Anson believes the Richardson GMP Transaction undervalues GMP and is based on a flawed valuation
Anson believes the RGMP Transaction strips GMP of its cash resources to the detriment of Minority Shareholders
Anson believes the Richardson Family is taking control of GMP without paying a Control Premium
Anson believes the RGMP Transaction is Highly Unlikely to Receive the Necessary "Majority of Minority" Shareholder Approval
Anson intends to vote against the RGMP Transaction
TORONTO, Sept. 3, 2020 /CNW/ - Anson Funds ("Anson") manages investment funds that collectively hold approximately 8.5% of the minority shares of GMP Capital Inc. ("GMP" or "the Company"). Anson believes that the Richardson GMP ("RGMP") Transaction, as disclosed in the Company's press release on August 13, 2020, is unfair to the interests of non-conflicted shareholders ("Minority Shareholders"). Anson believes that the RGMP Transaction, on its current terms, is highly dilutive to Minority Shareholders and results in de facto control of GMP being transferred to the Richardson Family, a related party, at significantly less than fair value and without paying a control premium. Based on feedback from other significant Minority Shareholders, Anson believes that the RGMP Transaction will not receive the requisite Minority Shareholder approval. Anson intends to vote against the RGMP Transaction.
RGMP Transaction undervalues GMP and is based on a flawed valuation:
Anson believes that the valuation used to determine the reference value for GMP's common shares for the RGMP Transaction is flawed. In Anson's opinion, the valuation: (1) appears to value the GMP preferred shares at a 40% premium to their pre-announcement trading price, an excessive premium for any security with its terms, (2) applies an overly punitive adjustment for public company costs to enterprise value, and (3) does not appear to value the tax assets or the benefit of a public listing. In Anson's estimation, the reference value of GMP common shares (on an en bloc basis) should be nearly 20% higher, holding the value of the RGMP Common Shares constant at $303 million to $380 million.
In addition, as it pertains to the valuation of RGMP's total equity value ($303 million to $383 million), Anson would note that the implied value of the equity for 100% of RGMP as imputed by the year-to-date high trading prices of both GMP's common shares and preferred shares, never exceeded $220 million, a level that is nearly 40% below the reference value used for the RGMP Transaction.
Stripping the Company of its cash resources:
As it pertains to the value of GMP today, the assets are underpinned by the Company's strong working capital position, which is in excess of $123 million as of June 30, 2020, and that from a valuation perspective is straightforward to assess. If the RGMP Transaction is completed: (1) the Richardson Family effectively receives a significant portion of that value from Minority Shareholders by virtue of their RGMP preferred shares receiving a cash redemption right, and (2) Minority Shareholders are diluted by the shares issued to non-GMP RGMP shareholders, performed at what Anson believes is an off-market exchange ratio and predicated on a flawed valuation. The net effect of the RGMP Transaction is an unfair value transfer from Minority Shareholders to the Richardson Family and non-GMP RGMP shareholders.
To further highlight what Anson perceives to be the inequity in the RGMP Transaction, one must look closely at the treatment of the preferred shares of RGMP. For reference, both GMP and the Richardson Family hold preferred shares in the RGMP business. While GMP is receiving equity consideration for its preferred shares at an inflated and uncertain value (discussed above), the Richardson Family is retaining their preferred shares and in addition is receiving a cash redemption feature, thus receiving over $37 million from the Company in working capital over a three year period. Anson believes that a fair and equitable treatment would be for GMP shareholders to receive a distribution of preferred shares on equal terms as the Richardson Family and not equitizing them at what Anson would argue is an above market valuation.
Anson believes that the cash and working capital assets of GMP should be for the benefit of GMP shareholders and not for certain shareholders with different interests in the RGMP Transaction. As such, the only viable way that Anson believes a RGMP Transaction would be supported by Minority Shareholders is to distribute a significant amount of the Company's working capital (well in excess of the $0.15 per share dividend) to those with a rightful interest, GMP common shareholders.
Taking control of GMP without paying a control premium
Anson has serious concerns that the Special Committee did not adequately test the work done by the valuator and that the negotiation process relating to the RGMP Transaction was flawed. Anson cannot identify any other reason why the Special Committee would recommend the RGMP Transaction or opine that it is fair to Minority Shareholders. In addition to what Anson would argue are the off-market economic terms of the RGMP Transaction, the Richardson Family will increase its ownership to approximately 40%, resulting in de facto control (and solidifying negative control) of GMP, without having paid a control premium, something the Board and Special Committee should have weighed in their analysis.
Anson communicated these concerns directly to the Special Committee prior to the Company entering into the definitive agreement, however those concerns have gone unaddressed. Moreover, the Company has taken steps to entrench insiders further by adopting an Advance Notice By-law on July 30, 2020, which potentially will restrict the ability of GMP common shareholders to affect positive change.
If the RGMP Transaction is consummated on its terms, Anson has serious concerns relating to governance going forward, including: (1) the quantum of voting control held by the Richardson Family, (2) the track record of what Anson believes is unbalanced value apportionment between insiders and GMP minority shareholders, and (3) the conflicted position that the Richardson Family will maintain as both preferred holders and common equity holders.
Transaction highly unlikely to receive the necessary "majority of minority" shareholder approval
Anson has heard from significant shareholders who share its views and see this Transaction as an unfair value transfer suffered by Minority Shareholders, and a misallocation of corporate resources. Due to the obvious failings in the RGMP Transaction, we are confident that Minority Shareholders will vote against the RGMP Transaction and that it will fail to receive the necessary "majority of the minority" shareholder approval.
Anson intends to vote against the RGMP Transaction.
Anson Funds is an established asset management company, founded in 2007, with $1 billion in assets under management.
SOURCE Anson Funds
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