Compared to the record setting year of 2015, shareholder activism in Canada in 2016 returned back to historic levels, with the mining and energy sectors being most frequently targeted by activists. Interestingly, Canadian issuers generally prevailed in proxy contests against shareholder activists in 2016. This contrasts with the general success that activists experienced in prior years in Canada and continue to experience in the United States. Overall, these results suggest that corporate Canada has become more prepared in responding to activists, particularly through the adoption of advance notice bylaws and policies.
So, should Canadian boards and management rest easy when it comes to shareholder activism in 2017? Probably not.
First, there may be an influx of more-sophisticated activists into the Canadian landscape. Wellfinanced U.S. activist funds are turning their attention to Canadian and European issuers, as the number of activist-susceptible targets in the U.S. which can generate positive returns for these funds begin to dwindle. Additionally, short seller funds, which have become increasingly active in the Canadian market, have begun adopting activist strategies. Even private equity firms, which previously focused on distressed and undervalued situations, have begun to adopt activist tactics, as seen from Catalyst Capital Group's opposing Corus' acquisition of Shaw Media.
Secondly, activists have continued to be successful in Canada with specific strategies. For example, activists seeking to elect minority, rather than majority, slates were highly successful in 2016. Similarly, where a former founder, CEO or director of a corporation engaged in activism, it also tended to be successful.
Third, activists have been employing "scorched earth" tactics with greater frequency, which increases the time, expense and distraction for target issuers. In Raging River's unsuccessful proxy fight against Taseko Mines Limited, for example, the activists: alleged that the target was about to undertake a dilutive equity financing and that its directors and officers had engaged in insider trading; launched an oppression action; threatened defamation litigation; and misrepresented the nature of their investment in the target.
Finally, new takeover bid rules adopted in May 2016, which extend the minimum deposit period under a bid from 35 days to 105 days and introduce a mandatory 50 per cent minimum tender condition, may push potentially hostile strategic investors towards the use of proxy fights over takeover bids.
Lessons that issuers can take away from Taseko Mines Limited's successful defence against activism include:
- respond to activism by adopting beneficial corporate governance changes;
- push back and ensure that the activist is providing complete and accurate disclosure;
- directly respond to each activist allegation with facts; and (iv) communicate frequently with major shareholders and proxy advisory firms.
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