After a lengthy, acrimonious and costly proxy contest to remove three directors of Taseko Mines Limited (“Taseko”) and elect its own nominees, in early May, 2016, activist investor Raging River Capital LP (“Raging River”) withdrew its shareholder meeting requisition just days before the scheduled meeting date, citing insufficient shareholder support. The Raging River campaign highlights some important lessons for boards of directors facing a dissident attack.

Raging River Requisitions Shareholder Meeting

On January 13, 2016, Raging River, a holder of 5.1 percent of Taseko’s shares, delivered a notice to Taseko requisitioning a shareholder meeting to vote on a special resolution (66 2/3 percent of votes represented at the shareholder meeting) to remove three incumbent Taseko directors and replace them with four Raging River nominees, while also increasing the number of directors to nine from eight. Alternatively, if the special resolution was not passed, Raging River asked Taseko shareholders to pass an ordinary resolution (50.1 percent of votes represented at the shareholder meeting) to set the number of Taseko directors at 12 and elect four Raging River nominees.

Raging River was a newly formed entity with no mining assets or operations and had begun accumulating its Taseko shares only two weeks prior to delivering the meeting requisition. In its initial press release announcing the requisition, Raging River indicated that it had retained a prominent activist law firm as its legal advisor and a prominent proxy advisor as its strategic and communications advisor and proxy solicitor.

Raging River Uses Aggressive Litigation Strategy

While some rhetoric is to be expected in proxy contests, Raging River used an aggressive litigation strategy in its campaign to defeat Taseko’s board. Raging River’s tactics included publicly stating that it was commencing a defamation lawsuit “with the objective of elevating the tenor of the debate”. According to Taseko, Raging River failed to respond to a request from Taseko’s counsel to provide particulars of the alleged defamation and, based on the public disclosure, it appears that Raging River ultimately did not follow through with this threatened lawsuit.

Similarly, Raging River issued press releases asking the securities regulators to investigate whether certain officers of Taseko had engaged in improper insider trading, which was subsequently the subject of a defamation action by those officers against Raging River. Raging River also sought a court order to commence a derivative action on behalf of Taseko against certain directors of Taseko and other related parties.

Raging River Trumpets Overwhelming Support

As the proxy contest continued against this backdrop, Raging River claimed that its campaign had received “overwhelming expressions of support from Taseko shareholders” and that it was “humbled by the overwhelming support [it] has received from many shareholders”, including one shareholder holding 3.92 percent of the Taseko shares. Raging River also trumpeted that “early public support for new independent shareholder nominees is already at 10.2 percent.” Raging River’s subsequent public disclosures reference an “outpouring” of support and thank “shareholders for their overwhelming support” for Raging River’s board nominees.

Taseko’s Response

The Taseko board, for its part, focused on Taseko’s future prospects and on rebutting Raging River’s claims regarding Taseko. The Taseko board also sought to discredit Raging River, claiming that it had made certain disclosure deficiencies and arguing that Raging River was in a position of conflict as both a shareholder and significant bondholder of Taseko, as its economic interest in Taseko’s bonds significantly outweighed its equity interest in Taseko.

Further, Taseko sought and obtained a preliminary injunction against Raging River in the United States, requiring Raging River to correct its Schedule 13D filings. Raging River ultimately made five Schedule 13D filings under United States securities laws, with four such filings needed to correct or complete information that Raging River was required to disclose when it filed its initial Schedule 13D shortly before initiating the proxy contest.

In addition, Taseko was able to convince independent proxy advisors, Glass Lewis & Co. and Institutional Shareholder Services Inc., to recommend in favour of management and against Raging River. Glass Lewis agreed with Taseko that Raging River was conflicted as a significant holder of Taseko bonds and that its nominees were “questionably weighted in terms of applicable industry experience.” Glass Lewis also found that Raging River’s “primary arguments seem to generally rely on absolute references, obscured methodologies and, in some cases, inaccurate or wholly unsupported data points.” Similarly, Institutional Shareholder Services concluded that Raging River “had not made a compelling case for change”.

Raging River Withdraws its Shareholder Meeting Requisition

On May 6, 2016, just days before the May 10, 2016, shareholder meeting, Raging River announced that it had “determined that we will fall short of the 66 2/3 threshold required under B.C. law to remove conflicted directors. As such, we have withdrawn our current special meeting requisition.” Raging River’s press release made no mention of the alternative proposal it put to Taseko shareholders to increase the size of the Taseko board and elect Raging River’s nominees, which would only have required 50.1 percent of the votes cast at the shareholder meeting.

According to a press release issued by Taseko on May 9, 2016, well over 50 percent of Taseko shareholders voted using the management proxy, with over 94 percent of the shares voted against Raging River’s proposals. Raging River’s claims of “overwhelming support” from shareholders were not made out.

In the same release, Taseko also disclosed that the defense costs for Raging River’s lawsuit, regulatory complaint and proxy contest were expected to be approximately $4.5 million.

Lessons for Boards Facing a Dissident Attack

The Raging River campaign highlights some important lessons for boards of directors facing a dissident attack:

  • In most provinces dissidents can solicit proxies from up to 15 shareholders without first issuing a dissident proxy circular, whereas the target company cannot solicit proxies without first issuing a management proxy circular. This 15 shareholder exemption provides a potential significant tactical advantage to dissidents. Because dissidents often have dialogue with other shareholders before launching proxy contests, dissidents often claim to have significant shareholder support that may not in fact exist.
  • Raging River’s proxy contest was a shock and awe campaign designed to force concessions from Taseko, trumpeting the participation of prominent advisors and claiming shareholder support that proved to be illusory. Boards should resist being stampeded by exaggerated dissident claims and aggressive dissident tactics.
  • Far too often, boards may be overwhelmed by experienced activists and false claims of support, and are too quick to seek a resolution to avoid a potentially protracted battle. Boards should consider the longer-term strategic consequences and canvass shareholders to determine their level of support before settling with a dissident.
  • The Taseko board was right to get its management proxy circular filed well before the shareholder meeting. Until a circular is filed, boards are constrained by applicable securities laws in communicating with shareholders to assess shareholder support for management in a contested shareholder meeting. Once the circular is filed the target can solicit proxies, gauge support for the incumbent board and test the veracity of the dissident’s claims of support. By having better information, the board can make a more informed decision about how to respond to a dissident attack.
  • Obtaining the support of independent proxy advisory services, such as Glass Lewis & Co. and Institutional Shareholder Services Inc., often proves to be a critical factor in fending off a dissident, particularly if the issuer has a large institutional shareholder base that is strongly influenced by proxy advisory service recommendations.
  • Although Taseko was successful in fending off a dissident attack, defending itself from Raging River came at a significant cost to Taseko and its shareholders, estimated to be $4.5 million.