The number of proxy solicitors has doubled but is there enough work to go around?
When it comes to Canadian proxy solicitors, how many is too many? Starting with the duopoly of Georgeson and Kingsdale just a few years ago, the field mushroomed with the creation of the Laurel Hill Advisory Group in 2008 and Phoenix Advisory Partners this summer. In other words, the number doubled even while the world economy was in tatters and M&A was torpid. Competition is fierce, acrimony is rife, and the principals only agree on one thing: there just isn’t room in the market for four players.
American Stock Transfer & Trust Company’s (AST) arrival in the Canadian proxy arena was this summer’s big news. AST was bought in 2008 by Pacific Equity Partners (PEP), the private equity parent of Link Market Services, an Australian registrar that has been pushing out globally under the Link Group banner. In early August AST bought Phoenix, just created by a group of former Laurel Hill executives, mostly ex-Georgeson proxy soldiers led by John Siemann in the US and Glenn Keeling in Canada. Around the same time, PEP announced it was buying CIBC Mellon’s issuer services business, Canada’s number three transfer agent with around 11 percent market share, behind Equity Transfer & Trust (13 percent) and Computershare (63 percent).
Contrary to the assumptions of some observers, while Siemann’s entire Laurel Hill team of 14 decamped to Phoenix in the US, Keeling was the sole Canadian defector. The original Laurel Hill Canada team is largely intact under Brad Allen and David Salmon.
Twist in the tale
Even in the US, eyebrows were raised: Keeling and his entourage left Georgeson to create Laurel Hill, complaining of being a bolt-on business under Computershare, the giant Australian transfer agent that bought Georgeson in 2003. Now they’re back toiling under a giant Australian transfer agent. ‘I’ve been down that road before,’ Keeling admits, ‘but this is different. AST sees Phoenix as a highly strategic business, playing at the most senior level in the marketplace.’
In the aftermath of the summer’s swirl, Laurel Hill in the US has had to rebuild its proxy team, relying partly on refugees from the Altman Group, which pulled out of the domestic US proxy business. Meanwhile, Keeling kick-started Phoenix in Canada with Dexter John, Marcus Campbell and Grace Salonga, all drafted from Kingsdale.
Keeling is seen in the industry as a networker extraordinaire, with contacts among banks and law firms up and down Bay Street. ‘I built Georgeson, I built Laurel Hill and now I’ll build Phoenix,’ he vows. ‘There’s so much global opportunity with AST.’
As the dust settles, it looks like the net loser in Canada is not Laurel Hill but Kingsdale, whose bench strength was sapped – at least in the short term. ‘It’s a tight market in which to find experienced people. When new proxy shops start up, they need to raid the resources of other firms,’ Allen comments. He says he and his core team are committed to Laurel Hill, and their stability is a competitive advantage considering other firms are suffering ‘a disruptive domino impact’.
Kingsdale is still in a strong position, however, with plans to be cross-border as well as independent. When Wes Hall set up the firm in 2003, he wanted to ‘own’ the Canadian market. Now, claiming 65 percent market share and with offices in Toronto, Vancouver and Calgary, Hall says Kingsdale will open offices in strategic locations around the world within the next three to five years. ‘There’s no point us staying in this small tank,’ he says.
For now Laurel Hill can still boast of being Canada’s only independent, cross-border proxy solicitor – and for independent, read conflict-free. ‘When Computershare acquired Georgeson, there was the perception of conflict because of the potential for an inappropriate flow of information. We think our independence is extremely important,’ Allen comments.
Hall says Kingsdale is the only proxy firm in the country that also does corporate actions, which are normally a transfer agent’s job. For example, in a hostile takeover, Kingsdale can be the depositary as well as the information agent, as it was for Xtrata’s $18 billion-plus takeover of Falconbridge in 2006.
Progenitor of the species
Georgeson remains corporate Canada’s staunchest bulwark in the proxy wars, still here after more than 25 years. In fact, the principals at the three other firms all sprang from this one. Roy Shanks, president of Georgeson Canada, says being owned by Computershare, by far the country’s biggest transfer agent, gives his firm clout. ‘We bring size and scale because of our parent and, when proxy season hits, we can ramp up our call centers and account executives to full bore,’ he says.
Computershare also gives Georgeson a technological edge. One example is TeleVote, a new way to contact shareholders and gather their votes with one phone call. Having established it in the US, Georgeson and Computershare launched TeleVote in Canada in April.
The challenge in the Canadian proxy business is that there probably isn’t enough business to support four solicitation firms, even with M&A picking up again. Proxy fights have been on the wane, with only nine ‘live’ fights in 2010 by Georgeson’s measure, compared with 18 in 2009 and 22 the year before. Most of this decline is likely due to boards and shareholders settling disputes before they get to a fight.
Issuers in Canada simply don’t use proxy solicitors as much as those in the US. In Canada, only 137 issuers used solicitors during the 2010 proxy season, according to Broadridge. Still, that number has jumped in recent years, and proxy firms believe heightened scrutiny of corporate performance and governance will prompt more companies to resort to solicitation.
These proxy warriors are also banking on new advisory work. Back when he helped start Laurel Hill, Keeling said his goal was to work for companies year-round, not just on deals or during annual meeting season. That refrain holds true for Phoenix. ‘Proxy is a core competency for this group, but we’re trying to build year-round, board-level relationships with the issuer community,’ Keeling says.
Whoever does get it right will hold the key to survival. For now, the confidence of the newer players belies how crowded the market has become. ‘You have to wonder how rose-colored their glasses are,’ concludes Chris Makuch, vice president at Georgeson.
