Ivaco meeting should be lively affair
Shareholders taking it on the chin in cost-cutting drive
Barry Critchley
Financial Post
Friday, May 23, 2003
Long-suffering investors in Ivaco Inc. will get a chance to vent their considerable frustrations at the Montreal-based company's annual meeting on Tuesday.
If shareholders were suitably upset to demand major changes at Hollinger International, then they should be down right livid at what is happening at Ivaco, one of a number of the country's severely underperforming companies which have two classes of shares.
For instance:
- Over the past year, Ivaco has generated a total return of minus 80%. Ivaco's market cap is now less than $30-million.
- Earlier this month, it implemented "further aggressive cost cutting and cash conservation measures." Those measures included not declaring upcoming dividends on its Series C, Series D and Series E preferred shares. Also affected are Ivaco's Series 1, 2, 3 and 5 second preferred shares. In all, $170-million of securities are involved. And it won't be purchasing shares put up for redemption.
- Holders of the Series 5 second preferred shares should be particularly upset with how things have turned out.
In late March, under a plan, Ivaco redeemed 453,643 of the shares that pay a dividend of $2.625 a year. Instead of paying cash, it issued the holders with 6.032 million class A subordinate voting shares. Given that each share was valued at $1.88, the redemption was valued at $11.341-million.
Those same shares closed yesterday at 85¢.
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What has been Ivaco's response to the huge beating shareholders have taken? Very little.
- The two top executives -- chief executive Paul Ivanier and his brother Sydney, a senior vice-president -- still occupy the same positions.
The two have been officers of the company since 1969. Both have worked for more than 40 years at the company, which regards itself as "a leading North American producer of steel, fabricated steel products and precision machined components."
The two still have large loans with the company. In total, the two owed $4.46-million at April 10, 2003. That money was borrowed to fund the purchase of Ivaco's class B shares. The loan is repayable on March 1, 2005.
As well, Paul Ivanier still owes Ivaco $1.35-million for a loan "made in connection with personal investments." That loan is repayable on March 1, 2005.
Taken together, compensation, loans outstanding and market cap turn up a key ratio: the what-have-you-taken-out-relative-to- what-the-company'-worth ratio.
By that measure, the two Ivanier boys are high achievers: On the compensation side, they received $1.155-million; they owe $5.852- million -- meaning a numerator of $7.007-million. Given that Ivaco's market cap is $29-million, their ratio is around one to four.
- Ivaco has decided to shrink the size of its board.
There was a board vacancy because of the resignation of Michael Herling, who has spent 52 years with Ivaco.
Rather than bring in an outsider, Ivaco studied the matter and, in consultation with two board committees, decided to operate with one less director.
That decision should be considered alongside the following: "The board has not found it necessary to adopt formal structures or procedures to ensure that it functions independently of management. The corporation's four unrelated directors play an active role in board matters."
- On the other hand, the company's top five executives did not receive a bonus last year.
The five executives are the two Ivaniers, Herling (a senior vice-president), Albert Kassab (chief financial officer) and Hugh Blakely (controller).
"The threshold of net earnings per share was not achieved in 2002. Therefore, no annual incentive was paid to the named executive officers nor to the other eligible executives," said a report from Ivaco's management resources and compensation committee.
In the two previous years, the five senior execs did receive bonuses. For those two years the five garnered almost $1.6-million.
But, for the first time in at least two years, Ivaco awarded its senior managers options/share appreciation rights. The options run for 10 years and have a strike price of $3.41 a share.
Given the way that Ivaco's shares have been trending, it could be many years before those options are in the money.
Indeed, at the end of 2002, none of Ivaco's senior executives had options that were in the money -- a record of dubious achievement. |
