Shareholder activists: coming to a Canadian company near you?

Many shareholder activists in the US are finding their way to Canada and are only too happy to find themselves in a seemingly lax regulatory environment for their pursuits.

That was the message at a seminar today at Goodmans, where a panel of two Canadian M&A lawyers at Goodmans (Stephen Halperin and Jonathan Lampe), two American business law lawyers (a litigator,  Marc Wolinsky, and an M&A lawyer, David Katz, both from Wachtell, Lipton, Rosen & Katz) and  corporate law professor (and NY Times columnist) Steven Davidoff spoke about the landscape for M&A in Canada and the US.

According to Stephen Halperin, the mantra among Canadian regulators on poison pills (a defense often used by companies against aggressive activist shareholders) has been “There comes a time that a pill has got to go.”

In other words, shareholder choice trumps all. But the shareholders’ rights approach taken by Canadian regulators, according to Jonathan Lampe, evolved to address the world as it used to be, and “we almost backed into this by accident while the world has changed.”

Now that there are more and more activist shareholders in Canada, where short term gain may be more of a priority in some instances than the long term health of a company, should Canadian regulators be revisiting their mantras?

The most recent example on everyone’s mind has been the aggressive action taken by to Bill Ackman to shakeup the management at Canadian Pacific Railway.

The US lawyers, who wondered whether Bill Ackman is in Canada simply because he has already “done his thing” in the US, advised that a Canadian company should engage with its shareholders early to avoid being blind sighted by an activist shareholder. You can then come with a plan to go on the offence by devising a considered, and thorough, response to whatever grievances an activist shareholder may be communicating to other shareholders. That way, you can gain the trust of your remaining shareholders by assuring them you do have a plan that will be in the long term interests of the company.

Steven Davidoff pointed out that many new tech companies in the US have structured their IPOs in a way to insulate themselves from shareholder activism – such as Facebook’s dual-class share structure structure or LinkedIn’s use of a staggered board.

Perhaps these structures will find their way to more and more companies in Canada along with the shareholder activists.

Tim Wilbur

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