Most of Detour Gold board ousted in proxy battle led by U.S. billionaire
Interim CEO, chairman among five voted out in one of biggest wins for investors
TORONTO In one of the largest victories for shareholders in recent years, the U.S. billionaire John Paulson led a proxy battle that ousted five out of eight targeted board members at Toronto-based Detour Gold Corp.
The campaign, which started this July when Paulson’s hedge fund requisitioned a shareholder meeting, came to a conclusion on Thursday morning when interim chief executive Michael Kenyon resigned after having been voted off the board along with the chair Alex Morrison and three others.
Detour’s stock edged up about two per cent on Thursday to close at $11.08 in Toronto.
“They clearly misjudged their shareholder base,” said Kai H.E. Liekefett, a partner at Sidley Austin in New York who has been involved in more than 50 proxy battles. “They maybe didn’t take the fight as seriously as they should have.”
The victory may encourage other shareholders to seek change. In fact on the same day, Waterton Global Resource Management, a private equity firm that controls 10 per cent of Hudbay Minerals Inc., announced it will run its first ever proxy fight by nominating an independent slate of directors to replace a majority of the current board.
The Detour management shakeup also marks an extremely rare instance in which a majority of the board changed as a result of a proxy battle, Liekefett said.
In most proxy contests, the shareholder is seeking to gain a minority of the board, meaning one to three seats.
“Institutional shareholders are extremely reluctant to hand over control of a board absent egregious circumstances,” said Liekefett. “This is extraordinary.”
Paulson’s company owns 5.7 per cent of Detour, and doesn’t usually wage proxy battles. But it said it had invested $280 million in equity and $250 million in debt financing in Detour during the past decade, only to see poor returns.
Detour’s flagship gold mine in Timmins, Ont., produces around 600,000 ounces of gold per year, but management has continuously revised its operating costs upward, which means smaller profits.
Since 2014, the company ’s stock has underperformed gold by 13 per cent and declined 44 per cent.
With those returns in mind, Marcelo Kim, a partner at Paulson, started a campaign in July to replace all eight board members. In the end, he won five seats and Detour added a ninth board member, Jim Gowans, in August who was not up for removal. A press release announcing the results referred to Gowans as the new chairman.
The new board includes four holdovers, including Gowans, Andre Falzon, Judy Kirk, and Alan Edwards; meanwhile, five directors nominated by Paulson were elected, including Steven Feldman, Christopher Robison, Ronald Simkus, Dawn Whittaker and William Williams.
Lisa Colnett, Edward Dowling, and Jonathan Rubenstein also were removed as directors.
Marcelo Kim, a partner at Paulson & Co. who helmed the campaign, and was a candidate for the board, was not elected.
But his strategy of seeking “wholesale change” by advocating to remove all eight directors paid off in that five of eight directors were removed, a massive change at any company.
What’s more, three of the holdover directors joined the board in August when the campaign was already underway, meaning seven of the eight board members from the beginning of the year are now gone.
Only Andre Falzon has been at the company for any prolonged period of time, having joined the board in April 2013.
Kim, who attended the shareholder meeting on Tuesday at Norton Rose’s office in Toronto, said he had no significant interactions with the old management team.
The number of settled proxy fights is on the rise, according to a July 2017 article in the Harvard Law School Forum on Corporate Governance and Regulation. It found 45 per cent of all contests in 2016 ended in settlements, up from less than 20 per cent in 2001.
In the end, Detour management appeared surprised that shareholders voted to oust five people from the board, and it extended the final vote tally from Tuesday to Thursday in a last-bid effort to stave off the changes.
“This is a great victory for shareholders,” said Kim. “It’s not about Paulson winning. It’s about shareholders, about wanting change, and accountability, that’s what this all came down to.”