Dark Arts Proxy Disclosures
Superior Plus, CT REIT, and more.
After a bit of a hiatus, I decided to get back into searching for governance flags (either positive or negative). Provided below are brief overviews of various situations. Please do your own due diligence.
Superior Plus Corp. - $SPB.TO (March 15, 2024)
I noticed that the Chair’s letter to the board in the proxy specifically mentions that the stock is undervalued. While it’s not uncommon to see this kind of overly-positive thinking in investor presentations, it is odd to find it mentioned in a proxy document. The exact wording is provided below.
Directors rarely make bold and public statements about the valuation of the company or the strategic changes made throughout the year, which is why it caught my eye. These changes include replacing the company’s 12-year CEO in April 2023, and replacing four board members in 2023.
The board also made some material changes to executive compensation in the most recent proxy, which included adding a total shareholder return (TSR) multiplier, amending a performance metric to EBITDA per share (previously just EBITDA), and adding a capital allocation measure/scorecard for executives.
In my opinion, there are material changes occurring at the company, and I think it’s worth taking a deeper look.
Caution: Brookfield is involved as a preferred debt and equity holder, which is likely why the governance changes are being made. There is a shareholder rights plan in place, which should at least lower the probability of a Brookfield takeover at a small premium.
Airboss of America Corp. - $BOS.TO (May 21, 2024)
The company granted Options and PSUs to senior officers on May 21, 2024. The timing seemed odd since Airboss typically provides grants to management in mid/late March, not long after they release their annual financials. The timing mismatch is evident below for the options.
As I looked closer at the stock price (chart below) and timing of press releases, I noticed that the company should’ve given the grants sometime during the black circle in the chart (mid/late march).
Instead of granting at this higher price, the company instead disclosed a new credit agreement on March 27th, 2024 (near the end of the period in the black circle), which severely restricted their ability to pay dividends going forward. This announcement caused the stock price to tank 14% over the following days. The company then decided to grant the Options and PSUs executives at the more advantageous price.
It’s obvious to me that the company waited to provide the grants until the bad news was incorporated into the stock price. This is known as bullet dodging, and it is definitely a mark against the company’s board of directors.
CT Real Estate Investment Trust - $CRT-UN.TO (March 26, 2024)
The company’s proxy highlighted some material amendments to their Restricted Unit (RU) share plan for executives. See below for all of the changes.
The first bullet points stands out to me specifically.
It is very odd for there to be a provision in terms of vesting should the stock be delisted or cease trading. This means that executives would have their grants fully-vest upon a delisting, and could potentially incentivize management to sell the company no matter what.
I suspect that these amendments could be alluding to a sale of the company or a material change in the company’s structure.
Maple Leaf Foods Inc. - $MFI.TO (March 27, 2024)
Per the most recent proxy, the company is giving executives one-time equity STIP awards that are 50% options and 50% PSU’s. The screenshot below provides a more detailed description of the scenario.
The company’s PSU’s are typically tied to return on net assets and break-even of their plant protein segment, but these one-time awards are specifically tied to stock price performance.
I also find it odd that the grant price of the PSU is based on a 30-day average stock price, whereas the company typically uses a 5-day average stock price.
Given that the grants are based on the stock price, I would expect the company to potentially manipulate the grant date to ensure a favourable outcome for management. This manipulation is even more easy to do because the company is using a 30-day average stock price for the grant date strike price.
Based on my assessment of the situation and disclosures on SEDI, it seems as though the company has not yet made these grants to executives.
Currency Exchange International Corp. - $CXI.TO (February 13, 2024)
The company’s recent proxy made a few small changes to the STIP wording. Amendments include:
Increasing the Net Income Before Tax (NIBT) hurdle to 85% of target to get a minimum bonus payout (previously 75% of target).
Increasing the maximum bonus payout target to 150% (previously 125%).
Adding language which clarifies that if the minimum performance threshold of 85% isn’t met, then the bonus payout is NIL.
Highlighted changes are provided below.
The company’s Net Income Before Tax (NIBT) target was USD$15MM in 2023, but the 2024 target was not disclosed in the proxy. Even the previous NIBT target was quite significant relative to the current market cap of ~USD$125MM, and would imply that it is trading at ~11x after-tax earnings. This multiple does not account for the excess cash on their balance sheet.
It is pretty obvious to me that the only reason the board would purposely increase the threshold for a minimum bonus payout is if they were highly-certain that they could achieve the target.
The board is effectively controlled by the President/CEO of the company, since he holds 21.3% of the shares outstanding.
