All of us " buy-side and sell-side " should be aware of the principle at stake here.

I have already stated unequivocally that the people involved at the front line of this dispute " Ian Telfer (Goldcorp's current President/CEO) and Robert McEwen (Goldcorp's former Chairman/CEO) are both fine men, and true credits to their families and associates, to the global gold mining industry, and to their country (Canada).

But they are at opposite ends of a principle in equity markets that " as I say " involves us all.

Goldcorp, under Telfer, has made a proposal to acquire a similar-sized company, Glamis Gold, wherein only the shareholders of Glamis will be permitted to vote, but, by intent of management and directors, no vote is being allowed Goldcorp shareholders.

I am concerned that the people who now make the decisions at Goldcorp hold ownership that, when combined, total less than one-tenth of one-percent of its issued shares, and that's before a deal with a similar-sized Glamis would be consumated.

In a nutshell, I expect as much of employee-run companies as I do from majority-owner run companies, particularly where the managers and directors have very little skin in the game. I expect to see total transparency, and respect for the shareholders and the capital markets.

Rob McEwen owns shares of Goldcorp, his former company, that amounts to sixteen times more than that of all management and directors combined, and yet they refuse to address his legitimate concerns. McEwen, in fact, built that company into the success it is today based on principles he espouses, so you'd think they would care to listen.

In 2005, Rob McEwen personally wanted to pursue other ventures that required a different risk profile of the shareholders of Goldcorp whom he gathered over many years of hard work, based on their trust and confidence. So, when he departed, he left those shareholders in what he believed at the time were "good" hands.

Because he believed, after last year's Goldcorp-Wheaton River deal that the incoming Wheaton management would continue to manage Goldcorp in the same manner it had been built from scratch, McEwen departed, leaving a gargantuan piece of his substantial shareholdings in their trust.

That transfer of trust and confidence to Ian Telfer did not go unnoticed.

But something happened shortly after the door was closed behind McEwen. The new management quickly sold most of their shares in the company and decided to go on the acquisition path, offering to pay premium prices to other miners " companies that didn't have the same quality of assets or financial strength, which is what McEwen demanded and got for his shareholders over many years.

No longer having control of Goldcorp, Rob McEwen bitterly objected at what he saw happening. As soon as the Goldcorp-Glamis Gold deal was announced, and the Goldcorp share price had collapsed, McEwen jumped into the media spotlight, whenever and by whatever means he could, to denounce the deal.

As his Goldcorp shareholdings apparently dropped in value by $55 million, McEwen became livid. And, because Goldcorp's Telfer was committed to what he believes is a good deal with Glamis, the fight became personal.

Whether or not the deal is a good one is an important issue.

Contrary to McEwen, I happen to believe that in the long run the Glamis-Goldcorp merger is a good deal because the combined management team is stronger, and where the combined property holdings and people are found not to be synergetic, I'm sure they would soon be sold off to other mining companies seeking acquisitions, where those assets would be a better fit.

So I'm saying that in time I see the new Goldcorp as a stronger company. Share price, however, is a different matter.

As a reader of this blog, you know there is a difference between a company and its shares.

With respect to the Goldcorp shares, the sudden and sharp price correction after the Glamis deal was announced was justified because the goodwill (from the price to be paid Glamis) will soon have to be written off. But, this is not a major long-term concern to me. In time the Goldcorp shareholders, including Rob McEwen, if he sticks around, will be rewarded.

But there is another issue, a more important issue.

I believe that shareholders of a company, over the long-run, invest in their knowledge and perception of the underlying assets, operations and management of a company. Whenever there might be an abrupt change to those beliefs, I believe they have a need to know all the facts, and an opportunity at a special meeting to vote to approve or reject any material change in the company.

Telfer's Goldcorp thinks the shareholders should not have that right. In fact they argue that under existing law the Company has no obligation to require shareholder approval. Strange then that they accept the law that requires a vote by one-half the shareholders of the merged company in this deal.

Stranger still that when Glamis management wanted to acquire Wheaton River, ahead of Goldcorp, Rob McEwen told Wheaton River's Ian Telfer that his Goldcorp shareholders would be given a vote same as the Wheaton River shareholders. Hoping to buy time and possibly steal the deal, Glamis management was demanding that vote. And, as I say, the Goldcorp shareholders were given the vote " even though Rob McEwen might have lost the deal -- because he wanted to be fair to his shareholders.

But, now that Glamis management has agreed to merge with the new Goldcorp, suddenly they don't want that vote opportunity extended to the Goldcorp shareholders, just a vote for their own Glamis shareholders. That doesn't seem right.

