
For instance, at last year’s annual meeting only about 10 per cent of the 42.45 million shares outstanding were voted for the election of the directors.
Monday the dissidents said, “We have substantially surpassed the entire vote total for the last annual general meeting. This year, shareholders are voting for change.”
The meeting date is June 27, and the cut- off date is June 23.