The country has lagged the rising trend of activism seen globally, but that could be about to change, lawyers say. Some 53 Canadian companies faced activism campaigns in 2022, a 17.8% rise over the previous year, compared with a 10.6% rise in the U.S to 511, showed data from Insightia, a Diligent brand.
Last August, Canada changed federal laws allowing investors to vote 'for' or 'against' each director nominated to a company board. Previously, shareholders could only vote 'for' a candidate or 'withhold' their vote, meaning a majority was not legally a necessity. While not enshrined in law, majority voting was often adopted by companies in their policy, prior to the change. But directors previously faced no legal requirement to resign if they did not secure a majority of 'for' votes, said lawyers. "If I were an activist, this makes things easier," said Heidi Reinhart, partner at Norton Rose Fulbright. Reinhart said if an investor now calls for an 'against' campaign and secures enough votes, the person doesn't get elected. "So, I think there will be more targeted campaigns against specific directors. That gives some leverage to a shareholder," Reinhart added. While the rule change came in August, lawyers point out this is the first proxy season where the amendment will be tested. Next month, in activist campaigns from Luxor Capital Group and Sandpiper Group against Ritchie Bros Auctioneers and First Capital Real Estate Investment Trust (REIT) , respectively, both will face the scrutiny of fellow investors.
Luxor is opposing Ritchie Bros' $6 billion acquisition of IAA Inc while Sandpiper is aiming to overhaul First Capital REIT's board.
Activist hedge funds are likely to be further emboldened
after bets on M&A deals globally landed them an outsized 8.5%
gain in January, making them the best-performing strategy for
the month, after losing 17.23% on average in 2022, showed data
from Hedge Fund Research.
When it comes to wins and losses, however, only 22% of
public activist demands in Canada were at least partially
satisfied in 2022, lower than 26% in the U.S. and 34.1% in
Europe, according to Insightia.
Canadian campaigns were more successful in the preceding
four years, with a rate of 34% in 2021 and 43% in 2018.
A pick up in activism is expected to not only increase
transparency on deals, but drive stock performance.
In the case of Elliott Investment Management calling for
a strategic review and board changes at Suncor Energy Inc , for example, the stock has risen 56% since the activist
first announced its involvement in April.
By contrast, Canadian energy stocks rose 3.14%
over the same period.
And oil and mining companies could continue to be the sector
that faces activism, say market participants.
"There are a lot of resource companies (in Canada) and those
sectors often face dislocation and they're often facing
challenges in their business," said Adam Givertz, partner at law
firm Paul Weiss.
"Those challenges, (even) if they're a good company, can
attract the attention of an activist."
(Reporting by Maiya Keidan; Editing by Denny Thomas and Chizu
Nomiyama)
