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Dissident shareholders fail to make changes to Sherritt International's board

TORONTO - An activist shareholder who failed in his attempt to join the board at Sherritt International Inc. says he's disappointed he was unsuccessful, but vows that the fight is not over.

"What it truly comes down to in the end is that nobody wants to rock the boat. Everybody seems to be very complacent," said Clarke Inc. chief executive George Armoyan. "Sometimes they prefer the status quo versus the risk of changing."

A vote held at Sherritt's annual general meeting on Tuesday saw the majority of shareholders back all nine of the management's director nominees. The dissident shareholder group, led by Halifax-based investment firm Clarke (TSX:CKI), had sought three spots on the board, including one for Armoyan.

During the past few months, a bitter and very public proxy contest has unfolded between the nickel miner and the Clarke group, which had also wanted to oust Sherritt's (TSX:S) current president and CEO David Pathe.

Armoyan said he has not ruled out suggesting more changes to the board and company next year but said he would do a few things differently, including upping his stake in the company, consulting with more institutional investors and getting a commitment from them to vote in his favour. The whole process has cost him about $1.5 million, he said.

"I have to tell you, I'm not the brightest guy in the world. I'm not the smartest guy in the world but I'm the most persistent son of a bitch you'll ever meet," Armoyan said.

Clarke holds a 5.4 per cent stake in Sherritt, its largest investment in a public company.

It first approached Sherritt in December 2013 asking for a special meeting to vote on a board shakeup. Besides Armoyan, the Clarke group's handpicked board nominees also included David Wood, chief financial officer at the Municipal Group of Companies, a construction and mining infrastructure company and Ashwath Mehra, CEO of Astor Group and former head of MRI Trading AG.

Armoyan said he will continue to actively look for opportunities to increase the value for shareholders at other firms. Clarke had acquired a 38 per cent stake in private oil and gas driller Highkelly for $9 million more than two years ago and sold it to CanElson Drilling Inc. (TSX:CDI) in December 2013 for $12.5 million. Last year, it also tried to take Montreal-based envelope maker Supremex Inc. (TSX:SWP) private, but the two companies could not come to an agreed price.

Following the vote, Sherritt chairman Hap Stephen said the company and the board are ready to move on, concentrate on reducing Sherritt's debt and focus on projects in their areas of expertise.

"While this practice has been distracting, we have learned a lot," he said.

As a result, Stephen said, the company plans on making more of an effort to engage with shareholders.

The Sherritt board also said that it would no longer make payments to directors to compensate for the possibility that the U.S. government could bar them from visiting the country under the Helms-Burton Act.

Sherritt has extensive operations in Cuba making it a target for the U.S. law, which is meant to discourage doing business in Cuba. The company has been active in the communist country for the past 20 years and is Cuba's largest energy producer.

The dissident group had called on Sherritt's current and past directors to repay a total of roughly $2.2 million they received in compensation for the potential hardship.

In addition to seats on the Sherritt board, the dissident group wanted to amend the company's bylaws to require unanimous board support for any major acquisition and changes to how both Sherritt directors and executives are paid. The group complained that costs were up and the share price down since Pathe took the helm at the beginning of 2012.

Although the majority of shareholders turned down Armoyan's proposals, many at the annual meeting voiced similar concerns, particularly about management's capability to build a strong company amid fluctuating commodity prices.

"It's disgraceful that you've brought a great company to its knees. You should be ashamed of yourself," one retail investor angrily told Pathe during the question and answer portion of the meeting.

Pathe dispute accusations that he was not invested in Sherritt's success.

"Be assured that I'm all in, in this company," he told the standing-room only meeting at the Toronto Convention Centre.

Last week, the miner said higher financing costs, a lower Canadian dollar and costs associated with starting commercial production at its mine in Madagascar harmed first-quarter results. It said it lost $48.2 million, or 16 cents per diluted share in the three-month period. A year earlier it earned a profit of $23.1 million or eight cents per share.

Sherritt said it remains committed to its projects in Cuba, which currently provide all of the company's cash flow and profit, and pointed to its decision to move away from coal as a way for it to refocus its strengths. It sold its Western Canada coal business in December for $946 million.

Shares in Sherritt closed down 2.4 per cent, or 11 cents, at $4.47 WEdnesday on the Toronto Stock Exchange.

Follow @LindaNguyenTO on Twitter.

The Canadian Press


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