The full text of the new Question and Answer document follows:
Questions and Answers About the Dissident Circular
1. Is it in shareholders’ interest to return more cash to shareholders, beyond the $0.15 per share Special Dividend already proposed?
No. GMP should not weaken its balance sheet following this transaction. We believe that the best way to create further value for all shareholders is to put our cash to immediate use by recruiting Investment Advisors (IAs) to join Richardson GMP because they are the engines of future growth. Beyond that GMP will need to be disciplined in its use of capital, particularly given the continuing uncertainty in the economic environment caused by the global pandemic. There is no room for a short-term focused and self-serving share buyback proposed by the dissident or for the dissident’s misguided calls for the Company to de-emphasize growth. Moreover, the Company is wasting valuable shareholder capital on a costly and unnecessary proxy fight.
2. Why should I care about the future after I get the share buyback proposed by the dissident?
Assuming a proportionate tendering by shareholders, only 30% of your equity would be purchased for cash in a share buyback. Your remaining 70% would be exposed to the future success of the business. If you vote to weaken the balance sheet, you devalue your remaining shares to an extent that we believe will more than offset any benefit from the share buyback.
3. The dissident says in his circular that there is much more cash available to fund a buyback – what is wrong with his calculations?
There are four fundamental errors in this dissident’s calculations that vastly overstate the amount of capital that the dissident believes GMP can prudently distribute:
- The $20 million miscalculation: The dissident claims “he understands the capital needs of GMP and RGMP”, but yet completely ignores the capital requirements of GMP’s existing carrying broker business. The fact is, based on industry best practices, our carrying broker can’t operate on $20 million of capital without negatively impacting banking and counterparty relations, margin lending and stock borrowing and lending activities. That’s why the RGMP Transaction contemplates a prudent and necessary capital level of $40 million to support both businesses. Further, as the Company continues to grow it will require even greater amounts of capital.
- The $18 million miscalculation: The dissident intends to cut by $18 million, or 50%, the cash required in connection with the Richardson GMP IAs recognition plan. The fact is we have already offered the IAs a choice of cash or shares and 95% of the $36 million recognition plan has already been subscribed for by IAs in cash.
- The $75 million miscalculation: The dissident is mistaken in his belief that RFGL would agree to leave $75 million in the business that it is otherwise entitled to receive under the RGMP Shareholders Agreement at closing, if the RGMP Transaction is not approved. RFGL has been very clear that it has agreed to these concessions provided that the $75 million is used in the business to fund future growth and not to be used to fund the dissident’s self-serving share-buyback.
- The $52 million miscalculation: The dissident derives $52 million from two years of future cash flows, while not adjusting any other line items, each of which represent one year’s worth of costs. Moreover, there is a clear double-count error because the dissident’s $52 million includes the full-year estimate of free cash flows for 2020, when half of that amount has already been captured in Richardson GMP’s net working capital of $58.2 million as at June 30, 2020. Finally, the dissident implicitly argues that future cash flows can pay for a current share buyback, which is not only irresponsible, but reckless.
4. Is the dissident correct that Richardson GMP’s wealth management business has not missed out on opportunities to grow while operating with less than $30 million on the balance sheet?
The dissident is incorrect to assert that no growth opportunities were missed. The dissident is correct about the amount of capital with which Richardson GMP has historically operated but this ignores the potential for growth and the full breadth of GMP’s business.