Kevin Sullivan Highlights Compelling Reasons that GMP Shareholders are Voting to Reject the Richardson GMP Transaction and Elect a New Board at GMP

Shareholders Should Vote AGAINST the Richardson GMP Transaction and FOR the Election of the New Shareholder Nominees using only the YELLOW Form of Proxy

Visit www.astrongergmp.com and Vote Today

TORONTO, Sept. 23, 2020 /CNW/ - Kevin Sullivan today highlighted the compelling reasons that shareholders of GMP Capital Inc. ("GMP") are voting to reject the proposed transaction (the "RGMP Transaction") to consolidate 100% of the shares of Richardson GMP Limited ("RGMP") under GMP, and to elect five new highly qualified, experienced and independent nominees (the "Shareholder Nominees") as directors of GMP.

As strong public endorsements from GMP's shareholders against the RGMP Transaction and for the election of the Shareholder Nominees continue to build, GMP's existing board persists in their efforts to convince GMP's shareholders to approve a transaction that is financially unfair and contrary to the interests of GMP's shareholders.  These increasingly desperate attempts by GMP's board deflect responsibility for having acquiesced to a financially unfair transaction, and the board's arguments that GMP's shareholders should overlook that unfairness are not credible. 

Shareholders of GMP should disregard these latest pleas from GMP's board, which fail to address the unfairness of the RGMP Transaction or GMP's governance failures, and instead principally repeat the same implicit threats that are not resonating with GMP's shareholders. 

GMP's shareholders should not accept a transaction that is financially unfair to them.  Shareholders should also not accept a board of directors at GMP that continues to prefer the interests of the Richardson family over the interests of GMP's other shareholders.

Shareholders have seen through the claims of GMP's existing board.  To date, shareholders owning more than 36% of the common shares of GMP eligible to vote on the RGMP Transaction have publicly declared that they will be voting against that transaction at the October 6, 2020 shareholders' meeting.  In contrast, not a single shareholder eligible to vote on the RGMP Transaction has spoken out publicly in favour of the transaction (aside from GMP's existing directors).  

The time for change at GMP is now. GMP's shareholders are urged to vote TODAY using only the YELLOW form of proxy AGAINST the RGMP Transaction and FOR the election of the five new Shareholder Nominees. Acting together, GMP's shareholders can revitalize GMP and create a better tomorrow for all GMP shareholders.

Compelling reasons to vote against the RGMP Transaction and for the Shareholder Nominees include those outlined below.         

1.            The RGMP Transaction is Financially Unfair to GMP's Shareholders

In his information circular, Mr. Sullivan outlined in clear and concise terms how and why the RGMP Transaction is financially unfair to GMP's shareholders, other than the Richardson family. 

GMP's independent shareholders are being asked to approve a transaction that will reduce the value of their common shares of GMP, using the valuation metrics of GMP's own financial advisor, from $2.93 per share today to $2.31 per share immediately after the RGMP Transaction is completed.  GMP's independent shareholders are also being asked to approve a transaction that effectively sees them acquire an additional 6.3% ownership interest in RGMP for a grossly-inflated price of $11.49 per common share of RGMP, compared to the $4.25 per share value which GMP's financial advisor ascribed to RGMP's common shares under the RGMP Transaction.

The math speaks for itself – the RGMP Transaction is destructive to GMP shareholder value. 

It speaks volumes that the latest communications from GMP's board do not even attempt to argue otherwise.  These communications also fail to address in any way why GMP's shareholders should approve a transaction that transfers effective control over both GMP and RGMP to the Richardson family without the payment of any control premium.

GMP's shareholders understand the financial unfairness of the RGMP Transaction. That is why GMP's shareholders are rejecting it.       

2.            GMP's Existing Board Offers No Alternative But Implicit Threats

Recognizing that they cannot demonstrate that the RGMP Transaction is financially fair to GMP's shareholders, GMP's board instead asks shareholders to ignore that unfairness because the board has no Plan B.  The board's self-serving threats attempt to shift the risk of harm to RGMP's business onto GMP's independent shareholders simply because they exercised their right to turn down an unfair transaction.

