Welcome to Canada, where it seems the rules as practiced favour issuers, insiders and the agents who service them. The rights of shareholders, the other group required for capital formation, seem a long way down the list — and further down when minority shareholders are the spotlight.
The latest example of that process is being played out now. The transaction concerns Opta Minerals Inc., a small TSX-listed company that has agreed to be acquired by Speyside Equity Fund, a U.S. private-equity group that has teamed up with Opta's interim chief executive.
The transaction, blessed by the financial adviser and the board, seems assured of success: SunOpta Inc., Opta Minerals' largest shareholder (with a 65.8 per cent stake) has signed an “irrevocable support and voting agreement” with the buyer. And those agreements “cannot be terminated in the event of a superior proposal.” (The second-largest shareholder didn't provide such an agreement.)
In other words, the largest shareholder, which has no board representation, wanted out and it set the price. For Mississaugua, Ont.-based SunOpta, the proceeds received are a rounding error – which may lead to a question at its annual meeting: Did you maximize value on the sale
At the time, SunOpta (market cap, $700 million) said the sale of its Opta interest “represents a significant milestone, and we are pleased to be concluding this chapter of our company's history as it paves the way for SunOpta to truly become a pure-play healthy and organic foods company.” Reached Monday, SunOpta said: “We aren't going to expand what we said.”
The transaction has upset one minority shareholder who has written to Opta indicating its displeasure with the offer.
So what are the concerns
• The low price: Opta shareholders are being offered 52 cents a share. At that level, the consideration is below the recent trading price: A month back, for example, the shares were changing hands at $1.10. On Monday Opta was trading at 75 cents.
Not only is the offer low in relation to the trading price – meaning shareholders aren't getting a premium – it's also low in relation to net asset value. At Sept. 30, Ontario-based Opta, which produces more than US$100 million in revenue, determined its “tangible net worth” to be US$17.16 million. With 18.129 million shares outstanding, that's US95 cents a share. At the current exchange rate, the offer price is about 40 per cent of Opta's tangible net worth.
Using another measure — the multiple of EBITDA — the offer is less than three times. In some countries there's capital punishment for lesser offences.
• The timing: The deal was announced the day after the Opta shares were to be delisted. News of that delisting was indicated last September and firmed up in mid-January. The deal came following a strategic review that started in June, 2014. Back then the shares traded at $1.80. It also came after certain agreements had been reached with its bankers and after restructuring efforts “were substantially complete.” Those conditions could signify better times at Opta – which will now be enjoyed by the new owner.
• The approval process: As with such transactions, approval from two-thirds of those who vote and from the majority of the minority is required. But given the “irrevocable” support and voting agreement entered into by SunOpta (and some insiders) it seems pointless to hold a meeting. Why The transaction has enough votes already “to satisfy all shareholder approval requirements required.” How come SunOpta's stake is counted as part of the minority because it's a “disinterested party.”