DC.PR.C: Dundee Gets Support from Glass, Lewis & Co., Proxy Advisors

Dundee Corporation has announced:

that Glass Lewis & Co. (“Glass Lewis”), a leading, independent, governance analysis and proxy voting firm, has recommended that holders of Dundee’s First Preference Shares, Series 4 (the “Series 4 Preferred Shares”) vote FOR the special resolution to approve the proposed preferred share exchange transaction whereby each of its Series 4 Preferred Shares would be exchanged for 0.7136 of a First Preference Share, Series 5 (the “Series 5 Preferred Shares”) pursuant to a statutory plan of arrangement under the Business Corporations Act (Ontario) (the “Arrangement”). The resolution will be considered at the upcoming special meeting of holders of Series 4 Preferred Shares to be held on January 7, 2016 at 9:00 a.m. (Toronto time) at the offices of Dundee Corporation, 1 Adelaide St. East, Suite 2100, Toronto, Ontario, Canada.

In its recommendation, Glass Lewis noted that while “the retraction date of the Series 4 Preferred Shares will be effectively extended three years through the Arrangement, the par value of the Series 5 Preferred Shares is functionally equivalent to that of the Series 4 Preferred Shares, their cumulative dividend rate is greater, and the redemption features of the Series 5 Preferred Shares are more generous”. Glass Lewis also stated that it believes that “decisions regarding a Company’s capital structure, business and operations are best left to the judgment of the board” and that “the arrangement resolution proposed by the board is reasonable and consistent with standard market practice”.

The Company continues to seek dialogue with significant institutional holders who have expressed concerns about the proposal, and there can be no assurance that such discussions will be successful or that the proposal will proceed as currently proposed or at all.

I am unable to find a copy of the report on-line (not surprising, since Glass, Lewis is Subscriber-Pay), so I am unable to comment regarding what the report may contain that Dundee did not choose to highlight. I will note that the quoted sections do not address the investment merits of the potential new issue compared to those of the old one.

Update, 2015-12-18: I sent Glass, Lewis the following eMail:

Subject: Recommendation Regarding Dundee Corporation Preferred Shares

Sirs,

I was astonished to read that you have recommended that holders of Dundee’s First Preference Shares, Series 4 vote FOR the special resolution to approve the proposed preferred share exchange transaction (http://www.dundeecorp.com/pdf/2015-12-17-Glass-Lewis.pdf )

How may I obtain a copy of your full report?

Sincerely,

A few hours later I received the reply:

Hello James,

If you are interested in our research the fee for the report, based on Dundee’s market cap, is $3,500.

Please let me know if you are interested or if you have any other questions.

Best,

I’m not particularly surprised, but I will say that I eagerly await the comments of those Assiduous Readers who are convinced that “Subscriber Pay” is the only way to go for Credit Rating Agencies.

I will not comment much on the Glass, Lewis recommendation, since I have not seen anything of it other than the very short quotations provided by Dundee. However, I will reiterate that the quotations do not address the investment merits of the Series 5 shares vs. the Series 4 and that while it is of course true that:

“decisions regarding a Company’s capital structure, business and operations are best left to the judgment of the board”

it is also true that decisions regarding an investors portfolio are best left to the judgment of the investor!

7 Responses to “DC.PR.C: Dundee Gets Support from Glass, Lewis & Co., Proxy Advisors”

  1. J.B. says:

    The Glass Lewis (shameful) recommendation is absurd. It serves management’s interests and not the shareholders of the Series 4 shares.
    If you wanted a true indication of the value of Dundee’s proposal to the Series 4 shareholders, then Dundee could have extended the term for those shareholders, that might be delusional enough to accept the deal. However, on that basis, I’m sure that it would be a small minority.

  2. jiHymas says:

    If you wanted a true indication of the value of Dundee’s proposal to the Series 4 shareholders, then Dundee could have extended the term for those shareholders, that might be delusional enough to accept the deal. However, on that basis, I’m sure that it would be a small minority.

    I agree. The proposal runs contrary to the usual method of term-extension for retractible preferred shares in Canada (which happens frequently, if not exclusively, with Split Share preferreds), in which there is almost always a “Special Retraction Right” allowing unhappy shareholders to exit their investment on the original terms.

    That, I should hope, will be the objective of any beneficial shareholders who are in discussions with the company.

    Note that I have added an update to the post.

  3. jiHymas says:

    I have no idea who the author is, but he doesn’t like the offer’s treatment of fractional shares:

    But right on page one is the thing that made my blood boil and also made me wonder if they were in so much shit that they needed every last dollar: the deal will convert your old series 4 (worth $17.84 in 2016) into a shiny new series 5 preferred (worth $25.00 in 2019), at a conversion rate of 0.7136 — so far the math works out. But then they added the kicker: any fractional shares you would be owed of series 5 will be forfeit.

    To me, this whole thing — extending the terms of a nearly mature preferred, with no minority opt-out, relatively large consent payments to third parties, well below current market spreads, plus stealing the fractional shares — is a reputational mess. I would never do business this way unless I had no other choice, and I have to conclude that this is going to cost them on the spread of every future preferred share they try to issue. So to me, Dundee must be very desperate indeed. Are they facing bankruptcy or a liquidity crisis?

  4. SafetyinNumbers says:

    Kind of off topic but…

    Dundee corp common is up about 30% this year (yes that’s over the last two days). It might have something to do with the vote on Thursday but also there is some chatter on one of their private portfolio positions, TauRx.

    Here is the link:

    http://www.wsj.com/articles/singapore-developer-of-alzheimers-drug-plans-u-s-ipo-1451543494

    Dundee owns 5% as of September 30 and values the position at $68m CAD.

    I find it interesting that the common is up so much but the prefs have hardly moved in comparison, especially the DC.PR.D.

  5. jiHymas says:

    Niall McGee comments in the Globe:

    On Monday, The Wall Street Journal reported that TauRx is considering an initial public offering (IPO) in 2017 at a possible $15-billion valuation. In that scenario, Dundee’s current 4.3-per-cent stake (Dundee has been diluted down a little since Sept. 30) could be worth $645-million. Dundee’s class A shares were up 13 per cent on Monday and another 15 per cent on Tuesday.

    Having the option to sell could prove extremely useful, though. The company has been trying to convince holders of more than $100-million (Canadian) in its retractable preferred shares to exchange their quasi-debt securities for a new series with a higher dividend. Last month, Dundee said that large institutional shareholders had “expressed concerns” over the offer, and “the proposed transaction terms may be amended or withdrawn.” Should the offer not get passed in an upcoming vote, Dundee will need to come up with a plan B. Otherwise, holders of the retractable shares can request a full cash payout at par in the summer of 2016. Selling the TauRx stake (or part of it) could get Dundee out of a jam.

  6. SafetyinNumbers says:

    Can’t wait for your thoughts on this proposal!

    http://web.tmxmoney.com/article.php?newsid=81598814&qm_symbol=DC.A

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