Hap Stephen, in a letter to shareholders released Monday, acknowledges that last year was challenging for Sherritt, but says Armoyan's proposals would "weaken Sherritt's governance and disrupt its positive momentum."
Sherritt detailed its case in a proxy circular filed on Monday ahead of the shareholder vote scheduled for May 6 in Toronto.
"What makes this year's vote so important is that a dissident shareholder with no experience in mining, metals or international business, a poor track record of corporate governance and no credible ideas for Sherritt beyond the board's current strategy, is seeking to gain significant and disproportionate control of your board," Stephen wrote.
Shares in Sherritt rose nine per cent Monday to $3.86.
Toronto-based Sherritt mines nickel and cobalt in Madagascar and Cuba. It's also Cuba's largest independent energy producer. Until recently, it was known as a major producer of thermal coal in Western Canada, but announced in December it would sell that business for $946 million.
Armoyan, CEO of Halifax-based investment firm Clarke Inc. (TSX:CKI), represents about five per cent of Sherritt's stock. He approached Sherritt in December of last year requesting a special meeting to vote on a board shakeup.
Armoyan initially sought to become chairman and wanted two other seats for his employees, said Stephen. The activist investor also wanted to reduce the board of directors to seven seats from nine.
The proposed changes would effectively give Armoyan control of 40 per cent of the Sherritt board, while only controlling five per cent of the company's stock, he said.
"He wanted himself and his two young employees to come on the board and we would remove some of our, what we believe, very qualified and skilled directors," Stephen said in an interview.
"That gives him pretty effective control of the situation and we did not think that was in the best interest of the company, where all directors have duty to all stakeholders and to the corporation, not just to one particular shareholder. And we told him that — we said 'no, we don't agree that that's something that we would be prepared to do.'"
For his part, Armoyan has taken aim at what he has called Sherritt's "ill-considered acquisitions" and "excessive and inappropriate compensation practices."
He wants to amend Sherritt's bylaws to require unanimous board support for any major acquisitions.
"The concerned shareholders note Sherritt's dismal track record in capital allocation and lack of consistent strategic direction. One example is the coal business, which was sold, reacquired and sold again, with the recent sale resulting in an impairment of $519 million and costing the shareholders approximately $1.75 per share," Armoyan's firm said in its release.
"Similarly, the board committed to spend $110 million on its Sulawesi nickel project only to abandon it as uneconomic three years later."
Stephen said giving board members veto power over potential acquisitions is "really poor governance."
"We have questions whether it's legal under corporate law, where one director can veto the collective will of all of the directors. All of the directors have a say in anything like that," he said in the interview.
Aromoyan's firm has also taken aim at how both Sherritt directors and executives are paid, as well as some additional perks it says they receive.
"Each of these proposals can help transform Sherritt from a private club, apparently run for the benefit of the board of directors, into a properly governed public company managed for the benefit of all its shareholders," Armoyan said.
In an investor presentation posted to its website, Clarke said it's "focused on acquiring undervalued or underperforming businesses with hard assets, working with management to improve operations, capital allocation and performance and divesting once corporate results and valuations have improved."
It acquired a 38 per cent stake in private oil and gas driller Highkelly for $9 million more than two years ago and sold it to CanElson Drilling Inc. (TSX:CDI) in December 2013 for $12.5 million. Last year, Clarke tried to take Montreal-based envelope maker Supremex Inc. (TSX:SWP) private, but the two companies could not come to an agreement on price.
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