A group of discontented shareholders is urging Velan Inc. to put itself up for sale amid disappointing financial results and discord among the family members who control the company.
“It’s been a disastrous investment,” said Stephen Takacsy, president and chief executive officer of Lester Asset Management in Montreal. Mr. Takacsy is part of a group of six institutional investors that own approximately 16 per cent of Velan’s total equity and is pushing the board of directors to launch a strategic review, as the company prepares for its annual meeting on Thursday. The group is also open to a privatization. “The company should never have gone public,” Mr. Takacsy said.
Founded by A.K. Velan in 1950, Montreal-based Velan went public in 1996 and initially produced decent returns, developing a reputation as a world leader in manufacturing industrial valves. But it has also become known for feuds among the family members who control the company through a dual-class share structure that gives them 93 per cent of the voting rights. A.K.'s three sons – Tom, Ivan and Peter – control the holding company that owns the multiple voting shares.
Over the past five years, Velan’s stock price has fallen 52 per cent, partly because of the slump in the oil and gas industry and heightened competition. The company specializes in valves for the energy, cryogenics and shipbuilding industries and employs more than 1,800 people, with manufacturing facilities in nine countries. Some shareholders say the battles among the Velan brothers are part of the problem. (The company declined to comment, citing the pending release of quarterly earnings.)
“It’s fair to say that disagreements among the family members are hindering the performance of the company,” said Wayne Deans, chairman and CEO of Deans Knight Capital Management Ltd. in Vancouver. Mr. Deans, who invested in Velan when it went public, is aligned with Mr. Takacsy. The shareholder group is withholding votes for all of the director nominees in a symbolic gesture in hopes of pressing the board to act.
Tom, 67, is chairman of the board and previously served as CEO after his father stepped down. His brother Peter, according to the company, poses a potential problem.
In a management circular filed in June, the board recommended that investors withhold votes for Peter, 73, who has been nominated as a director through the family holding company. (He later put forward a self-nomination, only to withdraw it a few months later.)
The corporate governance and human resources committee of the board contended in the circular that Peter’s “past boardroom demeanour toward colleagues and management of the Corporation, his unwillingness to help or collaborate with Board colleagues and management, or serve on special committees in a constructive manner, all have had a negative effect.”
The committee was “open-minded” about Peter’s candidacy, “but could not conclude that things would be different this time.” Two independent directors said they will resign from the board “in a careful and diligent manner” if he is elected. Peter declined to meet with the committee for an interview, and his presence on the board could increase the risk that management leaves the company and negatively affect the “strategic transformation” under way at Velan, according to the circular. Peter did not respond to phone calls for comment.
Peter served as a director from 1971 to 2005 and resigned from his executive vice-president post in 2003 citing “differences of opinion regarding succession and direction of the company.” He returned to the board between 2008 and 2018, but withdrew his name as a candidate two days before the annual meeting last year.
The fractious tone may have been set early on by founder A.K. Velan, who spoke six languages, claimed to do hundreds of push-ups each day well into old age, and wrote two books outlining his theories on the creation of the universe. A.K. started the company in 1950 after immigrating from what was then Czechoslovakia. Although his three sons were heavily involved in the company, he ruled for decades.
A.K.’s grip on Velan was one of the reasons billionaire investor Stephen Jarislowsky resigned from the board in 2002, frustrated over the lack of succession planning. He was dismayed at the way board meetings were run, which turned into quarrelsome affairs. A.K. also talked too much about valves. “If the chairman insists on talking about nothing but that, after a while the meetings are meaningless,” Mr. Jarislowsky told the National Post at the time. “You wonder why the hell you’re there.”
Mr. Deans had a similar experience when he was invited to attend a board meeting with A.K. a few years ago. “It wasn’t the kind of board meeting I would have expected from a public company,” he said. “It was more like a private-company family squabble.”
A.K. retired from Velan in 2015, and the company appointed an outside CEO in 2017, the same year A.K. died in his sleep, just a few months shy of his 100th birthday.
Velan’s performance took a hit along with the oil and gas market starting in 2015. Sales totalled US$455.8-million in fiscal 2015 and the company posted a profit of US$18.6-million. Since then, revenue has dropped 19.5 per cent and Velan turned in a US$4.9-million loss in fiscal 2019.
The company launched a turnaround strategy to improve efficiencies and lower costs, which management maintains is working. Velan took a more drastic step in January when it announced the closing of a plant in Quebec. The facility will be shuttered by the beginning of 2021 at the latest, and Velan will move some of the production to India.
Despite Velan’s challenges, the shareholder group argues the company is undervalued, with a healthy order backlog and US$40.9-million in net cash. Mr. Takacsy, whose firm has held the stock since 2009, pegs the book value at roughly $18 per share, while the shares closed at $10 on the Toronto Stock Exchnage Tuesday, and he faults Velan for not buying back its stock.
Mr. Deans, meanwhile, said Velan should take advantage of a consolidation trend under way, pointing out that U.S. industrial manufacturer Crane Co. made a US$894-million hostile bid for smaller rival Circor International Inc. in May.
Shareholder dissatisfaction at Velan has been brewing for a while. The dissident group of institutional investors, which also includes Kernwood Ltd., Oakwest Corp. Ltd., Walter Financial Inc. and Dubeau Capital, has sent letters and met with board members in recent months. Stéphane Dubeau, president of Dubeau Capital, vented to CEO Yves Leduc on an earnings call in October. “There’s just no value construction. Nobody is following your company,” he said. “You guys should be better off just to run the whole thing privately.”
“Thanks for your input,” Mr. Leduc replied.
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Joe Castaldo