The RGMP Transaction has already been approved by Richardson Financial Group Limited ("RFGL") and the RGMP Investment Advisors.  However, to proceed, the RGMP Transaction must also be approved at the October 6, 2020 shareholders' meeting by GMP's independent shareholders.  GMP's board was acutely aware of the necessity for approval from GMP's independent shareholders, yet imprudently chose to push forward with a transaction that ignored the interests of GMP's independent shareholders knowing that there was a high probability of failure and having no alternative plan to mitigate against that foreseeable risk. 

After the RGMP Transaction is rejected, the Richardson family, through RFGL, will still directly own 34.3% of the common shares of RGMP as well preferred shares of RGMP, with an aggregate  value of approximately $156 million.

The RGMP Investment Advisors will still own 32.5% of the common shares of RGMP, with a value of approximately $118 million.  The RGMP Investment Advisors are also expecting a further $36 million in retention payments from RGMP, which Mr. Sullivan has stated the parties should work to honour even if the RGMP Transaction does not proceed.

RFGL and the RGMP Investment Advisors will not act against their own financial interests as shareholders of RGMP.

The RGMP Investment Advisors have remained loyal to RGMP under the current ownership structure despite having many opportunities to depart to competitors over the years.  They have chosen to stay because RGMP has an entrepreneurial approach, they have a meaningful ownership interest in RGMP, the RGMP Investment Advisors are compensated fairly by RGMP, and RGMP offers an attractive platform to clients.  None of that will change if the RGMP Transaction is rejected. 

The RGMP Investment Advisors are critical to the ongoing success of RGMP.  After the RGMP Transaction is rejected, GMP's board, reconstituted with the Shareholder Nominees, will take appropriate action to ensure the RGMP Investment Advisors are satisfied and aligned.  Contrary to the threats of GMP's existing board, the reality is that this has successfully been done for the past approximately 11 years.  Kevin Sullivan and the Shareholder Nominees will work tirelessly to ensure the continued prosperity of RGMP.     

3.            GMP's Excess Capital

The RGMP Transaction significantly over-capitalizes the combined GMP/RGMP business at the expense of GMP's independent shareholders.  As outlined in detail in Mr. Sullivan's information circular, the combined business will have net working capital of approximately $149.8 million, far in excess of what is reasonably required to fund growth initiatives.

Mr. Sullivan has publicly stated that, if the RGMP Transaction is to proceed, GMP should return $51.3 million ($0.68 per share) of its net working capital to GMP's common shareholders – $11.3 million ($0.15 per share) by way of dividend and $40 million ($0.53 per share) by way of a share buy-back at $2.42 per share.

In response, GMP's board has now doubled down on its claims that the distribution of $0.68 per share to GMP's shareholders would leave GMP undercapitalized, and makes various inaccurate claims about Mr. Sullivan's analysis.

Shareholders who want to see who is telling the truth on GMP having adequate capital to distribute $51.3 million ($0.68 per share) to shareholders in advance of the closing of the RGMP Transaction need look no further than page 44 of GMP's own management information circular. This shows that GMP's own Special Committee proposed the payment of a $0.67 per share special dividend to GMP's shareholders, representing an aggregate return of capital of over $50 million, as recently as July 1, 2020.     

Shareholders should ask themselves how it is that GMP's own Special Committee and financial advisor believed that GMP had adequate excess capital to pay a $0.67 per share special dividend to shareholders as of July 1, 2020, but now say that the payment of anything more than $0.15 per share would imperil the business.  The answer is self-evident.  Unlike the current board, Mr. Sullivan is not taking inconsistent positions and his calculations are sound. 

The board's current position about GMP only being able to afford a $11.3 million ($0.15 per share) distribution to GMP's shareholders is also inconsistent with the original terms of the RGMP Transaction announced in February 2020.  Those terms contemplated the redemption of RFGL's preferred shares and other immediate payments to RFGL that aggregated $38 million ($0.52 per share).  None of that $38 million capital outflow is required under the current RGMP Transaction.  Despite this $38 million immediate outflow, in GMP's February 26, 2020 news release announcing the original iteration of the transaction, Mr. Kapoor trumpeted that the business would be "powered by a strong balance sheet at the combined firms" which would "allow the company to deploy considerable capital to accelerate the growth of the wealth management business".

The bottom line is that GMP has the financial capacity and flexibility to do what is fair and appropriate by returning $0.68 per share of capital to its shareholders as part of the RGMP Transaction. 

4.            GMP's Late Breaking "Double Independent Majority" Promise

The RGMP Transaction is not only financially unfair, it is structurally unfair to GMP's independent shareholders and the RGMP Investment Advisors. 

