The Death Of Canadian Traditional Activism

The Death Of Canadian Traditional Activism
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Since I’m in Canada, a year on from calling the death of traditional activism, I thought it was time for an update.

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On the one hand, activity at this point of the year is down compared to past years. There had been 35 companies based in Canada that were publicly subjected to activist demands by September 19, compared to 38 by this point last year and 41 in 2015. Jon Feldman, a partner at law firm Goodmans, calls this a “levelling off” of activism after a mid-decade spike.

While that may be welcome news to companies, the situations that do bubble to the surface are showing that activists have lost none of their power. According to Kingsdale Shareholder Services’ Proxy Season Review 2017, support for both minority and majority activist slates in proxy contests increased for the first time. Indeed, activists won all minority slate contests and 77% of majority slate contests, the report finds.

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Activists may have found fewer opportunities in the current economic climate; the ones they have identified have often been on the ropes. In Granite REIT, FrontFour Capital Group and Sandpiper Asset Management were able to take advantage of the same tool Pershing Square Capital Management would like to use at Automatic Data Processing – the universal proxy. While Granite included only its six nominees, the activists offered shareholders the opportunity to pick and choose. “A risk with the universal card is that vote dispersion may lead to an incumbent being elected at the expense of one of the activist’s nominees,” the Kingsdale report notes. “In this instance, by publicly targeting the management nominees that should not be re-elected, the activist maintained the optics of a full democratic process while achieving the desired outcome.”

Granite ultimately appointed the three activist nominees, and just yesterday its CEO announced he would retire within 12 months.

At Liquor Stores, PointNorth Capital forced the company to fall back on paying its brokers to solicit votes based on which side of the contest they were cast for. The practice, frowned on after a 2013 contest between Jana Partners and Agrium, was allowed to continue by the Alberta Securities Commission this time around but reportedly solidified support behind the activist. “We think the street is ahead of the regulators on this,” PointNorth’s Phil Evershed says. “We gained support from shareholders who were on the fence when they saw that.”

Other outcomes were more balanced. At Bombardier, a coalition of institutional investors forced Pierre Beaudoin to take a pay cut and give up the executive element of his role as chairman, while at Eco Oro, five new directors were appointed and the CEO replaced after an activist took complaints about the company’s treatment of minority investors to court. Ironically, a conflicted decision facilitated by the country’s patchwork of law courts forced the company to negotiate with its foe, even as it notched some victories over Harrington Global Opportunities in British Columbia, and with the Toronto Stock Exchange.

Indications are that Canadian companies are more alert to activism than ever. Advisers say settlements are becoming more common without situations ever entering the public domain. Canada’s array of dual class stocks, controlling shareholders, and energy companies place a natural limit on how many companies can be targeted, but Kingsdale forecasts that the next wave of activism could involve arbitrageurs hijacking M&A. “While boards have grown increasingly prepared for activism across the boardroom table, the same rigour and forward planning now need to be applied to the deal table,” the report says.

Nelson Peltz may have played his ace in the hole in his fight for board representation at consumer product giant Procter & Gamble (P&G). In his latest move, the activist flaunted the public support of five former directors at Heinz, a previous target of Trian Partners. In a letter to P&G, the Heinz alumni spoke up for Peltz’s value to their board, saying he was a respected and constructive member. “Like you, many of us had feared that Nelson’s presence would disrupt the effectiveness of our board process and derail the execution of our strategy. However, just the opposite proved true,” the letter read. Unfortunately for Peltz, P&G was not convinced. In response, the company argued that the activist may have been a suitable director for Heinz in the past, but he is not an appropriate candidate for P&G today. Shareholders will vote on the issue of Peltz’s nomination at the company’s annual meeting October 10.

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