Tibor Kolley/The Globe and Mail
Transcontinental founder Rémi Marcoux has struck a $57-million deal to monetize almost one-third of his shares in the company, allowing the 70-year-old executive chairman to liquidate some of his holdings while retaining his family's voting control of the company.
Mr. Marcoux was not available Tuesday to comment on the transaction, but said in a statement the financial transaction "was designed in a prudent manner to allow both stability in Transcontinental's operations as well as long-term family succession planning."
The deal involves four million of Mr. Marcoux's 13.2 million class B shares in the Montreal-based printing company, or about 30 per cent of his holdings. Mr. Marcoux and his family control about 70 per cent of Transcontinental's voting rights through the multiple-voting shares.
Monetization allows an executive to transfer his economic interest in his shares to a financial institution while retaining the voting rights. Executives typically either hand over the shares at the end of the contract period or settle in cash and retain the shares.
The practice has been used in the past by a number of major corporate shareholders to raise cash from some of their holdings while retaining their voting control. But it has proved controversial in cases where executives transfer most of their ownership of the company's shares because it means their interests are no longer aligned with those of other shareholders.
Mr. Marcoux's transaction involves a minority of his shares, so does not send the same signal to the markets - or carry the same governance risks - as it would if he had effectively sold all his holdings, said Paul Gryglewicz, managing partner at Toronto-based compensation consulting firm Global Governance Advisors.
"He's the founder, so it's time for him to reap some benefit for the value generation he's provided," he said.
Monetizations have slowed down in recent years, following new disclosure rules in 2004 requiring executives to publicly report the transactions. They were also less popular during the economic downturn, Mr. Gryglewicz said, because it "just made no sense" for executives to lock in a price for their shares at the bottom of the market.
"The market conditions are favourable for the opportunity now," he noted.
Ken Hugessen, who heads executive compensation firm Hugessen Consulting Inc., said the controversial days of professional managers monetizing their shares have largely ended, and the situation is different with large controlling shareholders who want to extract some value from their holdings.
He said Mr. Marcoux is retaining a large enough stake - worth more than $125-million - that he will be motivated to ensure the company performs well in the future. "Nobody's going to turn their back on that," Mr. Hugessen said.
Transcontinental said Tuesday the transaction does not affect the company and will have no negative impact on the corporation or its shareholders. Spokeswoman Nessa Prendergast said Mr. Marcoux has not lessened his commitment to the business.
She said the company remains a family business, currently run by chief executive officer François Olivier, who is Mr. Marcoux's son-in-law.
"As the founder of the company, he's obviously invested a lot of time and money into the company and I don't believe it's that uncommon for him to take a step like this," Ms. Prendergast said. "He's 70 years old, and he's the founder of a business, he's very invested in the business and he's chairman of the board."
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MONETIZATION EXPLAINED
What is monetization?
Executives who monetize their shares are able to reap profits from the sale without actually giving up full ownership. Typically executives use financial instruments to pledge their shares to a financial institution. The sellers get their money up front, but pay a fee for the deal.
Why do it?
Unlike an outright sale, the executives retain the right to vote the shares, but do not own the economic interest in them. This means they have essentially locked in a price, and do not benefit or lose when the share prices moves higher or lower. At the end of the contract period, executives typically hand over full ownership of the shares or settle the contract in cash and retain the shares.
Who monetizes?
Many examples involve controlling shareholders who want to liquidate a portion of their holdings to use the money for other purposes without reducing their voting control. For example, Paul Desmarais Sr. at Power Corp. of Canada, as well as CGI Group Inc. co-founders Serge Godin and André Imbeau have outstanding monetization deals for some of their shares.
Janet McFarland
Janet McFarland