2014 Canadian
Proxy Contest
U P D A T E Study
1
One of our principal objectives in producing the Fasken Martineau 2013
Canadian Proxy Contest Study was to advance our understanding of the factors
that influence the initiation, conduct and outcome of proxy contests in Canada.
To that end, our analysis of five years’ worth of data identified a number of issues
for consideration and flagged several apparent trends for ongoing observation.
2013 shed additional light on some of these issues and trends and even raised a
few new issues for further thought. Among the highlights of last year’s Canadian
market experience in proxy contests were the following:
1. 2013 witnessed a 41% decrease in the number of proxy contests from 2012;
however, the mining sector remained active.
2. Fewer contests or not, management had little opportunity to rest easy in
2013: dissidents had their best year since 2009, succeeding in two-thirds of
Board-Related Contests.
3. Institutional shareholders weren’t the only ones able to throw their
weight around in the boardroom: retail shareholders achieved striking
success in 2013.
4. Seeking a clean sweep of the boardroom became an almost universally
adopted tactic in 2013 – and the tactic appeared to pay off for dissidents.
5. The rate of settlements almost doubled in 2013. And parties settled much
earlier in the process.
Year in
Review
2013
2
1. 2013 witnessed a 41% decrease in the number of proxy
contests from 2012; however, the mining sector remained
active.
A total of 16 formal proxy contests were completed in Canada in 2013,
representing a 41% decrease from the 27 proxy contests completed in 2012.
Board-Related Contests decreased 35%, from 23 in 2012 to 15 in 2013.
Of course, by itself, this does little to call into question the commonly held
belief, confirmed by our study, that proxy contests have generally been on the
rise in Canada. 2012, after all, was an especially active year for proxy contests
in Canada, yielding by far the greatest number of contests over the preceding
ten-year period. In addition, while the number of proxy contests completed
last year was 20% lower than the annual average of 20 contests completed
from 2008-2012, it was still 45% higher than the average of 11 proxy contests
completed per year during the five-year period ended 2007. Nor did 2013
set the low-water mark for proxy contest activity in recent years. Both 2010
and 2011 saw significantly (20%) fewer Board-Related Contests than 2013 and
2010 saw fewer contests (14) overall.
Proxy Contests per Year
2008-2013
(117 Contests)
Transaction-Related Board-Related
0
5
10
15
20
25
30
21
2
2008
19
2
2009
12
2
2010
12
4
2011
15
1
2013
23
4
2012
3
We suggested in our study that the relative dearth of proxy contest activity
in Canada in 2010 and 2011 might be explained in part by the fact that
those years came on the heels of strong stock market performance in the
immediately preceding year.1 Not so in the case of 2013, which followed a
disappointing 2012 for both the S&P/TSX Venture Composite Index (down
17.7%) and the S&P/TSX Composite Index (up 4.0%, but among the world’s
worst performing major stock markets for the year2). One might have expected
more proxy contest activity in 2013 in light of those returns – maybe not as
much activity as in 2012, which followed an even more disappointing 2011 for
both the TSX (down 11.1%) and the TSX Venture (down 35.1%), but enough
to easily outpace 2010 and 2011 (years in which investors had far less cause
for dissatisfaction).3
Indeed, viewed from the perspective of market returns, the shortage of formal
proxy contests in 2013 presents something of a puzzle. If the comparative
quietness on the proxy contest front witnessed during 2013 cannot be explained
on the basis of investor satisfaction with recent stock market performance,
is there some other explanation? If not, is it suggestive of a more general
retrenchment in the level of proxy contest activity that the Canadian market
can expect going forward? Or is it perhaps nothing more than an inexplicable
anomaly that offers little insight into what the future might hold?
