Liquor Stores N.A. Ltd.
TSX : LIQ

Liquor Stores N.A. Ltd.

May 16, 2017 08:17 ET

Liquor Stores N.A. Ltd. Cautions Shareholders: Don't Trust PointNorth - Two of Its Founders Have a Track Record of Destroying Shareholder Value

Bound by "Golden Leashes," Certain Point North Nominees Lack Independence

Liquor Stores urges shareholders to vote the WHITE proxy in support of the current Board, which has positioned the Company to enhance value for all shareholders

EDMONTON, ALBERTA--(Marketwired - May 16, 2017) -

Editors Note: There are three photos associated with this press release.

Liquor Stores N.A. Ltd. (the "Company" or "Liquor Stores") (TSX:LIQ), North America's largest publicly traded liquor retailer, today cautioned shareholders not to trust Toronto activist PointNorth Capital, whose founders have a track record of value destruction.

Yesterday PointNorth, a recent shareholder, announced it is nominating six handpicked candidates for election to the Liquor Stores Board. Two of PointNorth's candidates are tied to PointNorth with Golden Leashes - short-term incentive compensation provided directly by PointNorth. This compensation creates a troubling conflict of interest and may incentivize these PointNorth nominees to make short-term decisions to benefit themselves and PointNorth contrary to the best long-term interests of all shareholders.

Liquor Stores cautions that PointNorth is making irresponsible promises about its ability to create value for shareholders. Those promises are not backed up with facts or a proper understanding of Liquor Stores' business. Moreover, those promises run contrary to the dismal track record of PointNorth's founders in the retail sector, the sector in which Liquor Stores operates.

John Bitove, one of PointNorth's founders, is a Toronto executive. He has twice founded companies that, under his management, failed and became insolvent. Phil Evershed, another PointNorth founder, is Mr. Bitove's long-time associate and was associated with several of Mr. Bitove's worst performing businesses, as either a corporate director or financial advisor.

"Rather than make a compelling case for change at Liquor Stores, PointNorth has demonstrated that it has a superficial understanding of our business and a short-term agenda," said Jim Dinning, Chairman of Liquor Stores. "Shareholders' interests are better served by an experienced Board with a long-term, informed view of the business, rather than by the wishful thinking of a short-term activist."

Mr. Dinning continued, "We are improving gross margins, reducing inventory levels, and delivering strong return on capital from our store renovation program. We are proactively investing in our business to protect and grow our market share, drive shareholder value in the current challenging market conditions, and position Liquor Stores to deliver further upside."

PointNorth is demanding 75% of the seats on the Liquor Stores Board, which is far higher than its declared ownership of 9.7% of Liquor Stores. PointNorth has rejected a fair compromise by Liquor Stores' Board to appoint or nominate two PointNorth nominees. Had PointNorth accepted this compromise it could have avoided forcing an expensive and distracting proxy fight on the Company while still having meaningful influence on the Board.

More on PointNorth's Golden Leashes

To the knowledge of Liquor Stores, no dissident has won a proxy fight in Canada where dissident nominees have agreed to accept Golden Leashes. Shareholders should be concerned not just by PointNorth's Golden Leashes but by its decision not to mention these payments in its news release and instead bury the information at the end of its dissident circular.

PointNorth says that the Golden Leash payments will be paid to these nominees in certain circumstances based on an undisclosed percentage of the net profits earned by PointNorth on the Liquor Stores shares it holds. These payments are to be made on or before November 15, 2018 or when PointNorth liquidates all of its Liquor Stores shares, whichever comes first. This is a very short time frame and may not align with the best interests of the company or its shareholders.

Liquor Stores notes that the US NASDAQ stock exchange last year introduced a rule to require the disclosure of Golden Leashes. The exchange commented as follows: "NASDAQ believes these ... compensation arrangements potentially raise several concerns, including that they may lead to conflicts of interest among directors and call into question their ability to satisfy their fiduciary duties. These arrangements may also tend to promote a focus on short term results at the expense of long-term value creation."

Liquor Stores is continuing to review the dissident circular and will provide further comment in due course. In the meantime, Liquor Stores encourages shareholders to consider the track record of PointNorth's key principals, outlined below.

