Stornoway Portfolio Management requests full disclosure and reconsideration of the Jovian Capital Corp Senior Management Profit
28 Abril 2012 - 9:55AM
PR Newswire (Canada)
TORONTO, April 30, 2012 /CNW/ - On February 8, 2012, Jovian Capital
Corp. ("Jovian") issued a press release in connection with its
third quarter 2012 financial results which contained the following
cryptic statement: "In the quarter ended December 31, 2011, Jovian
has recorded a preliminary provision for the Jovian senior
management profit plan of $12.2 million attributed to the results
of both continued and discontinued operations". The Ravensource
Fund, managed by Stornoway Portfolio Management Inc. ("Stornoway"),
is a shareholder of Jovian Capital Corp. Stornoway's calculations
show that the proposed $12.2 million payment amounts to: -- 17.6%
of Jovian's fiscal 2012 net income, including gains on asset
dispositions, to December 31, 2011; -- 9.6% of its book value; --
10.5% of its market capitalization as of April 27, 2012; and --
62.2% of its retained earnings. Alarmed by the sheer scale of the
proposed payment, Stornoway spoke to Jovian's senior management
team to try to understand the aforementioned "senior management
profit plan" (the "Plan") and the rationale behind the size of the
award. Unsatisfied with management's response, Stornoway
wrote to the Board of Directors of Jovian on April 10, 2012 to
request that the Board immediately provide full public disclosure
of all material provisions of the Plan and seriously reconsider the
amounts which were proposed to be paid thereunder. To date,
Jovian's Board has not responded to this request. In the face of a
history of significant operating losses, Jovian's payout to its
senior management under the Plan appears to have been triggered by
a one-time capital gain on the sale of assets. In other words the
payout is, in effect, based on a return of capital rather than a
return on capital. We believe that by granting this massive award,
Jovian's Board is rewarding a management team that has failed
abjectly to create shareholder value. Since the creation of Jovian
in its current form on July 9(th), 2003, Jovian's shares have
declined by 6.2%, or 0.72% on an annualized basis. In comparison,
over the same period of time, the TSX Total Return Index has
appreciated by 114%, or 9% on an annualized basis. As the same
senior management team has been at the helm of Jovian since 2003,
this decline in the share price would seem to reflect the capital
markets' concurrence with our assessment of management's
performance. The quantum of this rich award to senior management,
particularly when measured against the metrics noted above, is
certainly material to Jovian's shareholders. We would have expected
the material terms of the Plan to have been outlined in the
company's periodic Management Discussion and Analysis. Moreover,
given its impact, we are of the view that the Plan itself is a
material contract for Jovian which must be filed publicly. As part
of the compensation package to senior management, we would have
also expected annual detailed disclosure of the Plan in each
management proxy circular delivered to shareholders in connection
with every annual meeting since its adoption, as required by
applicable law. However, after searching through public documents
filed since Jovian became a public company, we could find no such
disclosure. In effect, this Plan is awarding 10% of the company's
equity value to unidentified "senior management". In our view, most
plans of this nature would be structured as equity plans that would
require shareholder approval under applicable TSX rules. In
our recent conversation with Philip Armstrong and Jason Mackey,
Jovian's CEO and CFO, they made it clear to us that Jovian did not
seek shareholder approval of the Plan because the Plan did not
contemplate the issuance of securities to Senior Management. This
strikes us as a matter of form over substance as the effect on
shareholders is the same, namely a transfer of 10% of the equity
value of Jovian to management in the form of cash, rather than
shares, under a compensation plan the terms of which have not been
disclosed to, or approved by, Jovian's shareholders. We strongly
believe that the management of the companies in which we invest
should be well compensated when they deliver superior operating
performance and create shareholder value. In addition, we expect
our investee companies to do so in a transparent manner with full
and proper disclosure. The proposed payout under the Plan
fails both of these tests. Given the failure of the Board to take
any action in response to our concerns, we feel compelled to make
those concerns public. Accordingly, we hereby publicly ask the
Board to: (1) disclose the material provisions of the Plan and the
identities of the members of senior management who are its
beneficiaries; (2) file a copy of the Plan on SEDAR forthwith so it
can be subject to public scrutiny; and (3) reconsider the payments
proposed under the Plan for fiscal 2012. We encourage other Jovian
shareholders who share our concerns regarding this matter to
communicate their concerns to the Board. In addition, we
invite Jovian shareholders and other interested parties to contact
us at the number listed below if they would like to discuss the
matter further. Stornoway Portfolio Management Inc. CONTACT:
Stornoway Portfolio Management Inc.Scott Reid,
President(416)250-2845
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