We got some more (balanced) press coverage!!!
Shareholders blow up over Allen-Vanguard deal
By Krystle Chow, Ottawa Business Journal Staff
Mon, Sep 21, 2009 8:00 AM EST
Shareholders of defence products company Allen-Vanguard Corp. say they are in the dark about a proposed going-private deal announced last week, even though the transaction will offer them no consideration as most, if not all, of the proceeds will go towards paying off the firm's heavy debt load.
"The news release indicates that the lenders will be satisfied, the trade creditors will be satisfied, (and) staff and management will not be affected. That's all great and wonderful ... but the shareholders, as much as they may not get anything, are entitled to the gruesome details of the deal, and that's what we're missing," argues a retail investor from Burlington, Ont. who has held stock in Allen-Vanguard since 2004 and currently owns about 40,000 shares.
"There's a lot of mystery here, but there's really nothing a shareholder can do at this point as it doesn't seem to be subject to a shareholder vote."
The shareholder says he and other shareholders with whom he's spoken to have received little to no information about Allen-Vanguard's binding agreement with U.S.-based private equity firm Versa Capital Management Inc., which will allow Allen-Vanguard to operate as usual and satisfy its various creditors without the need for a bankruptcy proceeding – and without requiring a shareholder vote.
While he acknowledges the company's debt of more than $200 million and long list of creditors could mean there will be nothing left for common shareholders once the deal is complete, he says it's unfair that the firm has not released any details about whether there's been an independent valuation of its assets or about who's getting what in the transaction.
"There was no indication in the news release that any further information will be forthcoming," he says, adding that he didn't get much more when he contacted the firm's investor relations department.
"All I got (was) ... 'I don't know if this is a done deal or if this is a proposal, I don't know if this will be put to a vote or not, Allen-Vanguard may put something on the website in the FAQ to explain the deal,' with an emphasis on the 'may.'"
No public filings have been made on SEDAR with regards to the deal except for the press release, and the shareholder says the only information stakeholders received during Allen-Vanguard's negotiations was that the conversation was "ongoing."
Debbie Weinstein of law firm LaBarge Weinstein agrees there should have been some communication with shareholders indicating the process, but says the deal is likely sound.
"It's got to come out or the shareholders will have a claim against the board," she says. "Still, the board has probably had good counsel and (the transaction) has been carefully looked at by lawyers and is probably legal ...While (Allen-Vanguard) is still solvent and operating, someone has concluded that if you were to sell all the assets, all the money would go to the creditors. It's a real shame (for investors)."
Even if that's the case, active retail shareholders aren't sitting down; shortly after Allen-Vanguard announced the proposed transaction, stakeholders inundated the phone lines and inbox of the Investment Industry Regulatory Organization of Canada, asking to get a trading halt on Allen-Vanguard's shares to preserve what little value was left for shareholders, according to the Burlington stakeholder.
That resulted in the stock's suspension on Sept. 14 and the Toronto Stock Exchange's declaration that it would review the listing "on an expedited basis."
The stakeholder hasn't started a formal process yet, but if shareholders don't get information soon, he says he's considering taking his complaint to the Ontario Securities Commission to investigate the legality of the deal and disclosures.
"If it is (legal), then obviously we have no recourse, but if not then the next step would be to organize some sort of a class-action suit against everyone involved, which includes the top management and the board of directors as they have a fiduciary duty to shareholders," he says.
But although shareholders have the right to complain to the OSC, the reality is that it's entirely possible the company might be justified in not providing information to shareholders at this point, argues Michael Gerrior. He's head of the business law group at Perley-Robertson, Hill & McDougall LLP.
"You can't just ignore shareholders without some overriding reason, which I suspect Allen-Vanguard has ... If it's a receiver-type situation where lenders are selling their position or assets to the private entity, then shareholders wouldn't necessarily get any notice, nor are they entitled to," says Mr. Gerrior, noting that investors would only get circulars or similar documents if they were required to vote.
Of course, there are filings that must be completed under the securities laws governing wherever Allen-Vanguard is an issuing firm, but the deadline for those is usually only after the transaction obtains the necessary approvals, he says.
"The regulator's job is to protect minority shareholders, but minority shareholders must recognize that simply investing doesn't mean they can have a say or control over how the company does. The management have made their decision or they couldn't make a decision because their secure lenders have decided what they were going to do," adds Mr. Gerrior.
Nevertheless, the shareholder who spoke to OBJ says he thinks it's worth delving into the matter.
"I think we have a little example here where the powers in charge feel that they can simply steamroll the public or the individual investor by doing whatever they want to do because no one will fight it, which is true in 99.9 per cent of all cases ... (but) maybe we can send a message."
ottawabusinessjournal.com |
