TORONTO, ONTARIO--(Marketwired - July 18, 2016) - Shareholders ("The Investor Group") holding approximately 8.38 million Class B shares of Sirius XM Canada Holdings Inc. ("Sirius XM Canada"), representing 21% of those held by minority shareholders (excluding the CBC), filed a complaint with the Ontario Securities Commission ("OSC") on July 15, 2016, raising a number of concerns relating to Sirius XM Canada and Sirius XM Holdings Inc. ("Sirius XM Holdings"). The concerns relate to material related-party transactions, potential conflicts of interest, and the proposed acquisition of the assets of Sirius XM Canada and related financing.
As interested shareholders, we view the current offer to take Sirius XM Canada private as inadequate and not in the best interest of independent minority shareholders.
It Appears the CBC is an Interested Party for Purposes of the Majority of the Minority Vote
The Investor Group believes that CBC should be excluded from the vote of the minority shareholders. CBC, as one of three major Canadian shareholders in the Company has publically announced that it intends to vote in favour of the Transaction. Sirius XM Canada also announced that Sirius XM Holdings, Slaight Communications Inc. and Obelysk Media Inc. are all (rightfully) being excluded for purposes of the majority of the minority vote. There was no indication that CBC is also being excluded, despite the fact that in our view the CBC is an interested party under MI 61-101 and substantial commercial benefits will accrue to CBC as a result of the transaction. Specifically, CBC is receiving the continued benefit of a business relationship with Sirius XM Canada after the Transaction closes; this benefit is not being equally shared by the other shareholders who are participating in the majority of the minority vote.
An Economically Coercive Climate
The Investor Group has serious concerns with what they view as threatening and economically coercive tactics taken by the Company in connection with the announcement of the Transaction. The OSC has cautioned that conduct which can be construed as "threatening in nature" or which constitute "warnings" to shareholders may be viewed as being intended to exert pressure on minority shareholders to vote in favour of a transaction or tender to a bid. The OSC believes that such conduct undermines the integrity of the public markets and runs contrary to the public interest.
Evidence of this coercive climate include:
- Dividend Suspension.
The Investor Group believes that the Company should not try to exert undue pressure on its minority shareholders to vote in favour of the Transaction by declaring a cut to its dividend as part of the Transaction. To announce a sudden and immediate cut to a long-standing dividend in connection with the Transaction is arguably oppressive and coercive, particularly where the Company is aware that minority shareholders are unwilling to tender at the deal price. In light of the strong quarterly financial results reported on July 14, 2016, the suspension of the dividend does not appear to be related to deteriorating financial conditions. In the past, the OSC has found that a dividend cut announcement made at the same time as a transaction announcement was not co-incidental, unduly exerted pressure on the minority shareholders, and therefore was contrary to the public interest. In addition, the impact of the dividend suspension arguably alters the calculated premium of the offer to the unaffected share price of Sirius XM Canada.
- Comments made regarding Licensing Renewals.
Comments made over the past year by executives at Sirius XM Holdings regarding license negotiations that coincided with sharp drops in the share price of Sirius XM Canada. The Investor Group believes that such conduct is an attempt to exert undue pressure on the minority shareholder at large to vote in favour of the Transaction, failing which they will face the dire picture being painted by the Company and Sirius XM Holdings.
- Demand for Activation Fees.
On April 26, 2016, Sirius XM Canada announced that it received a demand for payment from Sirius XM Holdings for an additional US$33.9 million as "activation fees" under the XM Licence Agreement owed from 2005 to the end of January 2016. Sirius XM Canada announced that it was confident in its interpretation of the XM Licence Agreement and the calculation of the "activation fees" thereunder, and that it intended to seek resolution of the matter through binding arbitration under the terms of the XM Licence Agreement. The day prior to this announcement, the share was trading at C$4.60, relative to which the C$4.29 adjusted offer price represents a 6.8% discount. Following the announcement of the activation fee demand, the share price dropped C$0.40 and closed on April 26, 2016 at C$4.20 per share.
Keith Graham, President of Rondeau Capital Inc. noted "We believe the current proposal is not in the best interests of all shareholders and does not provide fair value for the minority shareholders. In addition, we believe that serious process, governance and conflict issues are present that should be reviewed by the OSC."
About the Shareholders
The shareholders who filed the request with the OSC relating to Sirius XM Canada and Sirius XM Holdings comprise portfolio management firms that have long-established track records of patient and successful value investing, and are committed to promoting good corporate governance and protecting their rights as shareholders and those of their clients, and include:
Van Berkom and Associates Inc., one of Canada's leading independent small-cap investment management firms, has been a leader in advancing good governance, seeking to improve corporate governance for the benefit of all stakeholders. Mr. J. Sebastian van Berkom, the firm's founder and current president and chief executive officer was a founding director of the Institute for Governance of Private and Public Organizations (IGOPP). In addition, a number of the firm's institutional clients are strong supporters of the Canadian Coalition for Good Governance (CCGG).
|Rondeau Capital Inc.
|Agilith Capital Inc.
|Lester Asset Management
|Avenue Investment Management
|JC Clark Ltd.