Thursday, December 12, 2013


Kathleen Keller-Hobson
Shareholder activism has become mainstream in Canada, as it has in the United States.  Though U.S. funds have not been as active in the Canadian market, in the last two years there have nonetheless been high profile proxy contests initiated by Pershing Square (in obtaining board and management change at CP), by Mason Capital (in attempting to block a share reorganization by TELUS Corporation) and by Jana Partners (in attempting to implement corporate change at Agrium).  Most recently, Icahn Enterprises’ acquisition of a 6% interest in Talisman Energy resulted in two of its nominees being added to the board without the need for a proxy contest.

Canadian corporate and securities laws are favourable to activists.  The following discussion highlights five key features of Canadian laws important to an activist in taking a position in a publicly-traded Canadian issuer:

1.  Early Warning Reporting

Acquiring 10% or more of the voting or equity securities of a Canadian issuer triggers a requirement to immediately file a press release with an early warning report to follow.  Further share purchases of 2% or more will again trigger the disclosure and reporting requirement.  Whenever a press release is issued, a one-day trading moratorium is imposed on the investor. 

There is also an alternative, monthly reporting system, which may be available to an activist fund which does not intend to make a takeover bid or seek effective control.  A report is required to be filed only if the threshold is exceeded as at a month end, and there is no trading moratorium.

Though the Canadian reporting threshold is higher than the U.S. 5% threshold, if the Canadian issuer is also listed on a U.S. exchange, 13D reporting will be triggered at the lower U.S. threshold.

2.  Wolf Packs

In Canada institutional investors have been more willing to support activists at the ballot box than join forces at the outset.   One overriding concern to an institutional investor is that it not be regarded as acting jointly or in concert with the activist.  As a joint actor, its shareholdings will be combined with those of the activist in calculating the threshold for early warning reporting (and it will also be subject to the trading moratorium) and it will be subject to other trading restrictions if material undisclosed information received by the activist from the issuer is passed on.  As well, the combined acquisition of 20% or more of the voting or equity securities of the issuer by the activist and joint actors can trigger a formal takeover bid requirement.

It is a question of fact whether shareholders are acting jointly or in concert. A recent court decision found cooperation among dissidents, including a group discussion with a proxy solicitation firm and the sharing of a draft dissident proxy circular, to be sufficient factors to make them joint actors. Note that an agreement among shareholders as to how to vote their shares will give rise to a presumption that they are joint actors.  Careful attention must therefore be paid as to whether a joint actor relationship is being created.

3.  Nominating Directors

Advance notice by-laws were adopted at a rapid rate starting in 2012, though there are still a significant number of issuers without them.  Individual elections for directors rather than slate voting are now required by the Toronto Stock Exchange and staggered or classified boards are prohibited. 
Whether it is appropriate for an activist to separately compensate its board nominees is the subject of debate.  Such an arrangement was proposed by Jana Partners in its proxy contest with Agrium, with the proposed compensation to be calculated by reference to the profit earned by Jana from its investment over three years.  The devil will be in the details in structuring these arrangements to appropriately balance objectives and concerns.

4.  Requisitioning Shareholder Meetings

Rather than wait for the next AGM to nominate directors, a 5% registered shareholder can requisition a shareholder meeting at any time.  About one-half of all proxy contests in Canada are initiated in this manner.  Once a requisition has been made, the directors have 21 days to determine a date for the meeting and if they fail to do so, the shareholder may convene the meeting.  However, the directors are not required to convene a  meeting if they have already taken certain action to convene another meeting, such as the AGM.  There are numerous court decisions which have addressed whether a board’s decision to defer to a later scheduled meeting is reasonable in the circumstances and whether the requisitioning shareholder would be materially prejudiced by the delay.  It is critical for the activist to show immediacy in its actions when requisitioning a meeting.

5.  Proxy Solicitation

Exemptions are available from the requirement to prepare a dissident proxy circular where proxies are being solicited from 15 or less shareholders or the solicitation is being conducted generally through the media, advertisements or speeches.  But to launch a full-blown proxy contest with direct contact with institutional and retail investors, a dissident proxy circular will be required.  The circular must be prepared following prescribed guidelines, though no regulatory review is required.

In the Jana Partners/Agrium proxy contest, Agrium offered soliciting brokers a fee for proxies collected in favour of management’s slate, payable only upon election of management’s slate.  This tactic attracted significant criticism both with respect to the use of corporate funds and the impact it had on brokers exercising their fiduciary duties.  Though not challenged in court, Canadian courts have broad equitable jurisdiction under corporate law statutes to remedy action by an issuer that is oppressive or unfairly prejudicial to a shareholder.

KathleenKeller-Hobson is a senior partner at Gowling Lafleur Henderson LLP in Toronto, with over 30 years of experience in public M&A, securities law and shareholder activism.

