Those that love a good battle between an activist investor and a board of directors have several to pick from lately. In one of the highest-profile fights, contentions seem to be calming in the battle between billionaire activist investor Carl Icahn and eBay, after Icahn failed to garner enough support to impose his will on the company. Icahn this week pulled his two nominees to eBay’s board and has scaled back on his pursuit to have eBay spin out its PayPal unit, although
eBay directors did agree to add David Dorman as its 10th director.
Because it doesn’t involve a big name like Icahn, George Soros, Dan Loeb or Bill Ackman, the clash between activist investor George Armoyan and Sherritt International Corp. (TSX:S) isn’t getting the airtime on CNBC or Bloomberg, but nonetheless tensions are getting high. Armoyan is the President and CEO of Halifax-based Clarke Inc. (TSX:CKI), a company that invests in a variety of private and publicly traded businesses, taking an active role when it deems necessary to improve the performance of its investments.
Sherritt is diversified as an operational miner with nickel properties in Canada, Cuba and Madagascar, as well as being the largest energy producer in Cuba.
Clarke owns about 5.4% of Sherritt shares and, in short, is very disappointed in the performance of the company over the past three years. Armoyan is leading a charge calling for the ouster of Sherritt chief executive David Pathe and the replacement of three current board members (Peter Gillin, Dee Marcoux and Bernard Michel) with Ashwath Mehra, David Wood and himself.
Armoyan calls Pathe, a lawyer by trade, unqualified for the position with no operational experience in the mining and energy industries; facts that Armoyan says are clearly reflected in the company’s performance. After hitting $8.95 in February 2011, shares of S have fallen as low as $2.81 in February. The fight between the two parties has benefited shares, which have risen back above $4 each.
A website called SaveOurSherritt.com, has an "SOS" mantra where the complete letter to shareholders describing Armoyan’s disgust with the incumbent Sherritt board and leadership team is detailed at: http://saveoursherritt.com/docs/SOS%20Circular.pdf.
Without going into all the details, Armoyan makes several interesting points, notably the exorbitant compensation that current Sherritt no-executive directors draw and the fact that Sherritt board and executives own virtually none of the company’s stock. More precisely, Sherrit non-executive directors average $362,000 in annual salary, exceeding the average compensation made to non-executive directors at global giants, such as Apple (NASDAQ:AAPL),
Microsoft (NASDAQ:MSFT), Exxon (NYSE:XOM), General Electric (NYSE:GE) and Bank of America (NYSE:BAC), to name a few. Of course, drawing those large salaries and not investing any of it in Sherritt, especially at depressed prices, doesn’t speak well of leadership confidence.
While Armoyan has acutely critiqued Sherritt management, the company has rebutted with comments that Armoyan has not suggested a succinct plan to increase shareholder value and that he has misled shareholders with regards to his efforts in the director nomination process.
"Mr. Armoyan appears to be making every effort to confuse the issues," said Harold (Hap) Stephen, Chairman of Sherritt, in a statement on Friday. "There are a few very simple facts at play. The first is that Sherritt has made repeated attempts to avoid the cost and distraction of an unnecessary proxy contest, including by offering to add a new director acceptable to both Sherritt and Mr. Armoyan. Mr. Armoyan has consistently rejected these efforts."
As it stands at the moment, Sherritt has sent a blue-colored proxy to shareholders for a shareholder vote for director nominees. Armoyan’s group is asking shareholders to ignore the blue proxy and vote on his green-coloured proxy. Although both parties claim to want to settle the matter, the two parties still seem to be light years away from an amicable agreement, setting the stage for a proxy fight to happen at Sherritt’s annual shareholder meeting on May 6.
This is going to get interesting…