The answer may lie in a simple refinement to our working hypothesis that the
number of proxy contests completed in any given year is a lagging indicator of
stock market returns.4 One industry in which the number of proxy contests was
more in line with expectations was mining. In fact, the 9 Board-Related Contests
involving mining targets in 2013 matched the annual average of Board-Related
Contests involving mining targets from 2008-2012. This, combined with the
fact that the total number of Board-Related Contests in 2013 (15) was roughly
14% lower than the average annual number of Board-Related Contests during
the study period (17), resulted in mining companies being disproportionately
targeted in proxy contests to an extent not previously witnessed during the
study period. To be precise, mining companies represented fully 60% of the
issuers targeted in Board-Related Contests in 2013, while comprising only 43%
of the issuers listed on the TSX and TSX Venture.5
1. As noted in our study, the sharp decrease in the number of proxy contests in 2010 followed a strong 2009 for both the S&P/TSX
Composite Index (up 31.2%) and the S&P/TSX Venture Composite Index (up 87.3%). Similarly, the small number of contests
in 2011 followed annual returns for 2010 of 13.5% by the S&P/TSX Composite Index and 49.4% by the S&P/TSX Venture
Composite Index.
2. http://www.cbc.ca/news/business/tsx-among-world-s-worst-stock-markets-in-2012-1.1246138.
3. D ata sourced from the TMX website at TMX.xa.
4. Fasken Martineau 2013 Canadian Proxy Contest Study - http://www.fasken.com/en/canadian-proxy-contest-study_e/.
5. By way of comparison, and as indicated in our study, mining companies represented 51% of the issuers targeted in
Board-Related Contests during the study period, while comprising 44% of the issuers listed on the TSX and TSX Venture
during that period.
4
A closer inspection of 2012 stock market returns indicates that analyzing
returns by industry may well have been appropriate. The reality is that
weakness in mining stocks during 2012 was largely responsible for causing the
heavily-weighted “materials” sector to dampen what were otherwise fairly
solid returns for the year on the S&P/TSX Composite Index. Many other sectors
of the S&P/TSX Composite Index yielded total returns in the double digits.5
This may explain why 2013 continued to see the expected level of proxy contest
activity in the mining industry while witnessing a drop-off in the number of
proxy contests more generally. If so, it indicates the need for a more nuanced
version of last year’s hypothesis that proxy contests are a lagging indicator
of stock market returns: one which is based on an analysis of sectoral returns
rather than market returns as a whole.
Mining Proxy Contests per Year
2008-2013
(59 Contests)
Transaction-Related Board-Related
9
2008
11
2009
5
2010
7
2011
9
2013
12
2012
0
2
4
6
8
10
12
14
2
1
1
1
1
5. Capital IQ.
5
2. Fewer contests or not, management had little opportunity
to rest easy in 2013: dissidents had their best year since 2009,
succeeding in two-thirds of Board-Related contests.
In our study we suggested that “the success rate achieved by dissidents in
waging proxy battles may be of even greater concern in boardrooms across
Canada than the rise in the number of proxy contests...”.6 2013 provided
further support for the proposition that it’s not principally the number of
proxy contests that should be keeping management up at night, but how well
dissidents are doing. Whatever the drop-off in proxy contest activity in 2013,
there was certainly no drop-off in dissident success rates. In fact, dissidents
achieved success a striking two-thirds of the time in Board-Related Contests,
a substantial improvement over their 54% success rate for the study period as
a whole and 2012 in particular. Accordingly, dissidents appear to have been
rewarded for shrewdness in selecting targets, finding common cause with
their fellow shareholders when they ultimately did pull the trigger.
6. Fasken Martineau 2013 Canadian Proxy Contest Study - http://www.fasken.com/en/canadian-proxy-contest-study_e/.
6
3
9 10
2
10
2008
6
2010
8
2
2
2011
11
7
5
2012
5 6
4
2013
Wins by Year
2008-2013
(117 Contests)
Management Win Dissident Win Dissident Partial Win
0
2
4
6
8
10
12
14
16
18
20
2009
5
1
6
In 2013, dissidents
achieved success a
striking two-thirds
of the time.
7
The overall success rate of 67% in 2013 was just below the 68% success rate
achieved by dissidents in 2009, in the immediate aftermath of the financial
crisis, and higher than their success rate in all other years of the study period.
