GMP Files Letter to Common Shareholders and Information Circular

Toronto, September 9, 2020 – GMP Capital Inc. (“GMP” or the “Company”) (TSX: GMP) today filed a Management Information Circular (the “Information Circular”) including a Letter to Common Shareholders (the “Letter”) outlining the clear benefits of the Company’s proposed transaction to acquire 100% of Canadian wealth-management leader Richardson GMP Limited (“Richardson GMP”), (the “RGMP Transaction”), as well as the significant risks to GMP’s ability to create long-term value for Common Shareholders should the RGMP Transaction not proceed.

  • Supporting transaction and current board ensures GMP remains on best path to create long-term value — with the best advisors, a powerful brand and a well-capitalized balance sheet
  • There are significant risks and costs to both GMP’s and Richardson GMP’s business if the Richardson GMP transaction does not proceed
  • Shareholders should vote FOR the RGMP Transaction Resolution and FOR the Company’s slate of Board nominees

The Information Circular and Letter explain why the Board unanimously approved the RGMP Transaction and more importantly, why Common Shareholders should vote FOR both the RGMP Transaction and the Company’s slate of Board nominees. GMP believes the RGMP Transaction will best position the Company to capitalize on the considerable opportunities in the wealth management industry. The Company believes this offers the greatest potential for long-term value creation for GMP Common Shareholders.

The RGMP Transaction will result in GMP and its Common Shareholders owning 100% of a leading Canadian wealth management company that is well capitalized, national in scale, consistently profitable and has a strong proven brand. The combined entity will have the ability to grow quickly in the multi-trillion-dollar market for Canadian wealth management solutions and face-to-face advice.

“This transaction is the right one to protect and strengthen the three key pillars of the Richardson GMP wealth management business — the best advisors, a powerful brand and a well-capitalized balance sheet — and it will give GMP an unmatched foundation for future growth as an independent leader in a dynamic, fast-expanding industry,” said Donald Wright, chair of the GMP board and the independent special committee.

Added Marc Dalpé and Neil Bosch, Richardson GMP Investment Advisors and the investment advisor representatives on the Richardson GMP Board, “This transaction has our full support and that of an overwhelming number of our colleagues. Richardson GMP is a thriving independent firm and we as advisors believe that the transaction builds on our strengths – an unparalleled team, the resonance of our brand with clients and the resources that the firm can deploy to support growth.”

Andrew Marsh, President and CEO of Richardson GMP, “In just a decade, Richardson GMP has created an incredible franchise and become the destination of choice for clients and advisors who value independence. This evolution of the business sets it up for many more years of growth by building on the true partnership between our advisors, GMP and Richardson Financial Group Limited that underpins the success of Richardson GMP.”

Special Dividend Amount Provides Appropriate Balance
If Common Shareholders approve the RGMP Transaction and also approve a reduction of stated capital of the Company’s common shares, the Board intends to pay a special dividend of $0.15 per GMP common share to Common Shareholders of record (the “Special Dividend”) prior to the closing date, anticipated in the fourth quarter of 2020. This amount provides a balance between returning capital to Common Shareholders and retaining necessary capital in GMP to fund aggressively future growth initiatives for the benefit of all stakeholders.

The RGMP Transaction is the result of more than a year of arms-length negotiations by a special committee of independent GMP directors, and after having considered a number of alternatives, the RGMP Transaction was determined to be in the best interest of Common Shareholders. RBC Capital Markets has provided a valuation and fairness opinion to GMP’s Board that the RGMP Transaction is fair, from a financial point of view, to the Company. Moreover, advisors representing approximately 97% of Richardson GMP’s assets under administration have indicated their support for the RGMP Transaction. This support by the advisors who are the engine of the Richardson GMP business is a testament to the merits of the RGMP Transaction.

The Information Circular and Letter explain why the Board disagrees with a dissident who has expressed opposition to the RGMP Transaction and has proposed a dissident slate of directors. In the Board’s view, any such attempts to stop or alter this beneficial transaction at this late stage, either directly or by changing the Board, puts at risk the future of GMP’s business and the ability of Richardson GMP to retain its investment advisors. The notion that a different board can renegotiate an alternative transaction is misguided and presents significant risks to all shareholders.

The Information Circular and Letter also explain why GMP’s proposed Special Dividend is sized appropriately. This is important because the dissident’s position boils down to a demand for a larger distribution. Common Shareholders are asked to keep in mind that the proposed Special Dividend would be the second paid to Common Shareholders in less than a year. Collectively, the two special dividends represent a payout of 76% of the proceeds received from the divestiture of GMP’s capital markets business last year.

