Anointing Family

The 30 year-old student and son of a prominent board member pays C$128M to purchase one of Brookfield's long-standing public holdings. Why isn't it a related-party transaction? You have to wonder.

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Photo by Simon Wijers on Unsplash

On August 20, 2019 Brookfield Asset Management (BAM/BN) published an Early Warning Release noting that the firm sold its long-held 45% or 7.5M shares of Acadian Timber (ADN Toronto) to a company called Macer Forest Holdings, Inc. at $17 per share for a total of C$128M.  The sale also triggered the unwinding of management positions and contracts associated with the BAM stake.

It all seems fairly routine until one takes notice that the President and principal shareholder of Macer is named Malcolm Cockwell.  Though not disclosed in the Early Warning Report, Malcolm Cockwell is the son of Jack Cockwell, current BAM board member, large, controlling shareholder and the original architect of the group strategy. 

It would seem that BAM, likely led by Mr. Cockwell Sr. used company resources and influence over ADN first to install Malcolm Cockwell as an Acadian board member, then to facilitate the sale of the 45% ADN stake paving the way for him to become chairman. The 30-year old PhD student was effectively given what is nearly a control position in one of Canada’s largest forestry companies. 

The sale of Arcadian Timber along with the antecedent actions look like an audacious display of nepotism involving two of Canada’s most prominent companies.

The Long Relationship with Acadian

BAM’s relationship with Acadian Timber was both long and deep.  BAM had a stake in the company since at least 2006 when it reported a 29.6% position.  Over time, the stake grew to 45%.  As is often the case, a large investment from BAM came with “management expertise”.  BAM appointed the chairman of the board, senior managers and charged the firm “asset management fees”. 

In conjunction with the sale of BAM’s stake to Macer, BAM representative Benjamin Vaughan resigned as chairman; Malcolm Cockwell was upgraded from director to chairman.  Shortly following the transaction, ADN announced it was terminating its asset management agreement with BAM and ‘internalizing’ the function.  As part of the deal, BAM representatives Mark Bishop and Matthew Gross, CEO and CFO, respectively, also resigned.

In contrast to BAM’s long relationship with ADN, Malcolm Cockwell appears to have had a whirlwind affair with the company.  In 2018 he was nominated for a board position at ADN and received an affirmative vote.  It is unclear who nominated him for the position, but presumably Mr. Cockwell senior and BAM used their influence to make it happen. 

At the time, Malcolm was a 29 years old[1] PhD candidate in Forestry who had received his undergraduate degree in Forestry from University of Toronto.  He also held the position of Managing Director of Haliburton Forest and Wildlife Reserve Ltd., which he had held since 2016.  It isn’t the experience and age profile that typically associated with a board nominee for a public company. 

In 2019, not long after his nomination to the board, Malcolm purchased BAM’s stake in Acadian Timber for C$128M and moved into the chairman role. 

Looking back on the succession of events, Malcolm’s rapid rise from student to board member of a publicly traded company, to significant investor and chairman have the air of inevitability.  It smacks of the dynastic succession more typically associated with family-owned private companies. 

I would guess that no other 30 year old forester could have pulled it off. The series of events required the resources and cooperation of two publicly traded corporations. To my mind, it was clearly the product of a power broker.

Remarkably, despite the prominent companies and individuals involved, I could not find one article in Canadian media discussing the transfer of power.

Despite the family relationsip, clear conflicts of interest, the transaction was not disclosed as such in BAM’s annual SEC filing.  The exhibit below is BAM’s related party disclosure from its 2019 form 40-F. 

Related Party Disclosure

Source: Brookfield Asset Management

Perhaps the exclusion hinges on the definition of materiality or the fact that the transaction was indirect. Who knows? Brookfield has ~20 ESG related reports and documents posted on its website outlining policies for a wide-range of governance-related topics.  The sheer volume of ESG information seems designed to provide investors with assurances of good governance.  Yet, there is an unreported related party transaction with an immediate family member worth over C$100M. Deals with the children of managers are arguably the most clearly conflicted transactions a corporation could undertake.  Despite that and the volumes of assurances, the company chose to present the sale as if it were an arm’s length, third-party transaction.

Conclusion

Jack Cockwell once gave his sons Malcolm and Gareth what he considered a dire warning. He said that if “you don’t do well in school and get your homework done, you are going to end up as foresters.”  It is ironic that Malcolm ended up being a forester after that speech.  However, Malcolm’s position is far from ordinary.  Fitting his status as the son of a board member of a prominent Canadian company and one of the country’s most wealthy business men, he now sits at the helm of one of the largest private land holdings in Canada. 

It’s a nice gig for an environmentally conscious young professional courtesy of the shareholders of Brookfield Asset Management, Acadian Timber, dad, and C$128M.

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[1] This publication notes that MC was 32 years old in 2020, implying he was 29 at the time of his appointment to ADN’s board and 30 when he made the $128M stock purchase and was made chairman.