By Dan Hallett on April 1, 2011
Last fall, GrowthWorks launched a very public campaign to win the takeover battle for the VenGrowth family of labour sponsored investment funds (LSIFs). VenGrowth’s preferred offer was from Covington II Fund but I thought that VenGrowth’s board didn’t look hard enough for potential buyers. In the end, the deal was killed.
Early this year, VenGrowth (VG) launched round two of its attempt to sell its funds – charging a subset of its funds’ board members with leading the process. VG’s special committee hired investment banker Crosbie & Company to vet offers and provide VG’s special committee with a short list. But GrowthWorks (GW), feeling VG wouldn’t give it a fair shake, has decided to bypass the formal process and has taken its offer directly to shareholders.
I am recommending that VG LSIF shareholders sign the GrowthWorks support agreement.
The bidding process
Effectively, there are now two parallel processes in motion. Crosbie will sift through the more than a dozen offers and recommend a short list to VG’s special committee, from which one offer will be put to a shareholders vote.
Simultaneously, GW’s offer is now in shareholders’ hands. If they can get at least 5% of shareholders to sign and remit their yellow support agreements, they will be able to get VG to hold a shareholders meeting. At that meeting – which can occur up to three months after GW’s request – GW will be able to formally table its offer for a vote. Those who sign and submit the support agreement are also giving GW’s “independent committee” the right to vote on their behalf once VG’s special committee puts its chosen offer in front of shareholders for a vote.
To sign or not to sign
A shareholder who signs the GW support agreement is giving GW, and anyone they appoint, power of attorney. That includes giving them with full authority to act on that shareholder’s behalf with respect to the VG LSIF shares. While GW chose and will compensate their appointed committee members, powers of attorney are generally seen as fiduciaries. That definition of fiduciary may or may not extend to this scenario.
The choice of whether or not to sign GW’s support agreement boils down to which party is more trustworthy. Many advisors and shareholders have developed a mistrust of VG and its board due to last fall’s attempt to sell the funds. VG LSIFs’ boards owed and continue to owe a fiduciary standard of care to LSIF shareholders but the events of last fall prove that’s no guarantee of a good result. GW is holding itself out as wanting to do right by shareholders and helped squash what was a bad deal by Covington. But they have an interest in winning this deal; so can they be trusted to recognize a superior offer should the VG special committee present one? I think the answer is ‘yes’ which is why I’m recommending supporting GW.
Giving GW power of attorney shouldn’t be taken lightly. And it’s impossible to know who is more trustworthy, so the decision is largely based on gut instinct. Even though I’m not crazy about their offer, my guts tells me that signing and sending GW’s support agreement will be better than allowing VG to have full control of the process. Based on the amount of votes GW was able to control last fall, I doubt that they will have full control either.
But if they can get enough (i.e. 5% – 10%) to shake up the process a bit and keep VG’s special committee on its toes, giving GW enough power just might work out in the end for VG LSIF shareholders. I wish that I could make a stronger recommendation that is more fact-based but the inherent uncertainties in this case require a larger-than-usual leap of faith.
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