WisdomTree Saga Heats Up After Agreement Falters

May 05, 2022

The dispute between exchange-traded fund issuer WisdomTree Investments Inc. and its largest shareholders intensified this week, putting them on a potential collision course that could end in a proxy fight later this year.  

ETFS Capital, and fellow shareholder Lion Point Capital, penned an open letter to WisdomTree’s board of directors on Wednesday, highlighting an alleged lack of concern for shareholders and not negotiating in good faith. The two firms together control 13.5% of WisdomTree’s common stock and 21.7% of the company when including their convertible preferred stock. 

According to the letter, the two sides had gotten close to reaching a cooperation agreement, in which WisdomTree would attempt to reduce costs, focus on its highest-priority growth initiatives, improve its governance practices, and add at least one new independent member to its board.  

However, ETFS Capital and Lion Point said they’ve since learned that WisdomTree has “no intention of honoring the spirit of any such agreement and is merely seeking to silence its largest stakeholders to maintain the status quo whilst doing little more than embracing cosmetic governance changes.” 

The shareholders called out the poor performance of WisdomTree stock, which has fallen nearly 80% since peaking in 2015. They attributed the losses to the actions of WisdomTree’s management, and in particular, its strategy of “repeatedly attempting to chase the ‘next big thing’” rather than focusing on the company’s core ETF franchise. 

In a press release Thursday, WisdomTree pushed back on its shareholders’ characterizations, noting it was surprised that they had “discarded” the cooperation agreement. WisdomTree Chair of the Board Frank Salerno said: “A cooperation agreement with ETFS and Lion Point would have been a win for all stockholders. We were shocked that, mere hours before its planned announcement, ETFS and Lion Point abruptly and irresponsibly discarded the cooperation agreement and announced their intention to engage in a proxy fight.”

ETFS Capital is the parent company of ETF.com.

WisdomTree said it hoped that an agreement could still be struck, but that in any case, it would go ahead with a proposal to declassify the board at the 2022 annual meeting, a shareholder-friendly move that makes the board more accountable to investors. 

The companies may soon find themselves in a battle for control over the direction of the firm if a compromise cannot be found.  

ETFS Capital and Lion Point said they will submit proxy materials to the Securities and Exchange Commission in the coming weeks, starting their attempts to elect three of their favored directors to the WisdomTree board.  

“We look forward to sharing our views on the performance of the Company and the CEO with WisdomTree’s stockholders, proxy advisory firms, the SEC, independent financial advisors, the Company’s vendors and partners, industry media, and investors in WisdomTree’s products over the coming weeks through our proxy materials,” the companies said in the release.  

 

Follow Sumit on Twitter @sumitroy2    

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