Newton Glassman has all the trappings of a successful investor. But one of his most prominent investments is a resounding failure.
Mr. Glassman unveiled what is likely to be the final stage of a brutal trip through public markets on Friday as Callidus Capital Corp., a lending company that the Toronto-based financier took public at $14 a share five years ago, announced plans to be taken private for 75 cents a share.
Callidus’s share price sagged shortly after its debut, and over the next few years Mr. Glassman held out the prospect of taking the company private, pointing to a valuation of $18 to $22 a share from National Bank Financial. Callidus’s CEO and chairman launched lawsuits against those who were critical of the company and parent Catalyst Capital Group Inc., which Mr. Glassman co-founded in 2002. For a sense of just how far Mr. Glassman is willing to go, recall that in 2017 he was involved in an unsuccessful sting operation against an Ontario judge.
And for years, Mr. Glassman held out the potential for superior returns from a $4-billion stable of private equity funds he runs at Catalyst. Well-heeled backers, including proven Bay Street stock picker Ira Gluskin, watched Mr. Glassman repeatedly fail to cash in as promised on Catalyst holdings while flitting by private jet and helicopter between his Muskoka cottage, Toronto mansion and retreat in the Bahamas. Mr. Gluskin’s frustration recently boiled over at an investor conference, when the co-founder of Gluskin Sheff + Associates Inc. called out Mr. Glassman with a series of pointed criticisms, the mildest of which was: “I am an unhappy investor who’s waiting to get my money back.”
Now Callidus is likely to exit the Toronto Stock Exchange at a fraction of its IPO price, courtesy of a bid from a company called Braslyn Ltd. British-born billionaire Joe Lewis, who made his fortune trading currencies alongside George Soros, controls the firm. Mr. Lewis owns an exclusive resort in the Bahamas called Albany – Tiger Woods and Justin Timberlake are also investors – where Mr. Glassman has a home. The inglorious departure shows Callidus’s critics were right, although it doesn’t put an end to litigation against a number of journalists and firms such as West Face Capital Inc., Veritas Investment Research and Canaccord Genuity Group Inc.
Callidus shareholders are being told that 75 cents a share is as good as it gets, dashing hopes raised last December when Braslyn said it was considering bidding $2 a share. The lower bid reflects the fact that Callidus owes $421-million to parent Catalyst. On Friday, Callidus said those loans won’t be renewed when they come due in September, 2020, which would leave the company insolvent and equity owners with nothing. To entice an offer from Braslyn, Callidus agreed to pay Mr. Lewis’s company 15 per cent of the proceeds from future asset sales, while Catalyst agreed to turn its loans to Callidus into common shares, a debt-for-equity swap that could leave Braslyn with a valuable stake in the business.
Braslyn’s offer for Callidus comes with conflicting views on the value of the company. An independent committee of Callidus board members initially hired investment bank Blair Franklin Capital Partners Inc. to provide a fairness opinion. Blair Franklin said under the terms of agreement with Braslyn, including the debt-for-equity exchange, Callidus stock was worth between $1.55 and $2.40 a share, well above the offer. Without Braslyn’s deals, Blair Franklin said: “The value attributable to holders of common shares would be negative.”
Callidus board members then decided to hire another investment bank, MPA Morrison Park Advisors Inc., to get a second opinion. MPA did not attach any value to the arrangements with Braslyn and concluded the bid is fair to Callidus minority shareholders. It is unusual, but not unheard of, for the board of a takeover target to bring in another investment bank after it receives a valuation from its first financial adviser.
The prospect of insolvency as the other likely option for their company means Callidus shareholders are likely to sell to Braslyn and end their relationship with Mr. Glassman.
The larger issue is what poor performance from Callidus will mean for investors in Catalyst funds, such as Mr. Gluskin and pension plans at the University of Toronto and McGill University. It’s far from clear when these investors can cash out of Catalyst, and what returns they can expect to receive.
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