So there is an issue here of treating shareholders fairly, which happens to be something I write about " capital markets and social equity.

Thankfully, Rob McEwen has filed a lawsuit against Goldcorp in an Ontario court to try to make it happen in this case.

To respond to McEwen's actions and subsequent legal complaint, Ian Telfer made this formal statement: "Goldcorp has pursued the transaction with Glamis in compliance with all applicable corporate and securities laws and stock exchange rules and in a manner consistent with numerous other transactions that have been completed by Ontario corporations."

That will be discovered in a courtroom. Here, instead, is where I am concerned.

It's an issue that irks me even more than watching corporations try to resolve disputes in courtrooms, which I agree are often necessary: in this case, Goldcorp has decided to pursue a course of corporate and deal restructuring that would better position their legal arguments in the courtroom, thereby overtly using the court to evade a decision best made by the market.

It's the purposeful steps to evade the marketplace that makes me livid.

The cover-up " the subsequent actions of people to behavior they suspect is unacceptable " is always worse than the initial action. You'd think people would learn something from Richard Nixon and the Watergate affair.

But, apparently not.

Glamis is a B.C. company, and under B.C. law, like Ontario law, shareholder approval is required before a company can enter into a Plan of Arrangement.

In Goldcorp's original agreement with Glamis, Goldcorp had created a B.C. subsidiary to do the deal. But, Goldcorp (the Ontario company) would hold all the votes in the B.C. subsidiary, thus the Goldcorp subsidiary vote would be a forgone conclusion.

But, the Ontario Business Corporations Act (OBCA) clearly states that an Ontario Corporation cannot enter into a Plan of Arrangement without first getting their shareholders approval.

Challenged in court by Rob McEwen, a B.C. judge would have seen through this Goldcorp veil. It appears to me that Goldcorp, under legal advisement, then amended their agreement with Glamis and eliminated the B.C. subsidiary, in order to prevent a slam-dunk by McEwen.

So now Goldcorp (the Ontario Corporation) is entering directly into the agreement and Goldcorp's lawyers are likely going to argue that, despite the Business Corporations Act, there are precedents that support their case. They'll argue there have been many cases where a company has entered into a Plan of Arrangement without getting shareholder approval.

There are, apparently, limited examples were an Ontario Corporation has entered into a Plan of Arrangement:

1) CSA and Goldcorp: Shareholders were given a vote on both sides
2) Kinross, TVX and Echo Bay: Shareholders were given a vote on both sides
3) Goldcorp and Wheaton River: Shareholders were given a vote on both sides

However, legal experts tell me that examples of precedent being referred to by Goldcorp are Federal Companies, not Ontario companies, and Goldcorp is an Ontario registered company. So, I believe the matter will go forward to trial in Ontario in front of a Provincial Court judge.

I also believe that there are legal maneuverings in darkened boardrooms going on here that the sell-side and buy-side ought to be watching.

When confronted by Rob McEwen, Goldcorp management changed its original offer from an all-share deal to a share plus a tiny bit of cash (.0001) per share. Although the change is minor, Goldcorp never mentioned it to their shareholders, or the reasons for doing that, nor did they state that they had eliminated the B.C. sub from the agreement with Glamis.

Moreover, from what I can see, Goldcorp also never disclosed to shareholders that they have received two letters from the SEC regarding their 2005 financials and that they might have to amend or redo them. This information was discovered in a Glamis filing.

Along with their intent to not give shareholders a vote, it appears to me that Goldcorp management are lacking in their corporate disclosure.

No vote plus inadequate disclosure is a lethal combination.

There is also the issue of why Silver Wheaton got the unchallenged right of first refusal on Wheaton River's silver production. Goldcorp's shareholders must wonder if, in the absence of a competitive bidding procedure, the pre-merged company got the best possible deal, and whether Ian Telfer's 900,000 SLW stock options played any role in that Wheaton River-Silver Wheaton agreement.

At the end of the day, the owners and managers of capital (the buy-side) and the investment banks (the sell-side) should not look to the law to resolve these kinds of issues. The courts are important, and the issues will eventually play out there, but the fact is we trade prices, and those prices change by the minute, hour and day because of buy-side confidence that issuers are transparent, while bankers are bringing value and shareholders are receiving it.

As I see it, management of public corporations that want to play the legal card, and the darkened boardroom card, in order to avoid their responsibilities to their owners and bankers, will ultimately lose. They will become pariahs.

I think it's even fair to say that management has realized in the past few years that the owners have cottoned on to their self-serving act, and will not put up with it, so management and directors, in too many cases, are desperately trying to "get theirs" before the curtain falls.

