Let’s begin with a tale as old as time: A battle for money and power leaves a trail of heartbreak and destruction.
Walt Disney, no stranger to beastly affairs, was locked for two years in a high-profile fight with an activist investor over the entertainment giant’s future.
The House of Mouse won the day – but at a steep price. In April, it was revealed that the company spent US$40-million to defend its board and its direction. Along with the price its activist rivals paid, it was reported to be a record sum in the history of proxy battles.
But as both Summer McIntosh and Gildan Activewear reminded us yesterday, records are made to be broken. The Montreal-based clothing manufacturer reported that it paid about US$77-million over a nasty proxy fight that plunged the company into turmoil for nearly half a year. Below, we unravel the price Gildan paid to win.
Up top
- Oil sands companies are holding back on issuing environmental reports to shareholders as they deal with the fallout from federal legislation intended to ban greenwashing, Emma Graney reports. Pointing to uncertainty around Bill C-59, Cenovus and Canadian Natural Resources both released earnings yesterday without their usual environmental, social and governance reports.
- Alberta business owners facing losses from wildfire damage can get help navigating the crisis to ensure that they can limit the drain on cash flows and support their employees. Estella Ren reports on how businesses can mitigate the damage and pave the way for rebuilding.
- Lightspeed Commerce Inc. is pledging to sharply increase its subdued pace of customer and subscription growth in the second half of its fiscal year, Sean Silcoff writes. The point-of-sale software company delivered better-than-expected first-quarter results driven by pushing clients to use its financial-service products.
In focus
‘There’s no war without cost’
Gildan Activewear Inc. CEO Glenn Chamandy and board chair Michael Kneeland in June.Christinne Muschi/The Canadian Press
First, a quick jog through memory lane:
- Gildan Activewear Inc. shocked the market in December by announcing that it was parting ways with chief executive Glenn Chamandy, who had spent 20 years in that role.
- The company announced that Vince Tyra, a former president of Fruit of the Loom and past CEO of apparel distributor Broder Bros. Co., was taking over.
- Days after the announcement, Browning West, one of the company’s largest shareholders, launched an activist campaign to bring him back.
- A six-month battle ensued, concluding in May with Chamandy’s return at Gildan’s annual meeting.
Now, just a little more math:
We’ve already noted that US$77-million is more than US$40-million. But let’s also consider the market capitalization (the value of one share multiplied by the number of shares) of the companies in question:
- Walt Disney: About US$170-billion
- Gildan Activewear: Around US$6.8-billion
In an interview after the company reported its earnings – his first since getting his job back as CEO in May – Chamandy told The Globe’s Nicolas Van Praet the proxy-battle price tag was an “abusive” waste of money. “For a small company like Gildan, it just doesn’t make a lot of sense.”
Of the US$76.8-million, US$33-million of that came from legal and advisory fees. Here’s a more complete breakdown:
Those one-time costs include:
- US$15.3-million in cash to Vince Tyra, the man who replaced Chamandy as chief executive before quitting (alongside the new board) after four months.
- US$9.1-million to Arun Bajaj, former executive vice-president and chief of human resources and legal affairs.
- A US$9.4-million reimbursement to Browning West for the costs it racked up in waging its dissident campaign.
As one analyst told Van Praet: “It’s a bit mind-blowing but there’s no war without cost,” said François Dauphin, chief executive of the Montreal-based Institute for Governance of Private and Public Organizations.
Speaking to investors on a call yesterday, Chamandy didn’t dwell on the past. “Everything is intact,” he said, according to The Canadian Press. Before his exit, the company had been “in breakout mode and firing on all cylinders,” and he found that nothing had changed when he returned. “All those opportunities are still here,” he said.
So, with perhaps the costliest proxy battle behind him, Chamandy has his sights set on Gildan’s future. “The business seems back on track,” Citigroup analyst Paul Lejuez said in a note to clients.
But he isn’t fully past his legal issues:
- Chamandy is battling Revenu Québec over tax filings from years ago, La Presse reported in May.
- The provincial tax agency is seeking about $47-million, including a $6.4-million penalty against one of Chamandy’s numbered companies, over a strategy involving foreign-exchange contracts.
Charted
PBO estimates capital-gains revenues lower than in federal budget
The Parliamentary Budget Officer estimates that changes to the taxation of capital gains will generate $17.4-billion in revenue over five years, Matt Lundy reports. That’s $2-billion less than the federal government projected in the spring. The changes to the capital-gains inclusion rate sparked a rigorous debate. Technology leaders have been outspoken critics of the move, saying it would discourage investment and entrepreneurship. You can read Lundy’s full story here.
The lookout
On our radar and reading list
At the bell: Enbridge, Imperial Oil, Magna, Exxon Mobil Corp, Linde PLC.
In the big picture: The BoC drops its market participants survey this morning. In the U.S., we’ll see the employment report for July and factory orders for June. There are 194 days until pitchers and catchers report for the 2025 baseball season.
On the road: It’s a good thing that electric vehicles haven’t caught on yet, Rita Trichur argues.
On the farm: Canada is about to lose more than 100,000 farming jobs. That’s great economic news, Tony Keller writes.
Morning markets
Global markets were in the red as downbeat earnings and anxiety about U.S. growth weighed on stocks.
Wall Street futures pointed to a negative open.
TSX futures were also down.
The pan-European STOXX 600 was down 1.77 per cent in morning trading. Britain’s FTSE 100 lost 0.41 per cent, Germany’s DAX declined 1.56 per cent and France’s CAC 40 was down 0.79 per cent.
In Asia, Japan’s Nikkei lost 5.81 per cent in the biggest decline since the March 2020 COVID-19 crisis. Hong Kong’s Hang Seng closed down 2.08 per cent.
The Canadian dollar traded at 72.09 U.S. cents.