Inrasingly angry shareholders are saying enough is enough
Sign of the times: 'Sometimes you need someone to stir the pot'
By KEITH DAMSELL
The Financial Post
Bill Wheeler is a reluctant rebel.
With some reticence, Mr. Wheeler, the low-profile president of Vancouver's Leith Wheeler Investment Counsel, found himself on the front lines of a nasty fight for control of Calgary's Blue Range Resource Corp.
A lagging share price, high costs and missed production targets pushed Leith Wheeler, manager of 4.6 million Blue Range shares, and four institutional investors to join forces last month. The fund managers and their well-heeled clients orchestrated a $194-million all-stock takeover bid for Blue Range by oilpatch rival Big Bear Exploration Ltd.
On Dec. 12, Big Bear reported about 67% of Blue Range shares had been tendered to the bid.
Traditionally, major investors are "hesitant to stick their neck out and rock the boat," said Mr. Wheeler. "It has to be pretty bad for shareholders to get pissed off and do something."
These days, investors in mining and energy stocks are annoyed as never before. Poor commodity prices, dismal stock performance and inept management have sparked a wave of shareholder activism in the troubled resource sector. Investors, with proxy circulars at the ready, are demanding better returns for their dollars. Management that ignores the charge, does so at its peril.
"This is shareholder activism at its best," said John Ing, president of Toronto's Maison Placements Canada Inc. "Management can no longer hide behind the veil of the board of directors . . . shareholders are saying enough is enough."
In addition to the Blue Range skirmish, shareholders have played key roles in three recent high-profile corporate battles:
z In September, Inmet Mining Corp. of Toronto successfully defended itself against a $517-million cash and stock takeover bid from Zemex Corp. by means of a sweeping share buyback.
z In November, British investor Howard Miller succeeded in taking control of the board of Toronto's Lytton Minerals Ltd. after waging a lengthy legal fight and proxy battle.
z That same month, Rayrock Resources Inc. reached a $160-million cash and stock deal to sell operations to Glamis Gold Ltd. of Reno, Nev., one day before unhappy Rayrock shareholders were to vote on the proposed breakup of the Toronto company.
A fourth proxy battle erupted on Tuesday, with dissident shareholders of Armistice Resources Ltd. moving to oust four of the firm's five directors.
Poor commodity prices have played a key role in the corporate shakeups. In the oil patch, natural gas prices have failed to meet expectations, while oil prices hover near 12-year lows. Metal markets have fared worse -- many base and precious metals have been stuck at 10- to 30-year lows for much of the past year.
The dire market has left producers with little room to manoeuvre, analysts say. Investor angst "is a sign of the times when you get these kind of commodity prices," said a Calgary-based analyst who asked not to be identified.
Investors, large and small, have abandoned the sector in droves. The value of Altamira Management Ltd.'s resource fund, for example, had crumbled to $109.8-million by Sept. 30, down from $300.5-million a year earlier.
"Institutions re-evaluate their assets every day and it keeps going south. They are getting a little testy," says Jay Kellerman, a partner at Toronto law firm Stikeman Elliott. As a result, the poorest-performing members of the sector come under increased pressure. In each recent corporate struggle, investors allege the brains in the executive office have failed to provide leadership to boost shareholder value.
The revolt at Rayrock was sparked largely by the gold producer's failure to simplify its ownership structure, a web of diverse holdings that, shareholders said, discouraged outside investors.
Inmet, long criticized for its mediocre assets and a lack of clear direction, staked its future on a 50% stake in the large Antamina copper-zinc project in Peru, but was unable to meet the project's steep spending requirements.
Opportunistic investors are watching the struggle with a keen eye on the assets, especially the cash: Rayrock has about $100-million in the bank while Inmet amassed about $535-million in cash after a series of asset sales.
Quest Ventures Ltd. of Vancouver clearly relishes the role of agitator. The private investment firm led the charge against Rayrock, Inmet and Calgary's Neutrino Resources Inc. last year.
"Sometimes you need someone to stir the pot and get things going," said Victor Flores, an analyst at HSBC Securities of Toronto.
The weapon of choice is the dissident proxy circular, a legal document that demands a special shareholders meeting to consider the ousting of the company's board. All that's required is 5% of the company's stock and $40,000 to $200,000 to cover legal costs.
A proxy battle "is a way of taking over a company without putting up the money," says Bill James, Inmet president and chief executive, who himself survived a shareholder revolt at Inmet.
The only catch is time. The targeted company has 21 days to respond to the circular and the law is unclear on when the proxy vote must take place. Rayrock had nearly three months to patch together the Glamis deal.
For small investors, the best way to try to unseat management may be to wait until the annual meeting.
Costs are significantly reduced because there's no minimum share ownership requirement. And it's much more difficult for management to duck or delay the meeting.
Expect next year's meeting season to be filled with a liberal dose of investors' bile.
"People are drawing up their lists," says Mr. Kellerman. "You've got a series of woefully undervalued companies that are trading at less than cash value.
"Shareholders see less than competent management and think we can do it ourselves."
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