(Bloomberg) -- Investment firm Browning West LP has built a 4.3% interest in Quebec-based flight simulator company CAE Inc. and wants a say in picking its next chief executive officer.
The Los Angeles-based money manager sent a letter to CAE’s board on Friday, complimenting the company’s “enviable market position” but stressing that it has underperformed. CEO Marc Parent recently announced his retirement after 15 years.
The choice of CAE’s next boss is “critical” to realize its potential, Browning West partners Usman Nabi and Peter Lee wrote, urging directors “not to act hastily in its CEO search, but rather to engage with us to collectively recruit the best possible leader.”
“We are aware of the letter from Browning West,” Samantha Golinski, a spokesperson for CAE, said by email. “CAE’s board welcomes dialog with all its shareholders, and we have been actively engaging with our largest shareholders. As previously announced, the board is engaged in a thorough global search with a leading search firm for its next CEO and will provide further public updates as appropriate.”
Shares climbed as much as 3.4%, the most in almost a month, to C$33.97 in Toronto. They are up 20% over the past 12 months.
Another large shareholder in CAE, Jarislowsky Fraser Ltd., has also been vocal about wanting changes at the company that sells pilot-training tools.
“There’s a valuation dislocation where you pay zero today for defense,” Jarislowsky portfolio manager Charles Nadim said in October.
Parent will leave at the next annual shareholder meeting, scheduled for August, CAE announced last month.
Browning West, founded in 2019, is fresh off a high-profile activist win in Canada. In May, it triumphed in a dramatic campaign at Montreal-based apparel-maker Gildan Activewear Inc., gaining control of the board in a proxy fight and bringing back its longtime CEO.
“We would also expect Browning’s involvement to be a considerably less confrontational campaign when compared with Gildan,” Desjardins Securities analyst Benoit Poirier said in a note to clients, adding that the activists are an “ideal partner” in the CEO search.
CAE reported an operating loss of C$185 million ($129 million) in the last fiscal year following one-time charges linked to its defense business, including a C$568 million impairment of goodwill. The company also reported C$90 million in unfavorable adjustments linked to fixed-price contracts and a C$35.7 million write-down of intangible assets.
“We would not rule out the potential that Browning could influence the board to monetize CAE’s defense business down the line, which could also be another positive catalyst,” Poirier said.
(Updates to add CAE’s response, share prices and analyst comments beginning in the fourth paragraph.)
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