DC.PR.C: Coercive Offer Attracts Wider Notice

Assiduous Readers will recall that I harshly criticized Dundee’s recent proposal in the post DC.PR.C: Coercive Exchange Offer.

Now Niall McGee of the Globe has penned a piece titled Dundee faces backlash over new share-exchange plan:

Dundee’s share-exchange plan has raised the ire of a prominent fund manager, a high-profile shareholder rights group and – according to multiple sources – has caused consternation among the company’s institutional shareholder base.

Dundee is under financial pressure, having lost more than $400-million in the year to date, primarily due to heavy exposure to the cratering resource sector. Last week, the company unveiled a proposal designed to take pressure off its balance sheet.

Mr. McGee was kind enough to quote me in the article:

James Hymas, president of Hymas Investment Management Inc., says these payments, which are roughly eight times higher than average, represent “a huge conflict of interest” for brokers and are “coercive” to shareholders.

“You get money for voting yes. But if you vote no and the offer goes through anyway, then you get squat. That makes it coercive,” Mr. Hymas said. He runs a preferred share mutual fund and publishes a daily commentary on preferred shares. Neither he nor his clients have any position in Dundee’s preferred shares.

And a regulators’ puppet group has joined the fray:

“These types of payments are deeply troubling,” said Neil Gross, executive director of FAIR Canada, an independent shareholder rights advocacy firm.

“It’s not just that they give advisers a financial incentive to bias their advice. It’s that they do it so overtly – revealing that the financial industry still hasn’t internalized the principle that conflicts of interest are incompatible with investment professionalism.”

It always makes me laugh to hear those guys talk about conflicts of interest!

You can make up your own minds about Dundee’s defence:

Dundee chief executive officer David Goodman defended the proposal.

“I believe our structure is fair. It’s transparent. It’s in the best interest of Dundee Corporation and it’s consistent with industry custom,” he said in an interview.

Mr. Goodman says one of the reasons the payments are necessary is that Dundee needs brokers to get the word out about the vote. He also said he has no concerns about advisers giving biased advice in this instance.

“I have a very high appreciation for the integrity and value that the financial advisers provide and I don’t believe that the receipt of a solicitation fee for their services is going to compromise their ability to properly advise their clients.”

We’ll see how it goes!

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