Canada’s Pugnacious Distressed-Debt King Sees ‘Ton’ of Dealsby
‘We’re clearly seeing a ton of opportunity,’ Callidus CEO says
‘Being difficult’ part of Newton Glassman’s job description
Newton Glassman, who runs Canada’s second-biggest private equity firm, learned a valuable lesson after battling short sellers for much of 2016 at his lending subsidiary, Callidus Capital Corp.
“I will never be the CEO of a public company ever again in my life," Glassman said in an interview at Bloomberg’s headquarters in New York this month. “It is not a fun experience for me. I actually don’t think it’s the best use of my skills, and I don’t think I have the right personality for it.”
Glassman, 52, runs Callidus from Toronto, alongside Catalyst Capital Group Inc., his private equity firm which has about $6 billion under management. Known for his bulldog approach to business -- including a tendency to litigate -- he’s participated in some of the biggest restructurings in Canada, including Canwest Global Communications Corp., IMAX Corp. and Hollinger Inc. One judge described him as “aggressive” and “argumentative” in a recent ruling.
It’s precisely those qualities that Glassman said will help Callidus, which specializes in lending to distressed companies, double its loan book to about C$2.5 billion ($1.9 billion) in the next 24 to 30 months.
"If you want to be in a blood sport - and distressed is a blood sport - you got to be able to take a punch," said Glassman, a lawyer himself by training.
There’s currently about C$940 million worth of lending opportunities for Callidus, and few competitors who have the experience and tenacity to go after them, he said. The loans the company extends are often too small -- about C$36 million on average -- or risky for the banks. The proprietary software Callidus has developed to monitor them gives the company an edge over new competitors, he said.
"We’re clearly seeing a ton of opportunity," said Glassman.
Convincing the market that he can handle the risk has been an uphill battle. Short sellers, which profit from price declines by selling borrowed securities and repurchasing them at cheaper levels, targeted Callidus earlier this year.
The experience brought out Glassman’s wrath and his creativity.
He launched a lawsuit against Toronto’s West Face Capital Inc. and Veritas Investment Research, authors of reports that questioned his loan book, while hiking Callidus’ dividend and implementing a share buy-back program above the market price, effectively putting a floor under the stock. He also made public a fair-market valuation from National Bank Financial that said Callidus’s shares were worth C$18 to C$22 a piece.
The shares have rebounded 86 percent this year, close to the buyback price of C$16.50. Meanwhile, short positions have dropped to about 5.3 percent of the float from a peak of about 19 percent in January, according to Markit data. To date, about 4 percent of Callidus’ shares have been tendered under the offer, the company said earlier this month.
Callidus shares closed little changed Wednesday at C$16.43 for market value of C$824 million. Glassman owns about 500,000 shares according to data compiled by Bloomberg, valued at about $8.21 million. Add in his stake in Catalyst and his annual salary, and Glassman said he’s “probably worth a billion-and-change dollars.”
Justice Frank J.C. Newbould, with the Ontario Superior Court of Justice, recently dismissed another lawsuit filed by Glassman, in which he alleged a former Catalyst analyst took proprietary information with him to a new job at West Face. The judge said he had difficulty accepting Glassman as a reliable witness and that he was “aggressive, argumentative, refused to make make concessions that should have been made and contradicted his own statements made contemporaneously in e-mails."
Glassman is appealing the ruling. He has filed a separate suit against West Face Capital and others related to the acquisition of Wind Mobile in 2014.
Greg Boland, head of West Face Capital, said Glassman’s claims are without merit. “The courts have already made findings of credibility against Catalyst’s witnesses, including Newton Glassman. These cases are similarly without merit,” he said in an e-mail. Veritas declined to comment.
Callidus’s board will likely make a decision in the fourth quarter about whether to take the company private, Glassman said, adding he believes the shares are still undervalued. Catalyst, which owns about 60 percent of Callidus, would find a partner to take it private rather than buying it outright, Glassman said.
The Callidus experience hasn’t soured Glassman on the public markets entirely, and he said he would still consider it an option for other potential Catalyst spin-outs that could soon be monetized, including Therapure BioPharma Inc., Gateway Casinos & Entertainment Ltd., Geneba Properties NV, and Advantage Rent A Car.
“The public markets are appropriate for Catalyst under the right circumstances,” he said. “One of those circumstances is that I’m not CEO."
If his lending unit is booming so is his private-equity business, Glassman said. About 70 percent of Catalyst’s most recent C$2 billion fund has been deployed, less than a year after it closed, including through the recapitalization of Pacific Exploration & Production Corp. earlier this year. His firm will likely have to return to fundraising next year, he said.
“We will be out of money sometime in 2017,” he said.
In the meantime, Glassman said he’ll continue to fight for his investors, regardless of how he’s perceived. "We care about data," Glassman said. "We’re a data-driven firm."
And the data speaks for itself, he said. Four of Catalyst’s five funds show returns among at the highest among their peers, according to data compiled by Bloomberg. Those returns range from 12 percent to 32 percent, the data show. The fifth fund is still in the investment phase. About 80 percent of the investors in Catalyst’s funds have returned to invest in subsequent funds, Glassman said.
“I’m convinced that that reputation for being difficult precedes us when we get into a room," he said. "Within our world -- and our business -- the sophisticated people know we won’t break a rule and if we stick our hand across the table, that’s the deal."
(An earlier version of this story corrected the 10th paragraph to show the reports were not necessarily in support of short selling.)