The Information Circular and Letter are available in electronic form on SEDAR at www.sedar.com as well as on GMP’s web site at www.gmpcapital.com. The Information Circular and Letter, as well as a BLUE form of proxy, will be mailed to Common Shareholders of record as soon as possible.

GMP advises Common Shareholders to carefully read the Information Circular and Letter, which together provide shareholders with more information about the upcoming Board election and about the proposed transformative transaction involving Richardson GMP that was announced on August 13, 2020. An annual and special meeting to consider and vote upon the RGMP Transaction, the slate of Board nominees, among other items of business found in the Information Circular, is scheduled to take place on October 6, 2020.

The Board recommends that Common Shareholders read the Information Circular and Letter carefully and vote using the BLUE form of proxy:

  • FOR the RGMP Transaction; and
  • FOR the Company’s nominees for election to the Board.

The full text of the Letter follows:

Dear Common Shareholders,

Your Board of Directors asks that you vote FOR a transformational transaction to acquire 100% of Richardson GMP Limited (“Richardson GMP”) (the “RGMP Transaction”). Your vote will affect the value of your investment in GMP Capital Inc. (“GMP” or the “Company” or “we”) immediately and far into the future.
This transaction is the right one to protect and strengthen the three key pillars of the Richardson GMP wealth management business — the best advisors, a powerful brand and a well-capitalized balance sheet — and it will give GMP an unmatched foundation for future growth as an independent leader in a dynamic, fast-expanding industry.

In addition to the RGMP Transaction, your vote is requested on other matters, including the election of six Company nominees to GMP’s board of directors (the “Board”). GMP urges holders (the “Common Shareholders”) of the common shares of the Company (the “Common Shares”) to vote only on the BLUE form of proxy FOR the Company’s nominees to ensure that we remain on the best path to deliver long-term value creation.

Voting on both the RGMP Transaction and the election of management’s nominees to the Board is scheduled to take place at an annual and special meeting scheduled to be held on October 6, 2020 (the “Meeting”).

In this letter we summarize the compelling benefits of the RGMP Transaction and the significant risks should it not proceed. A complete analysis of these benefits and risks is provided in the accompanying management information circular (the “Information Circular”).

Please read the letter and the Information Circular carefully and then vote using the BLUE form of proxy:

  • FOR the RGMP Transaction; and
  • FOR the Company’s nominees for election to the Board.

The RGMP Transaction is in the Best Interest of the Company and All Common Shareholders
GMP believes the RGMP Transaction, which has been unanimously approved by the Board (with the interested directors nominated by Richardson Financial Group Limited (“RFGL”) recusing themselves from voting on the RGMP Transaction) and was recommended by a special committee of independent GMP directors (the “Special Committee”), is in the best interest of the Company and all Common Shareholders.

The RGMP Transaction was negotiated through an extensive, arms-length process by the Special Committee. RBC Capital Markets has provided a formal valuation and fairness opinion to the Board that the RGMP Transaction is fair, from a financial point of view, to the Company. Common Shareholders are urged to read the full text of the valuation and fairness opinion attached to the Information Circular.

You should be aware that a dissident, in an attempt to disrupt the RGMP Transaction, has notified the Company of his intention to propose an alternative slate of nominees for election to the Board. GMP believes the dissident shareholder is mistaken to assume that his alternate slate, if elected, will be able to renegotiate the terms of the RGMP Transaction.

The dissident’s position boils down to a demand for a larger distribution than our proposed special dividend (the “Special Dividend”). In this letter we explain why our Special Dividend is sized appropriately.

It is important to note that our proposed Special Dividend would be the second distribution paid to GMP Common Shareholders in less than a year. Collectively, the two special distributions represent the vast majority of the proceeds received from the divestiture of GMP’s capital markets business last year. We believe that the dissident’s position is not in the best interest of the Company, nor the Common Shareholders.

Summary of the Benefits of the RGMP Transaction
The RGMP Transaction, as announced on August 13, 2020, will best position GMP to capitalize on the compelling opportunities in the wealth management industry as demand is expected to increase greatly in coming years for the top-tier wealth management services that Richardson GMP provides.

With approximately $4.4 trillion in retail financial wealth in Canada, which is expected to grow to $7.7 trillion by 2028 (Source: Investor Economics), the opportunity in the market for an independent, non-bank firm with national scale is significant. GMP believes that demographic trends driving a generational shift have created a growing degree of complexity and sophistication of wealth solutions, supporting the long-term value proposition of face-to-face advice.

