The tension between Calgary-based real estate developer Genesis Land Development Corp. and Stephen Griggs' newly formed activist investor firm Smoothwater Capital Corp. has officially become a proxy fight.
Smoothwater said Friday that it would file a dissident proxy circular with the aim of electing a slate of seven directors. The two-month-old firm, which is owned by its chairman Garfield Mitchell, lays claim to 22 per cent of Genesis's outstanding shares. Mr. Mitchell has been a shareholder of Genesis for nearly 10 years.
Smoothwater takes issue with Genesis's board members lack of "skin in the game,"citing "a minimal collective personal investment of less than 0.36 per cent" ownership. That figure excludes the investments of current directors Loudon Owen and Mark Mitchell, the brother of Smoothwater's Garfield Mitchell. Smoothwater intends to keep both men on the board should it win this fight.
Mr. Griggs, the chief executive of Smoothwater, said that Genesis directors should have two times their annual compensation invested in the company, as per the Canadian Coalition for Good Governance's (CCGG) recommendations.
Mr. Griggs is well known for his role as executive director of the CCGG, where he worked on guidelines for proxy circular disclosure, majority voting and executive compensation. He more recently served as CEO of the Ontario government's employee pension fund, OPSEU Pension Plan Fund (known as OPTrust). Mr. Griggs and Mr. Garfield have been friends since their university days and have done business together before.
Smoothwater's other main complaint centres on the net asset value per share of Genesis. "There's a large gap between what the company says it's worth and what the company is actually worth," Mr. Griggs said.
Mr. Griggs wants to see a strategic business plan for Genesis, although the company has already been undergoing a strategic review. And that might mean eliminating its home building division. "The home building division does not appear to have ever made money, and it is being used as a way to sell lots of land that the company owns," said Mr. Griggs. "There's the fundamental question of whether the company should be in the home building business or not. We've not come to any conclusion since we don't have access to company documents."
Executives from Genesis declined to comment. The stocks is up more than 14 per cent in the past year.
This is Smoothwater's debut as an activist investor, but what would come next is unclear. Smoothwater doesn't yet have plans to go after any other companies.
(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)
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