There's a fascinating case study into the way multiple voting shares are supposed to work playing out at advertising agency Cossette Inc.
Cossette is in the midst of full-blown battle for control that pits CEO and chairman Claude Lessard against former partner and president François Duffar, who is leading a buyout offer.
There should be plenty of compelling personal intrigue before this one is done. Cossette is the top domestic player in the Mad Men world of advertising, and Mr. Lessard is a leading figure in Canadian marketing, while Mr. Duffar is backed by Jean Monty, still an influential figure in Montreal, and a major Cossette institutional owner, Burgundy Asset Management.
But there's also an interesting governance angle. Cossette went public back in 1999 - at $12.25 a share - with a dual share structure. The public got subordinated voting stock. A handful of insiders, including Mr. Lessard, kept control of the agency by owning multiple voting shares.
But this power has limits. Cossette was set up with a provision that flips the multiple voting stock into subordinated equity - putting all shareholders on equal footing when it comes to votes - a short time after insiders leave the firm. That's happening to Mr. Duffar and another former executive, Georges Morin, who quit the company in mid-July to support the buyout.
Cossette has a second provision that converts all its equity into one class of shares, if insider ownership falls below 30 per cent of the total number of multiple voting shares created as part of the IPO. With the departure of Mr. Duffar and Mr. Morin, the ad agency's insiders will drop below this threshold; they will no longer own 30 per cent of the 13 million multiple voting shares printed in 1999.
So the clock is now ticking on Cossette's dual share structure. The company must convert to a single class of stock 90 days after Mr. Morin resigned, which is Oct. 19.
At that point, Cossette's fate will be decided by whoever wins support from the majority of shareholders - which is governance as it should be. Other Canadian companies, such as Onex, have similar sunset provisions on the rights attached to their founders' multiple voting stock.
Who will win control of Cossette? Mr. Duffar's group, called Cosmos Capital, is offering $4.95 a share for the company, and claims the support of 19 per cent of shareholders, on a fully diluted basis. That offer came at a 52-per-cent premium to the price Cossette commanded before the bid.
Cosmos is the only horse in contention right now. Genuity Capital Markets is Cosmos's financial adviser, along with law firms McCarthy Tétrault and Torys.
However, Cossette struck an independent committee of directors last week and said it will hire advisers and look at all options. The committee has already said it is seeking a white knight, so the logical alternative to the Cosmos offer is a takeover by one of the public, multinational advertising agencies.
CURRENCY'S HARSH LESSON
You read it here first: The Bank of Canada is not going to intervene in currency markets, despite risks to the economy that come with a soaring Canadian dollar.
Actually, you read it here second: TD Securities economists took a look at the central bank's options regarding the Canadian dollar in a report on Friday. In simple terms, chief rates strategist Eric Lascelles and chief foreign exchange strategist Shaun Osborne said the Bank of Canada can't win a battle with currency speculators, and shouldn't even start the fight.
The move in Canada's currency is very real, with a 6.6-per-cent rise against the U.S. dollar in the past month, and pundits talking about possible parity.
In an export-driven economy, a sharp rise in the Canadian dollar is a major economic factor, and that's what gives rise to talk of central bank action.
The last central bank foray into currency markets played out in August, 1998, when the loonie was in free-fall, and was a disaster.
TD Securities said there is nothing to indicate the Bank of Canada would be more successful this time around. "Regardless of the Bank of Canada's intent, there are many reasons why intervention would be inadvisable," said the two TD Securities economists. The pair said the central bank lacks the necessary financial firepower, would risk exceeding its inflation target when the economy recovers and would likely see an intervention end in "spectacular failure."
TD Securities estimates the central bank could only dominate Canadian dollar trading for a single day before spending the bulk of its reserves.
© The Globe and Mail
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