Canada: M&A: Shareholder Activism

In 2012, the business pages were replete with headlines describing high profile examples of shareholder activism upsetting the status quo in blue chip Canadian companies in the M&A context and otherwise. Most notable was Pershing Square Capital Management's success in replacing the board of directors, and then the Chief Executive Officer, of Canadian Pacific Railway Limited in the largest proxy battle ever waged involving a Canadian company. Other important examples of shareholder activism in Canada last year include:

  • The ongoing attempts by JANA Partners LLC to encourage Agrium Inc. to sell its retail division, and more recently JANA's proposal to replace certain directors of Agrium.
  • The replacement of the Chief Executive Officer of Talisman Energy Inc. days following an increase in stock ownership of Talisman by noted activist West Face Capital and Ontario Teachers' Pension Plan Board.
  • The attempts by Mason Capital Management to block the proposed unwinding of the dual class capital structure of Telus Corporation.
  • The announcement by Invesco Canada Ltd. that it would seek to launch a proxy contest to replace the board of RONA Inc., following that board's resisting an unsolicited take-over approach by Lowe's Companies, Inc. and the firing by that board of the RONA Chief Executive Officer in the wake of poor quarterly financial results.
  • A number of director "withhold" campaigns, which are a cost-effective way to replace directors of companies that have put in place majority voting policies.

While shareholder engagement and detailed discussions on these issues with institutional shareholders is not new in Canada, until recently, disagreements on these matters involving large-cap issuers with their shareholders were largely kept from public view. Now, with some shareholders being emboldened by the examples set over the last year and with additional regulatory changes afoot that will only encourage these types of actions, we can expect an increasing amount of this activity playing itself out publicly.

New TSX rules in place for this proxy season will also eliminate the ability to conduct slate voting and proposed rules for 2014 will require companies to institute majority voting policies (putting at risk directors of companies that are underperforming, and likely resulting in an increase in "withhold" campaigns). These changes should also contribute dramatically to a heightened level of shareholder engagement. Public company boards will want to carefully review their corporate governance and compensation policies to ensure that such policies hold up appropriately to scrutiny, and are properly tailored to their company's particular circumstances. Directors and senior management should continue to familiarize themselves with the voting policies of their company's institutional investors (where applicable) and proxy advisory firms such as Institutional Shareholder Services and Glass Lewis. More often than not, being prepared is a difference maker in the proxy battle arena so it will lastly be prudent to engage in readiness efforts and proactively consider defensive measures.

We would lastly note that to the extent activists continue to act as agents of institutional investors (either on spec or for hire), there will likely be a continuing shift of focus to governance and the responsibilities of such investors and their agents.

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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