Dissidents continue their streak

It’s been a good period for activist shareholders.

For the second time in a few days, an activist has managed to get enough support for its nominees that incumbent directors withdrew their nominations ahead of the annual meeting.

Monday, it was the turn of six nominees from PointNorth Capital to get the nod at Liquor Stores NA. Those six, chosen by the activist (which has a stake of just under 10 per cent), will replace the six nominated by management. In all the company, scheduled to hold its annual meeting Tuesday, is home to eight directors. Gary Collins and Peter Lynch are the two holdover directors.

Last week, FrontFour Capital and Sandpiper Group — which had acquired a 6.2-per-cent stake (via units and derivatives) in Granite REIT, was celebrating when three incumbent directors resigned, to be replaced at the annual meeting by three of its nominees.

While the two proxy battles produced wins for the dissidents, different paths were taken to get there. Liquor Stores, which operates 251 retail liquor stores in Alberta, British Columbia and in four U.S. states, is largely held by retail investors, a group that traditionally doesn’t vote at annual general meetings.

PointNorth’s cause was helped when, shortly after announcing it was launching a proxy fight, two institutional shareholders, LOGiQ Institutional Partners and JC Clark Ltd., announced their support.

As a result, going into the vote, the dissident had about 20-per-cent firm support. Accordingly it didn’t matter that ISS, a leading proxy advisory firm, supported much of the company’s plans and argued, in a report, that only two of the dissidents should be supported. When about half the shares are held in “brokers’ name,” it’s tough for a company under attack to mount much of a challenge.

At Granite, a company with a large institutional following, the dissidents’ case was made much easier when ISS, plus another proxy advisory firm, Glass Lewis, recommended investors support the dissidents. The reason: a number of institutions are required to follow what those two firms recommend. It was essentially game over when ISS issued its recommendation a few days before Glass Lewis weighed in.

In both proxy fights there was a pivotal moment that helped move support for the dissident side. In Liquor Stores, it was the decision to develop a plan to “ensure all shareholders have the benefit of the ISS recommendation.” That plan focused on forming a soliciting dealing group where the brokers would be paid, by the company, for the work and effort they did to get the existing board returned.

But the fee — $0.05 a share subject to a cap — wouldn’t be paid if the company’s nominees were not elected, a tactic that has only been used twice in recent memory.

Liquor Stores said the “arrangement exists to ensure that shareholder democracy functions for small shareholders as well as the larger institutions.”

Most observers believe the arrangement amounted to a breach of fiduciary duty given that directors are supposed to act in the interests of the company and all its shareholders.

At Granite, the dissidents gained support when the company announced two new nominees for election. Granite’s board renewal process started in 2016 when Brydon Cruise and Donald Clow were appointed as trustees and directors. This year, it named two other new directors and nominees: Remco Daal and Kelly Marshall. The dissidents claimed, “This is not an independent board” and then listed “the web of historical interconnected relationships between the Board and management.” While Marshall got elected, Cruise didn’t.