RFGL is currently bound by an Investor Agreement that protects GMP's other shareholders with respect to GMP's board composition, change of control transactions and other matters. The RGMP Transaction will see the Richardson family's ownership of GMP increase from 24.1% to 40.1%.  At that level of ownership, the Richardson family will effectively control GMP, including the composition of GMP's board.  Inexplicably, as part of the RGMP Transaction, GMP's board agreed to terminate the Investor Agreement, and not to replace it with appropriate contractual protections for the benefit of GMP's minority shareholders.

Only after being called out by Mr. Sullivan did GMP's board respond, more than 40 days after it announced the RGMP Transaction, with its flawed and late breaking "Double Independent Majority" promise.   

The claim by GMP's board that this was "always contemplated" is not credible and should not be believed by GMP's shareholders.  Real and meaningful protections are reflected in legally binding agreements, not announced as afterthoughts.  GMP's shareholders are left to wonder how long this promise would last, and what, if any, constraints would exist on RFGL's ability to effectively control the composition of GMP's board so long as a majority of the directors were technically independent of RFGL and GMP.

GMP's shareholders should ask themselves whether GMP's board is acting to protect the interests of GMP's independent shareholders or those of the Richardson family.  The failure of GMP's board to obtain customary and appropriate legally binding protections for GMP's minority shareholders should the RGMP Transaction be approved has not been remedied.

5.            The RGMP Investment Advisors' Choice of Cash

GMP's September 8, 2020 management information circular disclosed that, as part of RGMP's $36 million Investment Advisor recognition program, the RGMP Investment Advisors could elect to receive this award either in cash or common shares of GMP, with such GMP shares being issued at $2.27 per share.  The management information circular specifically stated that 15,882,353 common shares of GMP, or 8.7% of GMP's post-closing pro forma common shares, were being reserved for issuance to the RGMP Investment Advisors to satisfy their right to take shares of GMP in payment of this $36 million. The management information circular included no disclosure regarding whether the RGMP Investment Advisors had elected cash or shares. 

In GMP's most recent September 22, 2020 letter to shareholders, GMP's board discloses for the first time that over 95% of the RGMP Investment Advisors have elected cash rather than to accept common shares of GMP at a value of $2.27 per share.

Shareholders of GMP should take note.  While GMP's current board speaks to significant upside, and relies heavily on the RGMP Investment Advisors' support for the terms of the RGMP Transaction, virtually all of those RGMP Investment Advisors are choosing to take cash rather than investing in GMP's common shares at $2.27 per share.  Mr. Sullivan's proposed share buy-back effectively gives GMP's independent shareholders that same choice.

6.            The Shareholder Nominees Will Take GMP to New Heights

GMP's existing board offers no alternative strategy, and has no plan, if the RGMP Transaction is rejected.  The current board is out of ideas and has effectively turned decision-making over to RFGL.

The Shareholder Nominees, on the other hand, comprise exceptionally qualified individuals who are deeply experienced in the executive leadership, strategic direction and board oversight of investment management and financial services businesses.  The new Shareholder Nominees will either negotiate and complete the consolidation of RGMP on terms that are fair to all shareholders, or they will quickly move to build shareholder value through other strategies.  Unlike the current board, the Shareholder Nominees have a detailed plan and vision to create shareholder value at GMP whether or not such a RGMP consolidation transaction can be achieved.

The Shareholder Nominees will revitalize GMP, steadfastly protect the interests of GMP's independent shareholders and successfully create value for all GMP shareholders. 

GMP's shareholders should not be misled by GMP's existing directors' efforts to rationalize their approval of an indefensible transaction.

Vote Today, and Only Using the YELLOW Proxy:

• AGAINST the financially unfair RGMP Transaction; and
  
  
• FOR the election of the five new highly qualified, experienced and independent Shareholder Nominees as directors of GMP.

For questions or assistance in completing or returning the YELLOW form of proxy or voting instruction form, please call:

Gryphon Advisors Inc.
1-833-266-0365 (toll-free in North America)
[email protected]

For up to date information and ease of voting, all GMP shareholders are encouraged to visit www.astrongergmp.com and click on the "Vote Now" button to cast your vote.

SOURCE Kevin M. Sullivan

Kevin M. Sullivan, 416-543-1573, [email protected]