A management-led group of Canaccord Genuity Group Inc. employees is proceeding with a takeover bid for the company despite opposition from a special committee of board directors and an independent valuation that puts Canaccord’s worth higher than the offer price.
The management-led group on Monday formally launched its all-cash offer of $11.25 per common share, which values the Vancouver-based financial services firm at $1.1 billion. The group had announced the offer — which will remain open until June 13 — last month.
“We are pleased to be proceeding with our formal offer, which provides immediate certainty of value and liquidity for shareholders at a substantial premium in a volatile market,” said Canaccord president and CEO Dan Daviau in a release.
A special committee of independent directors formed to evaluate the offer said Monday that it intends to recommend to the board that shareholders not support the bid.
The committee — comprised of Canaccord Genuity board members Gillian Denham, Charles Bralver, Dipesh Shah and Sally Tennant — cited an independent valuation from RBC Dominion Securities Inc. that put the fair market value of Canaccord’s shares between $12.75 and $15.75 as of Feb. 15.
The employee group making the offer includes Daviau and chairman David Kassie, as well as all members of the company’s global operating committee and other senior employees.
The group owns a 21.3% stake in the company, and the offer also has the support of Canaccord’s largest independent shareholder.
When Daviau announced the deal in early January, he said the company’s shares reflect the volatility of global capital markets and aren’t suited for public trading.
Canaccord’s stock peaked at $16.52 in November 2021 before falling significantly last year as deal-making slowed amid volatile markets. Shares traded at $8.61 on the Toronto Stock Exchange before the management group’s offer on Jan. 9, and have been above $11 since.
In its release on Monday, the management group said the RBC review “presents a valuation range that is unrealistic, unachievable in the foreseeable future and not adequately supported as realizable values for shareholders.”
The group’s offer of $11.25 per share represents a 30.7% premium to the pre-Jan. 9 closing price, it said, suggesting the stock would trade below the offer price again if the deal is not accepted. It also warned of employees leaving the firm if the proposed deal doesn’t go through.
The RBC valuation used of a “sum of the parts” methodology that valued each business segment individually, the management group said. However, the group said the entities rely on shared resources and infrastructure, and therefore wouldn’t enhance value for shareholders if they were “sold off for parts.”
The group said RBC’s valuation of the Canadian wealth business at $7.75–$9.00 per common share — a valuation of $810 million to $941 million — was “unrealistic.”
That value would be equivalent to 2.34%–2.71% of Canaccord’s $34.7 billion in assets under administration (AUA), it said, compared to historical transactions in Canada completed at an average of 1.5% of AUA.
“The offer price of $11.25 per common share represents senior management’s view that the company is worth more on an en bloc consolidated basis than a sum of the parts liquidation sale of each of the reported business segments,” the group said.
The special committee said it disagreed with the management group’s analysis of RBC’s valuation.
The valuation is based on “a going concern sum-of the parts approach, not a liquidation of the company through the sale of each of its underlying businesses,” it said.
The special committee has hired Barclays Capital Canada Inc. to commence an alternative transaction process to “explore potential strategic alternatives to enhance shareholder value,” the release said.