Agrium Inc. annual general meeting in Calgary, May 11, 2012. The five men that activist hedge fund Jana Partners LLC wants installed on Agrium Inc.’s board of directors are dismissing claims that their independence would be compromised by so-called ‘golden leash’ payments.Todd Korol/Reuters
If you get a call from your stockbroker suggesting you vote for Agrium Inc.'s board slate over the one put forward by dissident shareholder Jana, you might want to ask why. That's because Agrium is quietly offering brokers 25 cents for every share voted in favour of the Agrium slate.
Agrium hired RBC Dominion Securities, which has the largest network of retail financial advisers in Canada, to manage the payout, according to a notice sent to brokers and dated March 13. The payout only applies to votes from retail clients. Brokers will be paid a minimum of $100 and a maximum of $1,500 for each client who votes for Agrium's nominees.
"Agrium will pay members of the soliciting dealers group who facilitate the voting of shares by retail beneficial owners of shares resident in Canada, a fee of C$0.25 per share for each share voted in favour of the Agrium nominees," says the notice, which went out March 13. The fee is only paid if Agrium wins, defeating Jana's attempt to put as many as five dissident nominees on the fertilizer company's board.
Agrium, so far, has not issued a press release highlighting the fee. It did disclose the possibility that it would use the tactic when it put out its circular regarding the fight against Jana, saying that "Agrium may cause a soliciting dealer group to be formed, and pay customary fees for such services."
Agrium's fee, at 25 cents per share, it is at the high end of the range for such payouts, which are more often in the 5 cent to 15 cent range.
In a press release, Jana accused Agrium of buying votes and said "it appears that shareholders are being kept in the dark about the obvious conflicts that participating brokers and investment advisers face, given that they are being paid to solicit votes for Agrium rather than acting solely in their clients' best interests."
"This is a common practise, most recently used by Telus Corp. [in its proxy fight with hedge fund Mason Capital], when dealing with important votes when trying to get the highest voter turnout," said a spokesman for Agrium.
He noted that Jana also disclosed in its circular that it might also choose to pay a fee.
These so-called solicitation fees have long been a feature of Canadian merger battles, but are increasingly being used in proxy contests. The rationale is that the fee compensates investment advisors for the time it takes to call clients and inform them they should vote. But they also raise the spectre of conflict of interest. When the broker is getting paid by one side, who are they really working for? The retail client or the company paying the fee?
The fees almost always fuel accusations of vote buying, and it's easy to see why. However, regulators have long taken a hands-off approach, so long as the fee is disclosed to investors. (Here's a story from a decade ago, looking at the very same issue.) In previous cases, such as the proxy fight between EnerCare Inc. and a dissident, the company issued a press release announcing it would pay a 5 cent per vote consent fee.
(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)
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