As a result of the rising tide of shareholder activism in
Canada, a number of defensive tactics have been developed by
corporate management. The newest innovation in management's
arsenal is the activist investor ban—an agreement between an
issuer and a purchaser that restricts the purchaser from
transferring its shares to activist investors.
Activist investor bans have recently become the norm in the
realm of pharmaceutical mergers and acquisitions. Last
month, for example, the Canadian drug maker Concordia Healthcare
Corp. agreed to issue a 14% equity stake to a private equity firm,
but not before putting an activist investor ban in place. The
agreement prohibited the purchaser from selling or transferring the
securities to more than 50 named activist firms in addition to
anyone listed on the Sharkwatch 50—a compilation of the
largest activist firms. These firms and investors were essentially
It is not surprising that corporate management wants to maintain
control of share ownership when large offerings are made, such as
the Concordia Healthcare offering. Companies sometimes view
activist shareholders as not having the long term health and
profitability of a corporation in mind, and a large offering is an
easy way for an activist shareholder to quickly acquire significant
holdings. This risk can be combatted by placing resale restrictions
and bans on the transfer of securities to known activist
Of course, restrictions on the transfer of securities are
nothing new. Canadian corporations have long imposed long waiting
periods or 'lock-ups' and have prohibited transfers which
would place a security holder over the 10% early warning threshold
or the 20% takeover bid threshold. However, re-sale restrictions
have rarely targeted specific investors and prohibited them from
There is no prohibition on activist investor bans in Ontario.
The securities regulators have commented that they may have concerns with agreements which
restrict the transfer of securities to activist investors. This
view is consistent with Canadian securities regulator's
position on the importance of shareholder democracy demonstrated by
their treatment of shareholder rights plans (see: Re Baffinland Iron Mines). It remains
to be seen whether Canadian securities regulators will impose
restrictions or limits on activist investor bans.
The author would like to thank Danny Urquhart, articling
student, for his assistance in preparing this update.
Norton Rose Fulbright Canada LLP
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