Peter Puccetti has spent months looking into merchant bank Forbes & Manhattan Inc. and its leader, Stan Bharti, and after all that time, he still doesn’t believe the firm is adding any value to his investment.
“The more you dig into Stan and Forbes & Manhattan’s modus operandi, you get less and less comfortable with the way these guys operate,” said Mr. Puccetti, chief investment officer of fund company Goodwood Inc.
His statement forms the crux of a proxy fight Goodwood has launched against Dacha Strategic Metals Inc., a small firm in the Forbes group. Goodwood wants to kick out the board and replace it with a new slate, which includes a couple of former mining CEOs with high profiles.
In launching the fight, Mr. Puccetti has raised fundamental questions about the management practices at Forbes & Manhattan, and what he believes are the excessive fees it collects from member companies.
Forbes has more than 20 public resource firms under its umbrella, and a staff of hundreds to service them. Mr. Bharti has described it as an “incubator,” in that it provides expert advice in geology, accounting, investor relations and anything else its companies might need. He argues they receive far better resources than they could as independent entities. Forbes has some major successes under its belt, most notably Consolidated Thompson Iron Mines Ltd., which sold for $4.9-billion in 2011.
But what concerns Mr. Puccetti and others is the cost for shareholders. Dacha and the other companies pay an average of $28,000 a month for Forbes’ services.
Mr. Puccetti is particularly upset that Dacha could be on the hook for “at least” $8-million of change-of-control payments to Forbes, or more than 23% of its current market value.
He also flagged a couple of other unusual dealings between Dacha and Forbes. In one case, Dacha lent about $3-million to another Forbes company and later recorded a writeoff on it. In another case, Dacha tried to buy an investment firm in the Forbes group called Aberdeen International Inc., a company that has nothing to do with Dacha’s strategy of buying and selling strategic elements (such as rare earths). The deal was abandoned.