A Track Record of Value Destruction

Mr. Bitove has a poor track record when it comes to creating value and serving shareholders' interests. In many cases, Mr. Evershed rode alongside Mr. Bitove as a corporate director or financial advisor. Given these track records, shareholders should not trust PointNorth's analysis and promises.

The value destruction at Sirius XM Canada

Mr. Bitove and Mr. Evershed have held leadership or governance roles at SiriusXM Canada, a retail-oriented broadcaster that experienced a 66% loss of value. They held these roles in late 2005 when a predecessor company, Canadian Satellite Radio Holdings Inc., had an initial public offering at $16.00 per share.

At that time, Messrs. Bitove and Evershed were Directors of the predecessor and Mr. Bitove was the Chairman and Chief Executive Officer. Mr. Bitove continued as CEO until Dec. 31, 2007, as Chairman until January 13, 2015, and as a Director until January 15, 2016. As of May 15, 2017, Mr. Evershed remains a Director, nominated annually by a Bitove-controlled shareholder of SiriusXM. The share performance of SiriusXM during that period is illustrated in the chart below:

To view the Dismal Track Record at SiriusXM, please visit the following link: http://www.marketwire.com/library/20170516-SiriusXM800.jpg

The value destruction at Priszm Income Fund

Another example of value destruction is Priszm Income Fund, a restaurant business founded by Mr. Bitove. During Mr. Bitove's eight years as Chairman and CEO, the stock declined by 99% as the business struggled until it became insolvent. In 2010, a year before the insolvency, Priszm hired Mr. Evershed's company, Genuity Capital Markets, to lead a refinancing and reorganization. The restructuring was unsuccessful.

To view the Dismal Track Record at Priszm, please visit the following link: http://www.marketwire.com/library/20170516-Priszm800.jpg

The value destruction at KEYreit

Mr. Bitove's KEYreit, a real estate investment trust for small box retail properties, underperformed the S&P/TSX Capped REIT Index by 45% from October 2005 (the initial public offering of a predecessor called Scott's REIT) until June 28, 2013, when KEYreit was acquired by another real estate investment trust. During this period, Mr. Bitove served as Chairman and CEO. Mr. Evershed's company, Genuity Capital Markets, was an underwriter of the IPO and acted as an underwriter or financial advisor on a number of additional offerings and transactions.

To view the Dismal Track Record at KEYreit, please visit the following link: http://www.marketwire.com/library/20170516-KEYreit800.jpg

The value destruction at Mobilicity

Mr. Bitove's closely-held company Data & Audio-Visual Enterprises Wireless Inc. purchased cellular telephone spectrum licenses in 2008 and in 2010 launched a closely-held Canadian cellular telephone business under the brand name Mobilicity. The business became insolvent and in 2013 Mobilicity sought and obtained court protection from its creditors and was ultimately sold for less than the amount owed to creditors.

Vote the WHITE proxy for Liquor Stores' nominees

Liquor Stores urges shareholders to read its Management Information Circular, available on the Liquor Stores website at http://www.liquorstoresna.ca/investors and under the Liquor Stores profile at www.sedar.com. The circular highlights the value creation initiatives undertaken by Liquor Stores and its Board over the past few years. The Circular also outlines the strategic importance of Liquor Stores' market diversification and work underway to improve inventory management to free up more cash flow to invest in the business.

Liquor Stores recommends that shareholders vote the WHITE proxy for the Board's eight experienced and qualified incumbent nominees. Vote today.

Meeting Details

The record date for the Annual Meeting was the close of business on April 21, 2017 (the "Record Date"). All registered shareholders of record as at the Record Date are invited to attend the Meeting which is taking place at Meeting Place 1 at the Hyatt Place Edmonton-West located at 18004 100 Ave NW, Edmonton, Alberta, on Tuesday, June 20, 2017, at 10:00 a.m. (Edmonton time). Shareholders are advised to vote only the WHITE form of proxy today, or no later than 10:00 a.m. (Mountain Time) or Noon (Eastern Time) on Friday, June 16, 2017.

