Intertain CEO stepping down following independent committee report

intertain-fitzgerald-ceo-resignationCanadian online gambling operator Intertain Group is looking for a new CEO following the release of an independent review of the company’s activities.

On Monday, the Toronto-listed Intertain announced the completion of its Independent Committee review, which was launched following the December release of a report by “self-described short-seller” Spruce Point Capital Management.

Spruce Point’s report criticized lucrative incentive payments to Intertain’s two top executives and effectively suggested Intertain was a Ponzi scheme that was misleading shareholders regarding the company’s underlying performance and future earn-out obligations related to its numerous acquisitions. The report triggered a massive sell-off of Intertain shares, which lost one-third of their value before trading was temporarily suspended.

Intertain appointed an independent committee to investigate Spruce Point’s allegations, and announced earlier this month that the committee had found “no basis for concern” in the report’s claims.

On Monday, Intertain chairman Stan Dunford said the committee had determined that Spruce Point’s claims regarding Intertain’s underlying business were “wrong in every material respect.” To bolster this determination, Dunford claimed Spruce Point’s had underestimated Intertain’s adjusted cumulative operating cash flow through Q3 2015 by more than 700%.

Intertain also announced that CEO John Kennedy Fitzgerald (pictured) would be relinquishing his chief executive chair now that the role is shifting “from asset acquisitions to operational excellence.” Intertain says its hunt for a new CEO will likely lean towards someone European-based to better align with the company’s core assets.

CFO Keith Laslop is also on the move, shifting to “a new senior operational management position” at Intertain Bahamas, which oversees the company’s more lucrative assets. Intertain says it will make a number of new hires for its Bahamas division and expects to announce an interim replacement for Lasop before too long.

While Intertain says the committee found no justification for Spruce Point’s claims regarding its underlying business, the committee did find “inadequate documentation, approvals and record keeping” regarding the company’s controversial Management Incentive Plan (MIP).

On Monday, Intertain announced the “permanent cancellation” of the MIP, which had allowed Fitzgerald and Laslop to collect bonuses of up to 2% of the large sums paid for Intertain’s various acquisitions, which included major UK-facing online bingo properties as well as the European-facing online gambling operator Vera & John. These bonus payments caused a major shareholder uprising when they were first revealed in the company’s Q2 earnings report.

Intertain says Fitzgerald and Lasop have since agreed to relinquish any right to future payments under the scrapped MIP, including those related to Intertain’s prior acquisitions. The two execs have also agreed to reduce their golden handshakes by 25%.

Fitzgerald said he and Laslop had recognized “the market concern” regarding their outsized bonuses and had therefore offered to relinquish their entitlements “to further strengthen our alignment with shareholder interests.”

Fitzgerald said the “untrue statements” in Spruce Point’s report had made life “difficult” for he and Laslop but cynics will note that Fitzgerald’s decision to depart came only after the company eliminated the possibility of future acquisition paydays.

Dunford said that “in reflection,” the company recognized that the MIP had “flaws in both design and result” and that “we have all faced up to that.” Dunford thanked Fitzgerald and Laslop for making their “material accommodation” regarding their compensation.

The markets reacted badly to the Intertain committee’s initial findings a couple weeks ago, pushing the stock down nearly 10%. Reaction to Fitzgerland and Laslop’s compensation haircut proved far more positive, as the stock is currently up nearly 6.5%.