Earlier this week I was in Toronto for Activist Investing in Canada, the third annual conference organized by ArrowCon Partners. As speaker after speaker described the campaigns that had grabbed the most attention over the past year, it quickly became apparent that in the same year as Pershing Square Capital Management exited Canadian Pacific Railway and Agrium merged with PotashCorp without the help of either Jana Partners or ValueAct Capital Partners, there is a lot less “pure activism” going on than in previous years.
Data I presented on the opening panel puts this into context. In 2015, there were 60 companies headquartered in Canada subjected to public demands by investors (up from 51 in 2013). At the end of October 2016, only 42 had been targeted, suggesting a shortfall for this year.
That still means a lot of companies are receiving attention of some sort – 42 is slightly more than in the U.K., for instance, and almost three-times as many in Japan this year. In addition, advisers say settlements have become more common, meaning the number of behind-the-scenes campaigns is probably rising.
Many public campaigns, however, are born out of exceptional circumstances. Fasken Martineau, a law firm, estimates that 26% of board-related proxy contests since 2008 have been led by company founders or former insiders. Such dissidents are generally more successful than the average, says Bradley Freelan, a partner at the firm. Moreover, as many law firms predicted when the new takeover rules came into force in May, private placements in M&A transactions have become a focal point for discontent – as at Corus Entertainment, for example. Opposing such deals can be costly, given the need for litigation to clarify the new rules, and risky, if other options are lacking.
Then there is the proxy voting system. According to Vic Albioni, chairman and CEO at activist merchant bank Jaguar Financial, proxy contests are the worst way of settling a situation. “The proxy machinery is very flawed and a total waste of time,” he told the conference. Management is at an advantage in contests, admitted Paul Davis, co-chair of law firm McMillan’s Capital Markets and M&A group.
Indeed, as this email goes out, experts are gathering at the offices of the Ontario Securities Commission to discuss reforms of the proxy voting system. Penny Rice, of proxy solicitor Shorecrest, is one of those participating and told me this week that problems with how votes are counted had undoubtedly decided the outcome of contests hitherto. At the time of its contest with Agrium, Jana claimed to have been unfairly treated. That was more than three years ago, but when activists have hundreds of millions of dollars at stake, such concerns can stay a trading finger.
Other concerns are more cyclical in nature. Low commodity prices may have reduced the number of opportunities for activists – a mistimed bet on Bellatrix Exploration helped unwind Orange Capital, a New York-based hedge fund that made regular trips north of the border. If companies in that space recover, many might return.
Some activists have continued to keep a close eye on the markets nonetheless. Smoothwater Capital this week lost an appeal over the decision of Alberta Oilsands to direct its sole asset – cash – into new ventures without a shareholder vote. FrontFour Capital Management continues to be active, and PointNorth, the Toronto-based fund managed by Philip Evershed and formerly known as Oxford Park Group, disclosed its first stake in over a year this week after going on a fundraising drive.
All of which is to say that, whether or not we see more traditional operational or strategic activism in Canada, there will continue to be plenty to occupy the professionals, and much of it will be interesting. I have little doubt that there will be a fourth Activist Investing in Canada, or that Activist Insight will be there.
Article by Activist Insight