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With the recent election of seven nominees to the board of CP
Rail, Bill Ackman and Pershing Square demonstrated in dramatic
fashion that no Canadian company is immune from the
rough-and-tumble world of proxy battles. Mason Capital also
illustrated this recently with its successful opposition to the
proposed share conversion of Telus Corp. Shareholder activism
is clearly alive and well in Canada.
In light of the number of US activist investors that continue to
look at target companies north of the border, and as part of the
series of blogs for US investors that was recently launched by my
colleagues
Robert Hansen and Heidi Gordon, I thought it would be useful to
take a quick look at the top 5 differences for activist
shareholders in Canada as compared to the US:
Limited ability of target company to thwart hostile
bid. An activist investor in Canada always has the
ability to make an offer directly to a target company's
shareholders to acquire all of their shares pursuant to a take-over
bid. Although a Canadian company can adopt a poison pill in
an effort to inhibit a hostile bid, under current Canadian rules
the pill will typically be struck down by our securities
commissions a couple of months after a take-over bid is made. That
is, the target's board cannot "just say no" to a
hostile bid. Which means the ability of target's
management to entrench itself in the face of shareholder dissent is
significantly weakened.
No disclosure until 10%. A shareholder of a
public company in Canada does not need to make public disclosure of
its shareholdings unless it owns (together with any joint actors)
10% or more of the company. This is higher than the 5%
disclosure threshold that applies in the US, and allows activist
investors considerably more leeway to quietly acquire a meaningful
stake in the target company.
Power to requisition meetings at 5%.
Shareholders of a Canadian company that collectively hold 5% or
more of the company's shares have the power to requisition a
meeting of shareholders at any time. Upon receiving a
requisition, the board is obligated to call a meeting within 21
days (although Canadian courts will give the board latitude with
respect to its choice of meeting date). As a result, an
activist investor who holds 5% of the company has the power to
launch a full-fledged proxy battle at any time. And because a
larger percentage of Canadian companies have concentrated ownership
as compared to the US, it is often easier for a dissident
shareholder to round up a group of large shareholders who are
dissatisfied with management.
No staggered boards. Shareholders of a
Canadian company generally have the power to remove the full board
of directors at any time. Accordingly, the board can be
replaced in a single meeting with a dissident's slate.
The target company cannot rely on a "staggered" board to
delay board change as is sometimes done in the US.
Oppression remedy. This is a remedy that
allows shareholders of a Canadian company to seek recourse from the
court for an almost unlimited array of unfair conduct by a
company. If a shareholder's "reasonable
expectations" have been infringed by corporate action, the
court has significant discretion to award a remedy. This
gives shareholders a potent litigation tool to ensure that
companies act fairly towards its shareholders, including in the
course of a proxy battle.
In short, activist investors in Canada have a variety of rights
and remedies that can create significant leverage for them in
effecting change at a target company. Although the fiduciary
duties of directors in Canada are conceived broadly (and permit the
consideration of the interests of a variety of stakeholders), at
the end of the day the board is fully answerable to the
company's shareholder base. The result is that a minority
shareholder with a compelling vision – like Bill Ackman
– can have a dramatic effect on the governance of even
Canada's most storied companies.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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