Richardson GMP is a trophy asset in Canadian wealth management that generates attractive returns now and has tremendous potential. It has 165 highly qualified professional advisory teams serving over 32,000 high net worth families and businesses across Canada. With $28.3 billion of assets under administration as at June 30, 2020, Richardson GMP advisors have among the best practices in Canada with one of the highest assets under administration per advisory team. The firm is also recognized as one of Canada’s Best Workplaces™. For the six-months period ended June 30, 2020 and the year ended December 31, 2019, Richardson GMP had revenues of $132 million $272 million, respectively, and adjusted EBITDA of $20 million and $50 million, respectively.

The Company believes that acquiring 100% of Richardson GMP, an independent leader in the industry, offers the greatest potential for long-term value creation for Common Shareholders.

If the RGMP Transaction is approved, the Board intends to pay a Special Dividend of $0.15 per Common Share to holders of record prior to the closing date, anticipated in the fourth quarter of 2020. This approach strikes the right balance between returning capital to existing Common Shareholders and retaining necessary capital in GMP that we can use together with Richardson GMP’s consistent operating cash flow to fund future growth, service current indebtedness and preferred share obligations, and provide resilience in the current unprecedented and uncertain economic environment.

The RGMP Transaction also provides Common Shareholders with other significant benefits, consisting of ownership in a well-capitalized wealth management company with the ability to grow quickly and at relatively low risk by leveraging:

  • The powerful Richardson brand; and
  • The strong balance sheet to retain and aggressively recruit investment advisors using incentive payments in exchange for long-term employment commitments, bolstered by increased spend on wealth management solutions, marketing and technology investments to grow organically.

Advisors representing approximately 97% of Richardson GMP’s assets under administration have indicated their support for the RGMP Transaction by entering into non-binding acknowledgement and support letters. GMP believes this bodes well for growth. Richardson GMP’s investment advisors are the engines of the business. Their support is critical for future success and a well-capitalized business is essential to their commitment. Their endorsement is a testament to the merits and balance of the RGMP Transaction.

In short, the Company believes Common Shareholders will attain significant value as Richardson GMP drives to become the destination of choice for Canada’s top advisors, who share Richardson GMP’s entrepreneurial spirit, independent culture and philosophy to deliver unparalleled face-to-face advice to Canadians opting for non-bank points of access for wealth management advice.

Extensive Arms-Length Negotiations Underpin the RGMP Transaction
The RGMP Transaction was conducted in accordance with the terms of the shareholders agreement governing Richardson GMP (the “RGMP Shareholders Agreement”) via arms-length negotiations over an extended period that began with the formation of an independent Special Committee in February 2019. The RGMP Shareholders Agreement, which GMP negotiated and entered into in 2009, governs the relationship between GMP and the other Richardson GMP shareholders, being RFGL and the advisors/employees.

The Special Committee was advised by independent legal counsel and financial advisors with deep backgrounds and expertise in such negotiations. The Special Committee also considered alternative transactions and determined that the RGMP Transaction is in the best interest of all stakeholders.

Discussions regarding the RGMP Transaction began in earnest in the autumn of 2019, continued over a period of many months, and were at times contentious. Details of the negotiations are described more fully in the Information Circular (see “Background to the RGMP Transaction”). Both the agreed upon price and the size of the Special Dividend were the result of this extensive process.

Details of the RGMP Transaction
If approved, the RGMP Transaction will result in GMP acquiring all of the common shares in Richardson GMP (the “RGMP Common Shares”) currently not owned by GMP at a fair price of:

  • 1.875 Common Shares per RGMP Common Share after taking into account the proposed $0.15 Special Dividend. This price reflects a GMP share reference value that is an 88% premium to the 10-day VWAP for GMP shares as at August 13, 2020.
  • This price, which on a pre-dividend basis equates to 1.76 GMP Common Shares per RGMP Common Share, compares favourably, from a GMP perspective, with the level of 2 Common Shares per RGMP Common Share contemplated in the non-binding term sheet that was announced in February 2020.
  • After giving effect to the RGMP Transaction, if completed, the Company will have an estimated 182.3 million Common Shares issued and outstanding, of which approximately:
  • 40.1% would be held by RFGL, currently GMP’s largest Common Shareholder with an aggregate ownership stake of approximately 24.1% of Common Shares immediately prior to the RGMP Transaction;
  • 31.4% would be held by existing GMP Common Shareholders (other than RFGL); and
  • 28.5% would be held by Richardson GMP investment advisors.

In order to become effective, the RGMP Transaction must be approved by a simple majority of the votes cast by Common Shareholders, excluding the votes attached to Common Shares held by RFGL and certain other related parties.