It will fall, you know.

I spent two years of my time fighting pro bono for the rights of Stelco shareholders who had "theirs" taken from them by a management, board, lawyers and court system that had been bought and paid for by a couple private equity groups. It's not surprising to me that the judge called an early halt to that fight " it still goes on " so he could join the law firm that represented the money interests that even bought off the shareholders' lawyer.

Yes, the law was used in the Stelco Reorganization " the "i's" were dotted and the "t's" crossed " but the shareholders were refused a vote and they were screwed. In time, that whole story will come out, probably in some independent journalist's book.

This time, in the case of Goldcorp, the shareholders can count on the deep pockets of one of their own " the very wealthy Rob McEwen -- to carry the fight all the way. And this fight will help your share price too.

As an aside, I think that investment bankers everywhere had better beware that Goldcorp represents to them one small company in a huge universe, but the capital market owners and managers they serve is all-important " multi-trillions " and these people make decisions on principle. If you want decisions made based on law and the power of lawyers and a couple judges, then allow it at your peril.

So, what I'm saying is that the buy-side is going to win this one, and I'm going to be there to tell you about it.

I have made my decision. Now, the questions I have are: (1) do you think I'm doing the right thing taking a position between McEwen and Goldcorp, based on the principle of shareholders having a say in a company's material changes proposed by management (employees), or should they just let the law/lawyers decide these issues, and (2) are you interested enough to do something about it by writing a letter of support for the side you support -- either McEwen or Goldcorp?

I'd like to hear from the readers on this matter, so I decided to open up this particular blog to your comments.

ADDENDUM (OCT. 7):

I was contacted by a Rob McEwen executive, Ian Ball, and responded as follows. Ian's reply, although personal, is being posted here because I want readers to see I am in the middle on this one.

There are different issues and I am taking Rob's side on the principles issue and Goldcorp's side on the quality of the merged company, and its future.

Ian,

I understand that Rob wouldn't agree with my view about the quality of Glamis relative to the price that was paid, but in that regard he was addressing the shareholders of Goldcorp that existed on the date the deal was announced. Afterwards, the price adjusts and all people like me can do is try to balance the current price to the value that would exist in the merged company. All we can do is agree that the old Goldcorp shareholders got screwed and the Glamis shareholders were advantaged. Without the need for a vote, which is the check and balance, you can easily see where management could structure self-serving deals, knowing that all of them would get approved. I want my readers to know that and to demand that the principle that Rob is going to fight is one they want enshrined in law so that no lawyer can help his client play these games where the investor gets screwed.

/Bill

Bill,

I agree. Even Rob recognizes that there are shareholders that like the deal. His fundamental issue is that there is no vote. If there was and we lost;that is the way it goes since the owners decided. Thank you for posting that article.

/Ian

Ian Ball also asked that I link the McEwen website to my article, and include a pdf file of the McEwen Support Form, which I have done below.

I am here to serve all the readers, and many of you are shareholders of Goldcorp who support the deal.

I'm hoping Goldcorp responds with a link to their rebuttals as well as a form letter of support for them. That would be welcomed here.

As you know I did not remove Goldcorp from the Cara Global Best 100 Companies List because of the company (ie, management, properties, financial strength, operating performance), but because I disagree with them regarding the transparency and voting rights principle.

Just because somebody takes a different perspective to yours with respect to principles doesn't mean to say you can't respect and admire them. In Ian Telfer's case, I do.

I just happen to come from a school of thought that says you don't have to be in the room to be in the deal. These are shareholder-owned companies, and they must be run strictly for the best interests of the shareholders. Without it, we won't have a successful capital market.

Here is the McEwen website: www.robmcewen.com. I expect that next week, Rob will turn up the flames. In this business, if you are a chef who can't stand the heat, you get out of the kitchen.

Here is the McEwen form letter for supporting his view: Download McEwen Support Form (Oct 5 version).

As I say, I'll do the same here for Goldcorp.

ADDENDUM (OCT 18)

Frank Holmes of U.S. Global Investors Inc had $200 million of his client's money in Goldcorp and he sold. Listen to his arguments on the audio interview at McEwen's website. Now that I listened to him, and read the McEwen affidavit regarding the deal merits, I'm going to retract my support for the deal. I agree with Frank Holmes; this is a deal that Glamis should have proposed to Goldcorp. Goldcorp shareholders would have turned it down.

btw, before Frank Holmes took over that Fund, I visited those U.S. Global offices in San Antonio a couple times, on business. Frank was still a reg. rep. in Toronto. That was 20 years ago.