Minority shareholders in satellite radio provider Sirius XM Canada Holdings Inc. have complained to Ontario's securities regulator about the company's plan to go private, alleging they are the victims of "coercive tactics."
The complaint to the Ontario Securities Commission (OSC), filed on July 15 by six institutional shareholders that collectively own more than 8.3 million shares in Sirius XM Canada, raises concerns about potential "related-party transactions" and "conflicts of interest" around the proposed deal, according to a joint statement.
The transaction, which was first announced in May, offers $4.50 a share in cash or stock and would consolidate control among Sirius XM Holdings Inc., the U.S. company that owns Sirius XM radio in the United States as well as 32 per cent of the Canadian firm, and two other large shareholders – Slaight Communications Inc. and Obelysk Media Inc.
The dissenting shareholders have been vocal in their opposition to the deal, which they feel undervalues Sirius XM Canada by a significant margin. They also felt their claims were bolstered when the company reported solid third-quarter earnings last week. A formal complaint escalates their battle to win a better offer ahead of a vote of minority shareholders scheduled for Aug. 30. A majority of minority shareholders, excluding Slaight and Obelysk, must approve the deal.
"We're not going to get bulldozed here," said Gabriel Bouchard Phillips, a partner at Van Berkom and Associates Inc., the largest of the shareholders that signed the complaint. "Based on the feedback we've had, we have not spoken to one institutional or retail investor who has said, 'I support this transaction.'"
Other shareholders behind the complaint are Rondeau Capital Inc., Agilith Capital Inc., Lester Asset Management, Avenue Investment Management and JC Clark Ltd. They are jointly represented by the Toronto-based law firm Groia and Company.
A spokesperson for the U.S. Sirius XM declined to comment, and Sirius XM Canada president and chief executive officer Mark Redmond could not be reached for comment.
One large shareholder, the Canadian Broadcasting Corp., has said it will support the transaction and sell its 12.5-per-cent stake for about $58-million. But the minority shareholder group wants the OSC to reconsider whether it should be allowed to vote due to a programming partnership that would continue even after the deal goes through. That amounts to "the continued benefit of a business relationship with Sirius XM Canada," the shareholders claim in the statement.
They also complain that Sirius XM Canada's decision to suspend its dividend pending the outcome of the transaction is "arguably oppressive and coercive." The company's offer of $4.50 a share is a 22.3-per-cent premium on its closing share price on Feb. 11, 2016 – just before The Globe and Mail first reported Sirius XM Canada was in talks for a deal that would take it private. Some shareholders argue suspending the dividend dilutes the value of the offer.
"We're being offered a takeover offer with basically no premium to market when you factor out the two dividends we will have missed," Mr. Bouchard Phillips said. "And so we look at that and we go, do we really want this deal? I don't think so."
The statement also raises a concern about the impact of comments made by executives at the U.S. Sirius XM over the past year that coincided with "sharp drops" in Sirius XM Canada's share price, and the U.S. company's decision to demand $33.9-million (U.S.) in retroactive payments during a dispute over activation fees. After the demand was publicly disclosed, Sirius XM Canada's share price fell by 40 cents overnight.
"They should know better than to treat shareholders like that in the Canadian public markets," said Stephen Takacsy, chief investment officer at Montreal-based Lester Asset Management, which owns nearly a million shares.