RFGL’s Significant Concessions
Contrary to the opinion expressed by the dissident, the RGMP Transaction does not unduly favour RFGL at the expense of other Common Shareholders. In fact, in the course of negotiations the Special Committee secured the following significant concessions from RFGL compared with what was mandated by the RGMP Shareholders Agreement:

  • RFGL agreed to forego the immediate redemption of its $32 million of Richardson GMP preferred shares; and
  • In addition to agreeing to a reference value that is an 88% premium on the Common Shares, RFGL accepted Common Shares in lieu of the $43 million cash portion of the purchase price to which RFGL was otherwise entitled.

Both of these concessions will assist GMP in retaining necessary capital to grow the business and facilitate the payment of the Special Dividend.

Ultimately, the RGMP Transaction consists of a carefully balanced and fair package of terms. You should be wary of any attempt by opponents of the RGMP Transaction to single out certain terms that they dislike while ignoring the overall balance that the Special Committee negotiated. You should be skeptical of claims that the dissident can negotiate better terms or distribute more capital to Common Shareholders.

We reiterate that the Board believes that the terms achieved are the best available, are fair, and will benefit all parties. No party obtained an undue advantage.

Summary of Risks if Common Shareholders Do Not Approve the RGMP Transaction
The Special Dividend described above will not be paid if the RGMP Transaction is not approved. While the Board will take actions that are in the best interest of the Company, GMP and Richardson GMP’s ability to generate profits and grow might be hampered because:

  • GMP’s business would be left in limbo. Pursuant to the RGMP Shareholders Agreement, it is likely that there would be a contractual full-year deferral of negotiations between the parties for a new or revised transaction under the current terms of the RGMP Shareholders Agreement;
  • Current and prospective Richardson GMP investment advisors and key employees of GMP and Richardson GMP are likely to be dissatisfied with the deferral and might succumb to inducements from aggressive recruitment efforts by competitors; and
  • Third parties and clients with whom GMP and Richardson GMP currently do business or may do business in the future are likely to be unsettled by the deferral and might as a result turn to, or remain with, competitors.

The Downside Risk of a Larger Distribution
Following completion of the RGMP Transaction, GMP will have the working capital required to:

  • Underpin the resilience of the business, including in the current unprecedented and uncertain economic environment;
  • Provide the balance sheet strength necessary to recruit and retain investment advisors and wealth management clients;
  • Position the business to invest in technology and marketing at a level appropriate for a national wealth manager;
  • Explore potential acquisitions of like-minded high-quality wealth management businesses; and
  • Add complementary asset management and insurance capabilities through acquisitions or alliances.

After extensive negotiations, as described in the Information Circular (See “Background to the RGMP Transaction”), the Board concluded that a Special Dividend of $0.15 per Common Share struck the right balance for an executable transaction.

As noted above, this would be the second special distribution paid to Common Shareholders in less than a year. The first, paid on December 31, 2019, amounted to $0.275 per Common Share. Combined, these special distributions total $0.425 per Common Share and represent a payout of 76% of the proceeds received from the 2019 divestiture of GMP’s capital markets business.

And yet, opponents will try to persuade you that GMP should deliver a still larger capital distribution, notwithstanding the downside risk. Don’t let them hamstring management’s ability to achieve its growth objectives.

Meeting and Voting Details
The Meeting is scheduled for October 6, 2020 at 10:00 a.m. (Prevailing Eastern Time).

As a result of the global health crisis, the Company had planned that the Meeting would be held in virtual format only. Having been notified on September 4, 2020 that the election of nominees to the Board will be contested, the Company is now considering a physical location for the Meeting and will advise shareholders of that location in due course.

Your vote is very important. Details of how you can vote and how you can attend the Meeting can be found under the subheading “Voting Information – Attending and Voting at the Meeting” in the Information Circular.

In addition to the RGMP Transaction and the election of directors, Common Shareholders will be asked to consider and vote at the Meeting upon the appointment of auditors, the change of the Company’s name, an advance notice by-law and a reduction in stated capital attributable to the Common Shares.

The Information Circular contains important information about each of the items of business to be dealt with at the Meeting. Please give this material your careful consideration and, if you require assistance, consult your financial, tax or other professional advisors, or the Company’s strategic shareholder advisor and proxy solicitation agent, Kingsdale Advisors, at 1-866-879-7644 toll free in North America, or call collect outside North America at 1-416-867-2272 or by email at [email protected].

On behalf of the Board, we would like to express our gratitude for the support our Common Shareholders, our investment advisor partners and our employees have demonstrated with respect to our decision to move ahead with the RGMP Transaction. We look forward to your continued support for what promises to be an excellent opportunity to create long-term value in a growing wealth management industry.
Sincerely,

Donald Wright

Chair of the Special Committee and Board
Board of Directors, GMP Capital Inc.

