AGM Time, New Promise for BC, Canadian
Outlook, Capital Pool Corps Update and Events Update
AGM Time
It's that time of year again when many
corporation are holding their AGMs - i.e. Annual General Meetings. Many
companies have fiscal year ends in December and this means that annual meetings
are usually held in the late Spring with May being a popular month. First
quarter reports for periods ending in March are also due in May.
For example, this week 360networks Inc.(TSE:TSX)
held its AGM in Vancouver. Chief executive officer Greg Maffei said that
he foresees no quick improvement in the market for broadband services that have
prompted the company to cut back on its aggressive global fibre-optics network
plans.
He told a full house that "We exist in an
environment where capital is very tight, and where prices continue to drop each
day and each year." His stock also reflects these price drops falling from
a high of $35.90 last September to a low of $1.86. Currently the stock is still
trading below $2.
These AGMs are a great opportunity for
investors to get out and grill management. Unlike what we saw in the BC
political election this week, it is not as easy to oust a board from a company -
if we are unhappy with the results. In politics we each get an equal vote but in
business we get votes based on our relative stock positions. Occasionally, we
hear of dissident shareholder groups seeking to get control of a company by
soliciting shareholder votes (or proxies), but this is a difficult job because
it is virtually impossible to find out who the shareholders of a company are.
As a shareholder of a company, you can walk
into the offices of the firm's transfer agent (i.e. the trust company which
keeps track of all issued shares and who owns them) and ask for a list. However,
since many of us hold shares in brokerage accounts, these are registered in
"street" form, i.e. in the name of a brokerage firm, trust company, or
depository.
When companies want to send information to
shareholders, such as annual reports or AGM notices, they do so by disseminating
the information to shareholders via the transfer agent and the registered
holders who in turn pass the information on to the beneficial holders (unless
the beneficial holders have advised their brokers not to pass this
information along). This is why shareholders are often not well informed. It is
virtually impossible for someone other than the company itself to send material
to a shareholder list in this way (proxy fights are waged by using expensive
media advertisements).
For most companies, AGMs are very poorly
attended - both in person by shareholders as well as shareholders voting by
proxy. Depending on a company's incorporation documents, a very small percentage
(could be as low as 10%) of votes could constitute a quorum and the majority of
those votes cast will effect certain decisions. I once attended the AGM for a
small CDNX listed company and, to my surprise, found that almost all of the main
shareholders failed to attend or vote by proxy. Believe it or not, I actually
could have single-handedly disbanded the Board, appointed myself, and taken
control of this company. I knew some of the people involved and, just for fun, I
sent them a little notice that I voted them out. I don't think they missed any
more meetings after that. They also haven't talked to me since. With 20-20
hindsight, and based on what the company has been doing, maybe I should have
done so after all!
Unlike the political system, where our voices
are heard (as we saw this week), in companies it makes little sense for teeny
shareholders to squawk too much (other than have some fun at an AGM). What we
can do, though, is decide whether or not to maintain a holding in a particular
company. I've been to many AGMs (or at least have read the Annual Report) after
which I decided to liquidate a position.
With respect to obtaining information, i.e.
annual or quarterly reports from a company, there are many convenient websites
on which these are available. In addition to SEDAR (www.sedar.com) - the
"official" Canadian repository, a few other sources are worth
mentioning.
The Canadian Venture Exchange (CDNX) and
World Investor Link Inc. (www.worldinvestorlink.com) recently signed an
agreement that provides The Annual Reports Service to investors and
listed companies from the CDNX Web site.
Companies who participate can be recognized in
the CDNX stock pages section of The Globe and Mail by a little cloverleaf
symbol next to the stock price. Investors can call a toll-free number or go to
the CDNX website at www.cdnx.com to obtain that company’s corporate and
financial information.
Many sites also offer live CEO conference calls
as another way to keep informed. Q1234.com is a service which is trying
to establish itself as a timely disclosure provider. Another firm, MPL
Communications Inc. (CDNX:MPZ), which is itself a pubco on the CDNX trading
at only $.15, calls itself the largest online provider of investment advisory
services in Canada. In addition to delivering each of its publications to
subscribers electronically, its website, adviceforinvestors.com, offers
in-depth information and advice on Canadian companies (and key U.S. stocks) as
well as an online portfolio manager. Of course, stalwart quote.yahoo.com
is recognized by many as a superb resource for corporate information -
especially for American firms.