If shareholders have any questions or require any assistance in executing your proxy or voting instruction form, please call D.F. King Canada at:

  • North American Toll Free Number: 1-800-301-9627
  • Outside North America, Banks, Brokers and Collect Calls: 1-201-806-7301
  • Email: inquiries@dfking.com
  • North American Toll Free Facsimile: 1-888-509-5907
  • Facsimile: 1-647-351-3176

ABOUT LIQUOR STORES N.A. LTD.

The Company operates 252 retail liquor stores in Alberta, British Columbia, Alaska, Kentucky, New Jersey, and Connecticut. Liquor Stores' retail brands include: Liquor Depot, Liquor Barn, and Wine and Beyond in Alberta (178 stores); Liquor Depot and Liquor Barn in British Columbia (34 stores); Brown Jug in Alaska (22 stores); Liquor Barn "The Ultimate Party Source" and Liquor Barn Express in Kentucky (15 stores), Joe Canals Discount Outlet in New Jersey (2 stores), and LQR MKT in Connecticut (one store). The Company's common shares and convertible subordinated debentures trade on the Toronto Stock Exchange under the symbols "LIQ" and "LIQ.DB.B", respectively.

FORWARD-LOOKING STATEMENTS

This press release contains forward looking statements or information (collectively "forward‐looking statements") within the meaning of the "safe harbour" provisions of applicable securities legislation. All statements and information other than statements of historical fact contained in this press release are forward‐looking statements. In particular, this press release contains forward‐looking statements with respect to: Liquor Stores' improving gross margins, reducing inventory levels, delivering strong return on capital from its store renovation program, investing in its business to protect and grow its market share and drive shareholder value, and positioning Liquor Stores to deliver further upside. Forward‐looking statements reflect our current plans, intentions, and expectations, which are based on management's perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. Our plans, intentions, and expectations are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. There is no assurance that the plans, intentions, or expectations upon which these forward‐looking statements are based will occur. Forward-looking statements are subject to risks, uncertainties and assumptions, including, but not limited to, those discussed elsewhere in this press release and our other filings made with Canadian securities regulatory authorities and available on SEDAR at www.sedar.com. Although Management believes that the expectations represented in such forward-looking statements are reasonable there can be no assurance that such expectations will prove to be correct and such forward‐looking statements should not be unduly relied upon.
Some of the factors that could affect future results and could cause results to differ materially from those expressed in the forward-looking statements contained herein include, but are not limited to: risks relating to government regulation and changes thereto (whether by court decisions, citizen referenda, or otherwise); competition; the state of the economy including general economic conditions in Canada (including Alberta) and the U.S.; the unpredictability and volatility of Liquor Stores' common share price; restrictions on potential growth; availability of sufficient financial resources to fund the Company's capital expenditures; changes in commodity tax rates and government mark‐ ups; risks relating to future acquisitions and development of new stores; the ability of management to execute the Company's business and strategic plans; Liquor Stores' ability to locate and secure acceptable store sites and to adapt to changing market conditions; poor weather conditions; dependence on key personnel; labour costs, shortages and labour relations including Liquor Stores' ability to hire and retain staff at current wage levels and the risk of possible future unionization; supply interruption or delays; dependence on suppliers; reliance on information and control systems; income tax changes; leverage and restrictive covenants in agreements relating to current and future indebtedness of Liquor Stores; and credit risks arising from operations. These factors should not be construed as exhaustive. The information contained in this press release, and as disclosed in other filings made by the Company with Canadian securities regulatory authorities and available on SEDAR at www.sedar.com, identifies additional factors that could affect the operating results and performance of Liquor Stores. Readers are cautioned that this list of risk factors should not be construed as exhaustive. The forward looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward looking statements included in this press release are made as of the date hereof and Liquor Stores assumes no obligation to update or revise them to reflect new events or circumstances except as expressly required by applicable securities law.

Contact Information

  • Investors
    Liquor Stores N.A. Ltd.
    Matthew Rudd
    Senior Vice President and Chief Financial Officer
    (780) 702-7389

    Media
    Longview Communications
    Louise Kozier
    (604) 694 6033