Graham Hughes/The Canadian Press
A body of TVA Group Inc.'s minority shareholders are calling on Quebec's securities regulator to investigate the company's controversial $118-million acquisition of film production house Vision Globale, arguing the price is too high and the financing proposed will dilute their interest.
The shareholders, who say they control about 23 per cent of TVA's total equity, are also asking the Autorité des marchés financiers (AMF) to examine the tangle of relationships between TVA, its majority owner Quebecor Media Inc. and QMI's own majority owner Quebecor Inc.
Stephen Takacsy, chief investment officer of Lester Asset Management Inc., one of the five investment firms that signed a public statement Thursday, said the long-term investors have had concerns about corporate governance at TVA for some time, particularly after parent company Quebecor created a Media division in July that integrated TVA's operations with several other businesses that QMI operates.
"[The Vision Globale deal] is the straw that's breaking the camel's back here – it's more than a straw, it's a gigantic log, it's a huge tree," Mr. Takacsy said.
QMI currently owns 51.5 per cent of Montreal-based TVA's class B shares, but controls 99.9 per cent of its voting shares. The Caisse de dépôt et placement du Québec in turn owns 25 per cent of QMI.
The shareholders say they approached TVA's board first but their proposal that minority owners be allowed to vote on the transaction was rebuffed so they are asking the AMF to require the company to put it to a vote.
The group of investors objects to the proposed financing of the Vision Globale deal, which contemplates a $100-million rights issue of class B shares – which they own – backstopped by QMI, which will acquire any unexercised rights and thereby increase its equity stake in the company.
"TVA doesn't have the money to pay for it so they're having to issue $100-million of equity at the worst time," said Charles Nadim, a partner at Jarislowsky Fraser, a firm known to take an activist stance on corporate governance issues. "That's equivalent to 60 per cent of its market capitalization – that's massive dilution."
Mr. Takacsy said it presents a lose-lose situation: "If you disagree with the transaction and you don't want to be buying more non-voting shares, you're going to get diluted to smithereens.
Otherwise, you're going to have to pony up and pay for half a transaction that you disagree with. That's really not fair – we should get to vote on it."
In a brief press release Thursday, TVA said it believes the shareholders' arguments are "without merit," adding, "[TVA] would like to reiterate that its strategy has always been to create value for all of TVA's shareholders."
The Vision Globale deal struck last month has already sparked an ethics investigation over the role played by Pierre Karl Péladeau, who is Quebecor's controlling shareholder as well as a member of the Quebec National Assembly and contender for the Parti Québécois leadership.
The province's ethics commissioner reprimanded Mr. Péladeau last week for breaching the legislature's rules by urging the government to keep jobs in Quebec and prevent the sale of Vision Globale to an American fund while his own family-controlled company was the other bidder for the post-production house.
However, Commissioner Jacques Saint-Laurent concluded that the businessman-turned-politician appeared to have acted in good faith and no sanctions were imposed.
"The proposed acquisition also appears to have been motivated by reasons other than good financial business sense including those that have been widely publicized relating to the political desires of Quebecor's controlling shareholder, Pierre Karl Péladeau," the shareholder group said Thursday.
The shareholders also argue that Vision Globale is not a good strategic fit for TVA, which operates the French-language TVA Network and specialty TV channels as well as a magazine publishing business.
They say acquiring the film production company, which has struggled with its finances since it acquired Mel's Cité du Cinéma studios in 2012, would take TVA into new, unrelated areas of the business.
The shareholders are calling for the regulator to look into related-party transactions between TVA and various businesses controlled by QMI and Quebecor, noting that such deals will increase this year as a result of the French-language NHL broadcast rights QMI acquired from Rogers Communications Inc.
They also have concerns over conflicts of interest related to several members of senior management working for all three of TVA, QMI and Quebecor as well as holding stock options in QMI, which controls TVA.