The largest shareholder in Liquor Stores NA Ltd. asked regulators Tuesday to halt a controversial vote-buying scheme rolled out by the retailer's board of directors during a bitter proxy fight.
The incumbent board at Liquor Stores, North America's largest publicly-traded chain of wine and spirits stores, launched a campaign last week that sees financial advisers paid five cents per share for each vote they obtain in favour of the current board, if the slate is elected at the company's annual meeting, scheduled for June 20.
Private equity fund PointNorth Capital Inc., which owns 9.9 per cent of the 252-store Edmonton-based chain and nominated six directors on the nine-person board, filed an application early Tuesday with the Alberta Securities Commission asking that the adviser payments be halted and that any voting agreements obtained for cash be terminated.
PointNorth also asked the ASC to "reprimand the board of directors of Liquor Stores for approving a vote-buying scheme designed to entrench the current board."
Liquor Stores' payments to stock brokers and other advisers to retail investors are capped at $1,500 for each shareholder who votes for the incumbent board, and none of this money goes to the actual owners of Liquor Stores shares.
Paying advisers to secure votes from their clients is common in takeovers, but rarely seen in proxy battles. The highest-profile example of vote buying seen to date came when Agrium Corp. used payments to win a 2013 proxy fight with U.S. hedge fund Jana Partners LLC. In that instance, Jana did not file a complaint with the regulator.
In response to the PointNorth request, Liquor Stores chairman Jim Dinning said on Tuesday: "Liquor Stores believes the real reason for PointNorth's ASC application is to prevent retail shareholders from being properly alerted to information about the flaws in PointNorth's plan for the company."
"Our board has a fiduciary duty to look after the interests of all shareholders and in discharging that duty believes it's imperative that we do everything we can to ensure that retail shareholders hear the full story to ensure that shareholder democracy is bolstered, not stymied," said Mr. Dinning, a former Alberta cabinet minister and veteran executive and director. A spokesperson for the Alberta regulator declined comment.
PointNorth nominated six independent directors for the Liquor Stores board last month and several institutional shareholders, including LOGiQ Institutional Partners and JC Clark Ltd., are supporting this slate. In a press release Tuesday, Toronto-based PointNorth said it "feels strongly that vote buying in support of board entrenchment is an improper defensive tactic for boards to use in opposition to shareholder initiated changes to board composition."
Lawyers watching this showdown from the sidelines said the Alberta regulator is likely to weigh in on PointNorth's application, as the issues break new ground on governance and the ASC may want to establish a precedent for future proxy battles.
PointNorth said Tuesday that proxy advisory service Institutional Shareholder Services Inc. (ISS) sent a report on Liquor Store's vote buying plan to ISS clients that said: "Investors may consider these solicitation fees as an improper defensive tactic that leads to an entrenchment of the incumbents."
Point North said the ISS report also stated: "The Canadian Coalition for Good Governance has criticized such practices and [was] strongly opposed to usage of similar fees by Agrium during its 2013 proxy contest."
This proxy battle sprang up after Liquor Stores share price declined over the past five years, as the company expanded its operations in the Eastern U.S. while facing a downturn in the oil patch, its largest market. Liquor Stores runs 212 stores in Alberta and B.C., and U.S. outlets in Alaska, Kentucky, New Jersey and Connecticut.
PointNorth, which previously took part in a successful turnaround at nursing home operator Extendicare Inc., revealed it had taken a stake in Liquor Stores in November, and subsequently announced that its strategic plans include renovating Canadian outlets and reviewing ownership of stores in the Eastern U.S.