How to Privatize Without Any Financial Hiccups

More than 15 years ago, Brenda Arseneault joined McGraw-Hill Ryerson Ltd., the Canadian arm of the learning giant McGraw-Hill Education, leaving behind public accounting and looking to work on the company’s digital transition. Through various positions and projects, Arseneault’s career has culminated in her current role as CFO, where today she’s responsible for the company’s full finance function, including treasury, tax, accounting, and financial-planning analysis. (Photo: Brianne Meadus)

McGraw-Hill Ryerson CFO Brenda Arseneault details her seven-step plan for moving the company from one sector to another

1. Plant the seed

From the 1970s to 2014, McGraw-Hill Ryerson Ltd. was 70 percent owned by its parent company. Not once did the organization go to the market to raise capital funding. “It never really made sense that we were a public company and incurring all the expenses of one,” says Brenda Arseneault, who serves as CFO.

So Arseneault and her peers produced business-case models several times, trying to convince its US parent that it should privatize and buy out its minority shareholders. What finally made the process happen was a bit of good fortune: the parent company itself became private via a private-equity company. That move left Ryerson as the only public piece in the entire global organization, and so strides to become fully private finally made sense for everyone.

2. Find the right plan

There are different methods in Canada one can choose to privatize. Because Ryerson was very solvent, and because its ownership was cooperating, it chose what’s known as the Plan of Arrangement method—an approach perfectly suited for this situation.

3. Know the law

After choosing the method, there’s a sequence of steps that organizations must follow. First, a public announcement must be made so that all the stakeholders are aware simultaneously. Then the board must form a special committee to obtain evaluation and determine a fair price for shareholders. At Ryerson, the committee consisted of independent directors.

“That would be the most controversial issue for most shareholders—making sure they get their fair share,” Arseneault says. It helps that the Plan of Arrangement must go through a court, so an interim order hearing was held. Fortunately, Ryerson’s majority shareholder contacted the company’s other significant shareholder and they agreed to approve a transaction at $50 per share—slightly higher than what it was trading at the time. With those deals done, it solidified 82 percent of the shareholders, when Ryerson only needed to have 50 percent of its minority shareholders agree.

4. Stay on top of deadlines

A judge deemed the transaction fair for the minority shareholders and gave Ryerson the go-ahead. Then Arseneault and her team had to ensure that an information circular was issued a week later. “These things are very time sensitive,” Arseneault says, “and of course all [are] confidential.” Those aspects make it difficult to decide who should be involved on these projects.

Even with agreement from the majority and judge, a special shareholder’s meeting was held before yet another hearing was held for any remaining unhappy shareholders. The organization had no issues, going from April 2014 to June 2014 to privatize the company.

5. Protect the minority

With so many steps, it would be easy to get lost in the details. “The biggest challenge was ensuring that the minority shareholders’ interests were protected,” Arseneault says. Besides remaining focused throughout, Ryerson worked together with numerous consultants and external advisors on the countless drafts of documents it created.

6. Communicate, delegate, and communicate again

“From the finance perspective, I have a great team and managers who help keep the business focused on what it has to do,” Arseneault says. While the privatization process was occurring, there were of course other special projects going that Arseneault relied on her team to bring to fruition. “Luckily, this process didn’t really impact the core business of sales and marketing and product development,” she says. However, there were questions from customers and vendors asking how the process was going to impact them. So it wasn’t just communication with her team but with various stakeholders as well, in order to make sure that everyone was aware of the deal’s impact.

7. Realign your metrics

Now, as the privatization process has finished, and as the amalgamation of Ryerson and the holding company that owned it finished in 2014, it’s important to know what stays the same and what needs to be tweaked. According to Arseneault, the organization is changing much of its financial reporting structure and is looking at new metrics by which to measure the business that are not typical of a public company. Besides that, Ryerson is focused on integrating more with the US entity, going so far as outsourcing its warehouse down to its southern neighbour. Going forward, the whole organization will finally be on the same page.