Activist fund PointNorth Capital Inc. launched a proxy battle Monday at Liquor Stores N.A. Ltd. aimed at returning the 252-outlet chain to its roots in Western Canada.
PointNorth, a deep-pocketed private-equity firm founded by entrepreneur John Bitove, is waging a public campaign to put six directors on an eight-person Liquor Stores board at an annual meeting scheduled for June 20, after months of behind-closed-doors negotiations failed to reach an agreement.
Edmonton-based Liquor Stores is North America's largest publicly traded wine and spirits retailer, with the bulk of its outlets in British Columbia and Alberta, and 40 stores in four U.S. states. PointNorth announced a 10-per-cent stake in the company last November and said on Monday that it is launching the proxy contest to turn around the fortunes of a retailer that is significantly underperforming peers.
"Liquor Stores can become a significantly better performing business," PointNorth said. The fund, which is backed by the Ontario Municipal Employees Retirement System, said Liquor Stores lost its way by investing $50-million in U.S. expansion "while neglecting its Canadian assets."
Under current leadership, Liquor Stores' sales increased by 41 per cent, but operating profit fell by 2 per cent, PointNorth said in a presentation. Over the past five years, Liquor Stores cut its dividend by 67 per cent and saw the share price decline from $20 to less than $10.
If Liquor Stores' shareholders endorse PointNorth's six nominees, the new board would put in place an eight-point turnaround plan that was released Monday. The strategy includes speeding up renovations of Canadian stores, bringing costs and inventory turnover in line with rival retailers and re-evaluating ownership of U.S. outlets in Kentucky, Connecticut and New Jersey, "given the lack of clear strategy or economies of scale."
Liquor Stores' existing board, led by veteran director and former Alberta cabinet minister Jim Dinning, is asking shareholders to support its own slate of eight directors. The company said in a letter to shareholders last Wednesday that it offered to put two PointNorth nominees on the board, but this compromise was turned down.
In anticipation of a proxy contest, Liquor Stores said: "PointNorth wants control of your company without offering to pay shareholders a premium."
PointNorth responded with a news release that pointed out none of the fund's executives are standing for election to the Liquor Stores board.
"Contrary to Liquor Stores' assertions, control of public companies has not been, and is not, a PointNorth investment objective" said Philip Evershed, managing partner at PointNorth. "We endeavour to elect independent board members to enable board renewal where we think it will be in the best interests of all shareholders."
"Control of Liquor Stores remains fully in the market ,as does a control premium should a buyer emerge," said Mr. Evershed, a former investment banker who specialized in mergers and acquisitions.
Half of PointNorth's board candidates have experience with alcohol retailers or brewers. The six nominees are Ken Barbet, former CEO at the 167-outlet Nova Scotia Liquor Corp. and Big Rock Brewery LP; retired Molson Canada CEO John Barnett; past Canadian ambassador to the U.S. Derek Burney; lawyer Karen Prentice, who spent six years on the Alberta Securities Commission; Nova Scotia Liquor's former head of business strategy Rick Perkins; and private-equity executive James Burns.
The Liquor Stores chain was launched in 1993, when the Alberta government first allowed private ownership of stores selling spirits and wine. In 2008, the company began expanding in the United States by acquiring stores in Alaska.
In its letter to shareholders, Liquor Stores explained that weakness in the stock price over the past five years reflected increased competition and the recession in the oil patch, which cut into sales at 200 outlets in Alberta and Alaska. PointNorth pointed out Monday that Liquor Stores share price were declining before oil prices began to fall in 2014.