How do you find out about upcoming AGMs? It
isn't easy to get a list of upcoming meetings. (Please let me know if you know
of any.) Company executives don't often look forward to AGMs. How do you face
shareholders when their stock, which they bought last year at $40, is only
trading at $2 today? Small emerging companies are content to have their meeting
attended by only a hand-full of die-hards in the company's lawyer's office.
It is easy, though, to find out if a particular
company meeting is coming up. The best way is to go to your favorite site for
information and check press releases and other filings. By checking the most
recent annual report, you can also determine the month (usually the 5th or 6th
month after fiscal year end) for the AGM by checking the date on the balance
sheet in the last annual report.
With respect to prominent upcoming meetings,
the Working Opportunity Fund will hold its AGM on June 28th. I had to
call them to get this information as it wasn't readily available on their
website. QLT Inc and Ballard Power just recently held their AGMs
so you'll have to wait until next year. But, give it a shot - go to a meeting or
two. It might be fun.
New Promise for BC
This week, British Columbians voted. For many,
this was a long awaited breath of fresh air.
Businesspersons' biggest gripe has been
taxation. Taxes on businesses and individuals were identified during BC Business
Summit '98 and BC Business Summit 2000 as a major factor in BC's crummy economic
performance over the past 10 years.
The election result holds new promise for
British Columbians. I should really say "promises" because there are
many of them. Gordon Campbell is on record as promising to cut personal
taxes for the bottom two tax brackets within 90 days of taking office.
Furthermore, he has promised that BC will have the lowest tax rates in the
country, by the end of his first term.
BC's top personal marginal tax rate is
presently double Alberta's rate (19.7% compared to 10%). A reduction to this top
rate is what it's going to take in order to attract (and keep) professionals in
BC.
BC's small business threshold, currently at
only $200,000, is lower than Alberta, Saskatchewan, Manitoba, New Brunswick, and
Ontario where the threshold has been raised to $300,000. Alberta and Ontario
have both said that they will be raising the small business threshold to
$400,000 by 2004 and 2005 respectively.
Larger businesses also face a competitive
disadvantage in BC. BC's general corporate income tax rate is one of the highest
in Canada at 16.5%. Both Alberta and Ontario are reducing their rate to 8% by
2004 and 2005.
Also, BC's corporate capital tax and sales tax
on machinery and equipment have been identified by business as impediments to
investment in the province. Companies in Alberta do not pay either of these
taxes, which makes it harder for BC to attract new businesses.
Our new government has pledged "to phase
out taxes on investment and productivity to stimulate economic growth and job
creation, in keeping with our commitment to balance the budget and protect
health care and education funding".
It may look good to introduce cuts on income
earners below $60,000 but there are many reasons to cut taxes for higher income
earners and business because it is more likely to raise total tax revenues
through economic stimulation.
What about investors? Well, we get a pay-off
when we liquidate a holding due to last year's reduction in capital gains taxes.
In BC, we only pay 25%. But, Albertans only pay 19%! In order to kick start our
local economy, we need to provide investors - especially the Angel variety -
with some encouragement today - not years from now when they cash in. One way
would be to both simplify and bolster the Venture Capital Corp (VCC)
program which, like the labor-sponsored Working Opportunity Fund, would
give investors a 30% up-front credit. Another approach would be to allow
investors to take an up-front income write down (or at least treat it like a
capital write down) which would be recaptured later when the investment comes to
fruition. We need investors now!
Canadian Outlook
It's nice to wake up in the morning and read
some good news for a change. That's what happened to me today when I read Paul
Martin's numbers this morning.
The highlights are:
- $15 Bn surplus to reduce national debt
- GDP growth for 2001: 2.4%
- GDP growth for 2001: 3.4%
- Tax cuts: $100 Bn
- Inflation control target: 2%
- Debt interest savings: $2 Bn
- Debt to GDP ratio 53%
The $15 Bn surplus is $5 Bn higher than
expected. Could this be proof that tax reductions lead to increased tax revenues
- something industry leaders have been saying for years?