Wednesday, December 11, 2013

The Legal Determinants of Shareholder Activism: A Theoretical and Empirical Comparative Analysis

Dr. Dionysia Katelouzou
Dickson Poon School of Law
King's College London


This study is an enquiry into the legal determinants of the brand of shareholder activism associated with activist hedge funds and other shareholder activist funds. The Article pioneers a new approach to understanding the underpinnings and the role of hedge fund activism using a sequential model of four stages. An activist hedge fund first selects a target company that presents high-value opportunities for engagement (entry), accumulates a nontrivial stake (trading), then determines and employs its activist strategy (disciplining), and finally exits (exit). The article then identifies legal parameters for each activist stage and explains why the incidence, nature and evolution of activist campaigns differ across countries. The analysis is based on 432 activist hedge fund campaigns during the period of 2000-2010 across 25 countries. The findings suggest that the extent to which legal parameters matter depends on the stage which hedge fund activism has reached. I find that mandatory disclosure and rights bestowed on shareholders by corporate law are likely to dictate how commonplace hedge fund activism will be in a particular country (entry stage). Moreover, the examination of the activist ownership stakes reveals that ownership disclosure rules have important ramifications for the trading stage of an activist campaign. At the disciplining stage, however, shareholder protection seems to have little explanatory power. The analytical framework and the new evidence presented in this study can be a foundation for future empirical and policy analysis.

You can find the article at:

Monday, October 7, 2013

New Research: Shareholder Activism as a Corrective Mechanism in Corporate Governance


Paul Rose and Bernard S. Sharfman

Paul Rose is an Associate Professor of Law at The Ohio State University Moritz College of Law. Bernard S. Sharfman is a Visiting Assistant Professor of Law at Case Western Reserve University School of Law (Spring 2013 and 2014).


Under an Arrowian framework, centralized authority and management provides for optimal decision making in large organizations. However, Arrow also recognized that other elements within the organization, outside the central authority, occasionally may have superior information or decision making skills. In such cases, such elements may act as a corrective mechanism within the organization. In the context of public companies, this article finds that such a corrective mechanism comes in the form of hedge fund activism, or more accurately, offensive shareholder activism.

Offensive shareholder activism exists in the market for corporate influence, not control. Consistent with a theoretical framework where the value of centralized authority must be protected and a legal framework in which fiduciary responsibility rests with the board, authority is not shifted to influential but unaccountable shareholders. Governance entrepreneurs in the market for corporate influence must first identify those instances in which authority-sharing may result in value-enhancing policy decisions, and then persuade the board and/or other shareholders of the wisdom of their policies so that they will be permitted to share the authority necessary for the policies to be implemented. Thus, boards often reward offensive shareholder activists that prove to have superior information and/or strategies by at least temporarily sharing authority with the activists by either providing them seats in the board or simply allowing them to directly influence corporate policy. This article thus reframes the ongoing debate on shareholder activism by showing how offensive shareholder activism can co-exist with—and indeed, is supported by—Arrow’s theory of management centralization which explains and undergirds the traditional authority model of corporate law and governance.

Empirical studies have repeatedly shown that certain types of offensive shareholder activism lead to an increase in shareholder wealth. However, the results of empirical studies must be interpreted carefully so as not to overstate their informational value. Empirical research supports the argument that certain types of offensive shareholder activism have value, but it does not provide conclusive proof that they have value at any specific company at any specific time. Instead, the use of empirical evidence supporting offensive shareholder activism should be understood as providing proof that offensive shareholder activists may on occasion successfully rebut the presumption of the superiority of existing managerial strategies.

A full copy of this research report can be downloaded HERE

Wednesday, October 2, 2013

Schulte Roth & Zabel's 4th Annual Shareholder Activism Conference

Qualified Individuals Are Invited To Schulte Roth & Zabel's
4th Annual Shareholder Activism Conference
Thursday, October 3, 2013

2:30 pm | Registration
3:00 pm | Program
6:00 pm | Cocktails

The W New York
541 Lexington Avenue
New York City

Current Developments in Shareholder Activism
Chris Cernich, ISS
Damien J. Park, Hedge Fund Solutions
Michael E. Swartz, Schulte Roth & Zabel
Scott S. Winter, Innisfree M&A Incorporated

Institutional Proxy Voting
Donna F. Anderson, T. Rowe Price
Glenn Booraem, Vanguard Group, Inc.
Daniel H. Burch, MacKenzie Partners, Inc.
Zach Oleksiuk, BlackRock

Launching an Active Value Strategy
Scott Ferguson, Sachem Head Capital Management
J. Daniel Plants, Voce Capital Management
Daniel Silvers, Ader Investment Management
Darren C. Wallis, Active Value Investors

Current Activist Perspectives
Jesse Cohn, Elliott Management
Greg P. Taxin, Clinton Group, Inc.
David F. Trenchard, Knight Vinke

Keynote Presentation
Campaign Experience for a Non-Activist: TPG-Axon

Friday, January 25, 2013

Epic Battle of the Activists: Ackman vs. Icahn

There is no love lost between these two activist hedge fund managers:
Icahn and Ackman duke it out on CNBC.