MONTREAL, May 22, 2014 /CNW Telbec/ - Montrusco Bolton Investments Inc. ("MBI") confirmed today that it requested the addition of five items to the agenda (the "Proposals") of the next annual general meeting of shareholders ("AGM") of The North West Company Inc. ("NWC" or the "Company") to be held in Winnipeg on June 11, 2014.
These proposals aim to improve corporate governance and ultimately future shareholder returns at NWC. MBI believes that these measures are essential preliminary steps to ensure that NWC's business fundamentals do not deteriorate further.
Unfortunately, the Company's Board of Directors ("BOD") appears convinced that status quo should continue. MBI therefore urges all NWC shareholders to vote FOR the Proposals, in order to give the Company's BOD the strongest message possible that significant changes are imperative to avoid further destruction of shareholder value.
The Proposals are:
- Limit Executive Severance Agreements
- Normalize Executive Retirement Age
- Optimize Executive Share Ownership Guidelines
- Rationalize Key Performance Indicators used for Executive Compensation
- Pursue Strategic Alternatives for the Company's Non-Core Assets
The rationales behind these measures were outlined in a letter sent by MBI to the BOD in December 2013 (the "Letter"), and are included in the Company's Notice of AGM and Management Information Circular package published on SEDAR on May 12, 2014 ("2014 MIC").
We summarize here the key issues motivating the Proposals:
- From fiscal year ending January 2008, when NWC purchased Cost-U-Less, to the one ending January 2014, ROE declined from 25% to 21%, EPS grew a total of $0.01 from $1.31 to $1.32 and Free Cash Flow per share declined from $1.02 to $0.76.
- The Company's poor operating performance highlights the destruction of shareholder value caused by non-core operations such as Cost-U-Less, where buying synergies are negligible. How many more pairs of winter gloves does NWC need to buy for Hawaii-based Cost-U-Less?
- The BOD utilizes a Guinness World Record-shattering number and set of peers to evaluate the performance of NWC management ("Management"), raising obvious concerns of cherry-picking to ensure generous Management payouts.
- The CEO of NWC received total compensation materially exceeding not only that of Metro's CEO in 2011 and 2012, but even that of Costco's CEO. This is particularly egregious considering that Metro and Costco are much larger, complex and more successful companies.
- The BOD has failed to demonstrate that retirement with full benefits at the age of 60 after 10 years of service is a standard for Canadian plans. In fact the pension plans of the Federal and Provincial governments as well as those of a large number of publicly trading companies allow full benefits only to those retiring at 65. These same plans are even getting ready to push the minimum retirement age for full benefit to 67.
- It is unclear how exactly the BOD uses non-IFRS ratios when calculating compensation bonuses. It is also unclear how consistent this methodology is over time, especially as it pertains to the "adjusted" EBIT metric.
- We question the methodology used to assess the value of the Company's option plans. The BOD does not rely on the commonly accepted Black & Scholes formula in its MIC notes. The MIC refers to the difference between an average share price and the option exercise price. This does not take into account the intrinsic value of time and volatility! The BOD's approach to option pricing underestimates the value of the generous option packages (ditto for total compensation) of its NEOs.
We believe that the Company would be delivering significantly higher returns, if the BOD was extracting the true economic potential of NWC's key high-barrier-to-entry assets without the distraction of more recently developed non-core low-quality forays. This is especially aggravating considering the vast number of ancillary investment opportunities available at Northern stores that Management highlights in public investor meetings.
We urge the Company's shareholders to exercise their right to vote (i) FOR all five proposals brought forth by MBI and (ii) AGAINST North West Company's "Say on Pay" to thereby play a much needed active role in improving corporate governance and ultimately shareholder returns at NWC.
The full text of today's MBI press release, including detailed support of the Proposals, is available at http://www.montruscobolton.com/Publications/Publications Press Releases/2014 Press Releases/MBINWC-May-2014.pdf
SOURCE: Montrusco Bolton Investments Inc.
For further information:
Head of Equities
Montrusco Bolton Investments Inc.
Montrusco Bolton Investments Inc.