Shareholders with questions may contact the Company’s strategic shareholder advisor and proxy solicitation agent,
Kingsdale Advisors, at 1-866-879-7644 toll free in North America, or call collect outside North America at 1-416-867-2272 or by email at [email protected].

FORWARD-LOOKING INFORMATION
This press release contains “forward-looking information” as defined under applicable Canadian securities laws. This information includes, but is not limited to, statements concerning our objectives, our strategies to achieve those objectives, as well as statements made with respect to management’s beliefs, plans, estimates, projections and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking information generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plans” or “continue”, or similar expressions suggesting future outcomes or events. Such forward-looking information reflects management’s current beliefs and is based on information currently available to management. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement.

The forward-looking statements included in this press release, including statements regarding the RGMP Transaction, the nature of GMP’s growth strategy going forward and execution of any of its potential plans, are not guarantees of future results and involve numerous risks and uncertainties that may cause actual results to differ materially from the potential results discussed in the forward-looking statements. In respect of the forward-looking statements and information concerning the consolidation of 100% of ownership in Richardson GMP, and the Company’s strategy going forward, management has provided same based on reliance on certain assumptions it considers reasonable at this time including the timing of the completion of any transaction involving Richardson GMP and that any conditions precedent can be satisfied. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this news release.

Risks and uncertainties related to the RGMP Transaction include, but are not limited to: failure of GMP and RFGL to obtain the required shareholders and regulatory approvals for, or satisfy other conditions to effect, the RGMP Transaction; the risk that the RGMP Transaction may involve unexpected costs, liabilities or delays; the risk that, prior to or as a result of the completion of the RGMP Transaction, the business of GMP and/or Richardson GMP may experience significant disruptions, including loss of clients or employees due to transaction related uncertainty, industry conditions or other factors; risks relating to employee retention; the risk that legal proceedings may be instituted against GMP or Richardson GMP; and risks related to the diversion of management’s attention from GMP’s ongoing business operations. For a description of additional risks that could cause our actual results to materially differ from our current expectations, see the “Risk Management” and “Risk Factors” sections of GMP’s most recent Annual and Interim MD&A and the “Risk Factors” section in the Company’s AIF. For additional information on the risk factors related to the RGMP Transaction, see “The Sale Transaction – Reasons for the Sale Transaction” and “The Sale Transaction – Risk Factors” in GMP’s Notice of Special Meeting and Management Information Circular dated July 8, 2019 (the “July 2019 Circular”). Material assumptions and factors underlying the forward-looking information in this press release include, but are not limited to, those set out in “Business Environment – Outlook” in GMP’s most recent Annual and Interim MD&A. GMP’s most recent Annual and Interim MD&A and July 2019 Circular are filed under the Corporation’s profile on SEDAR at www.sedar.com.

Although forward-looking information contained in this press release is provided based on management’s reliance on certain assumptions it considers reasonable, there can be no assurance that such expectations will prove to be correct. Certain statements included in this press release may be considered a “financial outlook” for purposes of applicable Canadian securities laws, and as such, the financial outlook may not be appropriate for purposes other than this press release. Readers should not place undue reliance on the forward-looking statements and information contained in this press release. When relying on forward-looking statements to make decisions, readers should carefully consider the foregoing factors, the list of which is not exhaustive.
The forward-looking information contained in this press release is made as of the date of this press release, and should not be relied upon as representing GMP’s views as of any date subsequent to the date of this press release. Except as required by applicable law, Management and the Board undertake no obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

ABOUT GMP CAPITAL INC.
GMP currently operates through two business segments: Operations Clearing and Wealth Management; and a corporate segment. Operations Clearing provides carrying broker services to Richardson GMP and other third parties, including trade execution, clearing, settlement, custody, and certain other middle- and back-office services, and other expenses associated with providing such services. Wealth Management consists of GMP’s non-controlling ownership interest in Richardson GMP. Richardson GMP, one of Canada’s largest independent wealth management firms, is focused on providing exclusive and comprehensive wealth management and investment services delivered by an experienced team of investment professionals. GMP is listed on the Toronto Stock Exchange under the symbol “GMP”. For further information, please visit our corporate website at gmpcapital.com.

For further information please contact:

GMP Capital Inc.
Rocco Colella, Managing Director, Investor Relations 145 King Street West, Suite 200, Toronto, Ontario M5H 1J8 Tel: (416) 941-0894; [email protected] or [email protected]

Media contact:
Longview Communications and Public Affairs Boyd Erman (416) 523-5885; [email protected] Alan Bayless (604) 694-6035; [email protected]