Put it down to the amount of time the preyer, the private equity firm, PointNorth Capital Inc., has had its eye on the prey, Alberta-based Liquor Stores N.A.
So this week when PointNorth, which started discussions more than seven months back and which filed a 54-page information circular for the June 20 annual meeting — the time-line was dictated by the public company’s advance notice by-law policy — the target was more than ready.
In next to no time, it had issued a five-pager that focused on two main themes: the track record of the two key principals behind PointNorth, which claimed “have a track record of value destruction;” and the golden leashes (which it defined as “short‐term incentive compensation provided directly by PointNorth),” that two of the six director nominees stand to receive. Of the six, only two have an equity interest in Liquor Stores.
Putting those two themes together, the prey concluded that “rather than make a compelling case for change … PointNorth has demonstrated that it has a superficial understanding of our business and a short‐term agenda.”
Thursday, the prey continued that fight when it released another missive detailing “serious flaws” in both PointNorth’s analysis and strategy and advised, again, on “the track records of PointNorth’s principals to see the value destruction that occurs from a defective strategy.”
They then pointed out the fate of four such companies: SiriusXM, Priszm, KEYreit and Mobilicity.
For its part, PointNorth, a shareholder with about a 10-per-cent stake, and which has been badgering for board representation for many months, has stayed relatively silent, but points out that its two key executives aren’t on the list of nominees.
It has however, received support from two existing Liquor Stores shareholders: LOGiQ Institutional Partners, a unit of a business of publicly-listed LOGiQ Asset Management Inc., which has a 7.5-per-cent interest, is on board, as is JC Clark Ltd., with its 1.5-per-cent stake. Support from holders of about 20 per cent of the shares is a plus, given that the proxy agents have barely started their work rounding up support for either side.
That work is more difficult than normal, given that retail investors own most of the shares in the company, which operates 252 retail liquor stores in Alberta, B.C. and four U.S. states. And, for whatever reason, it’s generally difficult to get retail investors to engage, preferring, as they do, to concentrate on the capital gains and dividends.
On that basis, the company has underperformed: according to Bloomberg, over the five years ended April 28 2017, shareholders have received a total return of -20.39 per cent – compared with 47.21 per cent for the S&P/TSX composite.
So what’s the long game? As expected, there is no agreement. Liquor Stores said it has been working on a seven-point plan for almost four years and the plan – which included investments in the store network and people and reducing same-store inventory levels — “is working.”
NorthPoint, which invokes a Reagan 1980 slogan – Are you better off than you were four years ago — argues change starts at the top with a new majority board. (Officially it requests shareholders ask themselves: Am I happy with the performance of my investment or is it time for a change?)
Once in charge, that board will implement change designed to generate annual cost savings of $10-$20 million; to bring in more efficient management; to invest in the “core” Canadian market and to re-evaluate its U.S. strategy.