In his address, Martin announced that the
federal government and the Bank of Canada have come to an agreement to
continue the central bank's 1 to 3 per cent target on interest rates for another
five years. That's encouraging. Fed watchers in the US are still hoping for a
federal funds rate in the 3-4% range which should also be good for our North
American economy. This week the Fed reduced the rate to 4%. The Bank of Canada
rate is presently at 5% and may follow suit with a reduction to 4.5% which in
turn will give us a prime rate of 6%.
The complete economic update is available at
the Finance
Departments web site.
Capital Pool Corporation (CPC)
Update
In this column, I keep track of Capital
Pool Corporation ("CPC") companies (see chart below) as defined by
the CDNX because they may provide funding and management to, and in the process
acquire, technology companies. They provide companies with an alternative to
traditional venture capital financing. CPCs are the continuation of the former
VCP and JCP programs on the Vancouver (VSE) and Alberta Stock Exchanges.
Some observers believe that the
CPC program may be a victim of the TSE takeover and will be disbanded. I
personally believe that unless some sweeping changes are made in the
administration of this program, they won't survive regardless of what the CDNX's
new owners think about the concept. It just takes too long to get a deal done.
Let's face it, these are nickel and dime deals and don't need to be vetted to
death by regulators.
Since the program was launched on
the VSE, more than 250 CPCs have been formed and more than 30 have completed
their so-called Qualifying Transactions (QT). It takes at least a year - usually
longer - for a CPC to find a suitable takeover candidate and another six months
to a year for a deal to be finalized. One way to expedite the process is to
eliminate the need for a special shareholders meeting to approve the deals -
leave it up to the CPC boards.
Check our Capital
Pool Corporation chart (in .pdf format) for a complete list of the CDNX's
CPC and VCP companies, thanks to David Ing of Pacific International
Securities.
An introductory article explaining
CPCs may be found at www.bctechnology.com/statics/mvolker-jun
Local Happenings
Next week's Vancouver
Enterprise Forum event will be held on Tuesday, May 22nd. The topic is: CEO
War Stories, The Good, The Bad and The Ugly. This event will take attendees
inside the boardroom as local CEOs tell their war stories ~ the good, the bad
and the ugly. You'll hear CEO stories on turmoil, turnarounds and triumphs from
three veterans of the B.C. high-tech community. These include Chris Piche
of Eyeball Networks, Iain Black, President & CEO of Electric
Mail (CDNX:ELE,$0.39), and Robert Craig, former President & CEO
of Stratford Internet. They'll provide valuable insight and anecdotes on
how they've addressed some of their greatest challenges and turned potential
failure into success. Each CEO has been in a position where a single decision
would have significant consequences to the future of their company and, indeed,
their personal careers. The CEOs will discuss the events that brought them to
the brink of disaster, and the actions they implemented to bring them back onto
the playing field. The organizer of this event is Glen Scobie of the BC
Ministry of Employment & Investment.
Next month, the Vancouver Enterprise Forum will
be holding its end-of season annual dinner wrap-up event. This will take place
on June 19th.
The
BC TIA Annual Awards Gala honoring the industry's best and brightest
will take place on June 13th. Join in the party and discover which companies
have the best chance of emerging as BC's next Pivotal Corporation or PMC-Sierra.
In past years, CEOs have used this venue to voice their displeasure with BC's
government. We won't be hearing that again!
For a complete calendar on technology events,
check T-Net's Events
page.
Got a hot idea? Check out
New Ventures BC. The New Ventures BC Competition is an annual event open
to all BC residents, with prizes totaling $125,000 - which is believed to be the
largest of its kind in North America. Individuals with a new business idea can
attend seminars and networking information sessions that will give them the
chance to turn their idea into a successful startup. A number of these are
scheduled to take place during the month of May. Check www.newventuresbc.com
for details.
SFU's TIME Centre is open for business -
business folks, that is. TIME is an acronym for Technology, Innovation,
Management, and Entrepreneurship. TIME supports the growth and development of
the tech industry in B.C. TIME features a "Business Centre" (looks
like an airport business lounge) which is open to technology entrepreneurs and
business people to use as a drop-in downtown office facility. Need to plug-in?
Make some calls? Do some work? Hold a meeting? Why hang out at MacDonald's when
you can work productively at the TIME Centre? Drop by and check it out! It is
located at SFU's downtown Harbour Centre campus at 515 West Hastings St. More
information can be found at www.sfu.ca/time.
PS - there are some great facilities for holding your company's AGM.
For a convenient printable, pdf version of this
column, click
here.
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