Bay Street’s GMP Capital and Former CEO Spar Over Wealth Merger

(Bloomberg) -- GMP Capital Inc.’s former chief executive officer filed documents to block the company’s deal for full control of wealth manager Richardson GMP and proposed a new slate of directors.

Kevin Sullivan, who was GMP’s CEO for more than a decade until 2010, is trying to convince shareholders in the Toronto-based financial firm to vote against an agreement to buy all of the shares of Richardson GMP it doesn’t already own from Richardson Financial Group Ltd.. The proposed deal would value the wealth firm at C$420 million ($319 million).

While the concept of the transaction is a good one, “the terms negotiated by GMP’s existing board are not,” said Sullivan in a regulatory filing Tuesday ahead of the the firm’s Oct. 6 shareholders meeting.

The deal, under which GMP Capital would issue 1.875 shares for every share of Richardson GMP, gives effective control of GMP Capital to the Richardson family, which would see its ownership stake rise to 40.1% from 24.1%, Sullivan said in a letter.

‘No Control Premium’

GMP Capital was once one of Canada’s largest independent investment dealers, but a sharp decline in interest in junior resource stocks hurt the company’s investment banking and trading divisions. It sold those businesses last year to Stifel Financial Corp. for about $50 million and said it would try to consolidate ownership of Richardson GMP, in which it owned a 33% stake alongside Richardson Financial and RGMP employees.

“The Richardson family is paying no control premium -- in fact it seeks a control discount from the independent GMP shareholders -- for that significant benefit” of gaining effective control of GMP, Sullivan said. He is proposing changes to the deal that would return more capital to existing GMP investors and a governance agreement to protect minority shareholders. Sullivan owns about 4%.

A representative from GMP didn’t reply to a request for comment about the circular. In previous filings, GMP’s board has said that financial advisers who handle about 97% of Richardson GMP’s assets under administration have expressed support for the deal.

GMP has also noted that Richardson Financial’s stake is rising only because it has agreed to take stock instead of C$43 million in cash it would be entitled to.

Sullivan is proposing five independent directors for the GMP board, including BC Partners credit head Ted Goldthorpe and David Goodman, former head of global asset management at Bank of Nova Scotia.

“GMP’s board portrays me as trying to ‘disrupt’ the RGMP transaction. The opposite is true, as anyone who looks at my record will know. I have a record of creating value, not disruption,” Sullivan said.

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