* Global market slump brings wave of activism to Canada
* Agitation could escalate into full-scale proxy fights
* Corporate governance reform has fueled trend
* Arrival of U.S. hedge funds in Canada has contributed
* More proxy advisory firms are operating in Canada
By Pav Jordan
TORONTO, Nov 20 Underperforming Canadian
companies should brace for a wave of shareholder activism as
investors try to wring value from portfolios that have been
battered in a global market slump.
In the last few weeks alone, three top companies -
BlackBerry maker Research In Motion , grain handler
Viterra Inc and Canadian Pacific Railway - have
faced highly public investor agitation, once a rarity in
In all three cases investors are unhappy with management
strategies to reverse falling stock prices.
When management doesn't respond, a full-scale proxy battle
can ensue, as activists resort to shareholder votes to force
management to boost dividends, change strategy or even to
scupper an unwanted takeover. For the agitators, a successful
fight often results in installing their own supporters on the
board of directors.
"What's happening is that funds, most of whom have never
thought of being activist investors, are looking at their
screens and seeing a lot of red," said Walied Soliman, a
partner at the Norton Rose Group and one of Canada's leading
proxy battle veterans at the tender age of 34.
"Investors are saying, 'Some of this red, we can't
control,' but they are also looking at some deeper reds and
saying, 'Why is this such a deep red? I know everyone is
underperforming because of the markets but these guys are
performing well below the market'," he said.
Proxy battles have also emerged as a useful technique to
court shareholders in hostile takeover situations.
A recent example is Wi-Lan's unsuccessful bid for
Mosaid Technologies , defeated by a white knight bid
from Sterling Partners.
The London Stock Exchange's failed in its attempt
to take over TMX Group , Canada's largest stock market
operator, after a rival bidder persuaded enough shareholders to
vote against the transatlantic deal.
Proxy fights gathered momentum in Canada over the past
decade in part because corporate governance reforms have made
it easier to influence boards.
In keeping with the trend, the number of proxy advisory
firms, which help activists garner support from major
shareholders, has risen from one to four since 2003.
"It's like an election campaign," said Brad Allen, the
senior vice-president at Laurel Hill Advisory Group. "Working
for our candidate, we help refine the message, identify the
constituency, reach out to determine sentiment, and develop
dynamic polling results so our client knows in advance where
they will likely end up at any point in time."
As global markets weaken, shareholder activism is picking
up steam in Canada after a slowdown. Experts predict 2012 might
even mirror 2009, when a global liquidity crunch led to 40
Canadian proxy contests, the most in a decade.
"There's an inverse correlation between stock performance
and proxy contest activity," said Allen. "As a result of the
mixed market currently we're seeing an increase in both proxy
contests and unsolicited offers."
U.S HEDGE FUNDS
Viterra, Canada's largest grain holder, announced plans
this month to replace two of its board members after its top
shareholder, the Alberta Investment Management Corp, called for
RIM, once a market darling, is under attack from a group of
investors led by Jaguar Financial , which says it is
leading a movement by shareholders representing more than 8
percent of RIM stock.
Jaguar is demanding sweeping change at the BlackBerry
maker, or a sale of RIM as a whole or in parts.
Daniel Batista, a partner with the Fasken Martineau law
firm in Toronto, attributes some of the growing appetite for
shareholder activism in Canada to more investment by U.S. hedge
funds with long experience in using activism as a tool to boost
"I really do believe that a big part of it has been that
the U.S. hedge funds have begun to come north of the border and
do business here, and they've brought their attitude and
style," said Batista.
Last month Pershing Square Capital Management said it had
acquired a 12.2 percent stake on Canadian Pacific, Canada's No.
2 railway, which had previously announced falling profits and
Other prominent U.S. hedge funds that have been involved in
proxy fights in Canada are Greenlight Capital, Passport
Capital, Palo Alto Investors and Icahn Partners LP, which
launched a failed bid and proxy battle against Lions Gate
Canada has had some 20 proxy fights so far this year, and
that excludes activist movements that were resolved without a
fight, according to data from several proxy advisory firms.
That roughly matches the 2010 number.
Wes Hall, president and founder of Kingsdale Shareholder
Services, expects the trend to keep gathering pace as investors
tire of watching companies sit on cash hoarded over the
"Shareholders look at that and say, either do a dividend or
do something, an acquisition or something, otherwise I'm going
to take charge of the board and I am going to do something with
that money," said Hall.