Activist fund manager Browning West LP wants to play matchmaker in pilot training company CAE Inc.’s search for a new chief executive officer.
On Friday, Los Angeles-based Browning West disclosed it has amassed a 4.3-per-cent economic interest in CAE CAE-T and asked for a formal role in succession planning for long-time CEO Marc Parent, who announced plans to retire last month.
“We believe CAE must recruit a proven CEO with a verifiable track record of value creation,” said Browning West co-founders Usman Nabi and Peter M. Lee in a press release. “We urge the board not to act hastily in its CEO search, but rather to engage with us to collectively recruit the best possible leader.”
“In time, and with the right leadership, we believe the company can reclaim its status as a Canadian, Quebec-based aerospace champion,” said the Browning West executives.
Montreal-based CAE announced in November that Mr. Parent will step down at the company’s annual meeting in August after 15 years at the helm. Commenting at the time, chairman Alan MacGibbon said: “We are fortunate to benefit from the considerable leadership depth he has built across the organization, placing us in an excellent position for sustainable growth.”
CAE hired an executive search firm to advise the board on succession. Over the past 12 months, the company’s share price has climbed 17.4 per cent.
Browning West is coming off a high-profile win involving another Canadian company: clothing manufacturer Gildan Activewear Inc. GIL-T In May, it emerged victorious in a bitter six-month campaign to reinstate Gildan co-founder and CEO Glenn Chamandy.
CAE spokeswoman Samantha Golinski said the company was aware of the Browning West letter and that it has been “actively engaging” with its largest investors. She said the search for a new CEO is continuing and that updates will be provided when appropriate.
Caisse de dépôt et placement du Québec is a significant shareholder in CAE, as well as Jarislowsky Fraser Ltd. and Brandes Investment Partners, according to Bloomberg data. Browning West would round out the group.
Benoit Poirier, an analyst at Desjardins Capital Markets, said he sees Browning West’s involvement as a positive development for CAE investors because it “derisks” the CEO selection process. He said Browning will most likely try to target an external executive with U.S. aerospace and defence experience or a solid industrial-sector capital-allocation background.
“This is exactly what the market wants,” Mr. Poirier said in a research note. “We would also expect Browning’s involvement to be a considerably less confrontational campaign when compared with Gildan.”
Mr. Parent is widely credited with expanding CAE’s business model from that of an industrial company focused on manufacturing flight simulators to a service company that trains pilots, both civil and military. Annual revenue has nearly doubled under his tenure to $4.3-billion, and the share price has more than tripled.
But the company has hit turbulence this year. In May, CAE announced it would take an impairment charge of $568-million on its defence business and another $126-million in contract adjustments and asset writedowns tied to the unit. At the time, Mr. Parent called it “a disappointing but necessary step” as his team worked to improve defence profit margins.
Things have improved since, and CAE reported financial results for its most recent quarter that exceeded analysts’ expectations. In a report, analyst James McGarragle at RBC Capital Markets said recovery at the defence unit “gives us increased confidence in CAE’s ability to execute on the company’s longer-term defence targets.”
Browning West has played an activist role with several of its investments, pushing for leaders it sees as the most capable of maximizing returns. The firm’s partners have intervened and taken board roles at four public companies in the United States and Britain in addition to Gildan: Six Flags, Tempur Sealy, Domino’s and Countryside/Vistry Group. They’ve also led seven public company CEO and chairperson searches.
“The activism that we’ve done in our careers where we’ve frankly made a lot of money is through management change,” Mr. Nabi told The Globe and Mail in an interview this past spring. At companies where boards have made succession and leadership mistakes, “we’ve come in and we’ve cleaned up those situations very powerfully.”
Editor’s note: A previous version of this article incorrectly stated that Power Corp has an investment in CAE. That reference has been removed.