The improvement in overall dissident success came principally in the form of
partial wins as their outright win rate remained more or less constant (40%
in 2013 compared to 39% during the study period). As was true throughout
the study period, dissident partial wins in 2013 were always the result of
settlements. (We’ll have a bit more to say about this later.)
Win Rate
2008-2012
(87 Contests)
39%
Dissident Win
15%
Dissident Partial Win
46%
Management Win
Win Rate
2013
(15 Contests)
40%
Dissident Win
27%
Dissident Partial Win
33%
Management Win
3. Instit utio nal shareholders weren’t the only ones ab le
to throw their weight around in the boardroom:
Retail shareholders achieved striking success in 2013.
One of the more startling features of last year’s impressive record of dissident
success is that it was achieved without needing to ride the coattails of
dissidents in the “Institutional/Financial” category. This is not to suggest that
“Institutional/Financial” dissidents were unsuccessful in 2013. In fact, by the
standards of recent history, dissidents in the “Institutional/Financial” category
had a very active and successful year in 2013: 53% of all Board-Related
Contests in 2013 were initiated by dissidents in the “Institutional/Financial”
category and their overall success rate in those contests was 63%. By way of
comparison, they initiated 45% of all Board-Related Contests from 2008-2012,
with an overall success rate of 57%. It’s just that dissidents in other categories
were even more successful last year.
During our five-year study period, dissidents in the “Management/Founder”
category were by far the most successful, with a staggering outright win rate
of 60% and an overall success rate of 64%. 2013 built on the track record
of success of these dissidents and, to that extent, their perfect record was
not overly surprising (though they were significantly less active last year than
usual, initiating only 13% of Board-Related Contests compared to 29% during
the study period).
8
Dissident Win Rate
by Dissident Type
2013
(15 Contests)
100%
Management/
Founder
(2)
Strategic
(1)
50%
25%
Non-Institutional
(4)
38%
Institutional/
Financial
(8)
25%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dissident Win Dissident Partial Win Average
9
What does raise eyebrows is the success of dissidents in the “Non-Institutional”
category – essentially, retail investors. Their overall success rate of 75% was a
substantial improvement over their performance during the study period, in
which they achieved success less than half the time. Of course, it was only one
year and a mere four proxy contests: enough to make for a relatively active
year for “Non-Institutional” dissidents, who initiated 27% of Board-Related
Contests in 2013 compared to 17% during the study period, but clearly not
enough to justify drawing any conclusions. Still, if nothing else, the success
of “Non-Institutional” dissidents in 2013 provided a salutary reminder that
no activist investor, regardless of size or perceived sophistication, should be
taken lightly.
4. s eeking a clean sweep of the boardroom became an almost
universally adopted tactic in 2013 – and the tactic appeared
to pay off for dissidents.
Dissidents nominated a full slate in 92% of Board-Related Contests in 2013
(excluding the two contests in which a short slate was nominated due to the
issuer’s staggered board), a tactic that was used 67% of the time during the
five-year study period.
92%
Full Slate
8%
Short Slate
Full vs.
Short Slate
2013
(13 Contests)
Last year we expressed mild surprise at what then seemed a high proportion
(67%) of Board-Related Contests during the study period in which the dissident
nominated a full slate. We might have expected a preponderance of short slate
nominations given the increased complications attendant upon nomination
of a full slate, including potential change of control issues and enhanced
scrutiny from proxy advisory firms, not to mention the significant ask involved
in prevailing upon other shareholders to disrupt all continuity in strategic
direction by completely overhauling the issuer’s mind and management. Even
with all these attendant issues, dissidents nominating a full slate achieved
greater success when doing so, enjoying an overall success rate of 57% during
the study period compared to a success rate of 48% for those nominating a
short slate. The difference, as we noted in our study, was principally in the
higher percentage of partial wins that was associated with nomination of a
full slate (17%) as opposed to a short slate (10%). Given that partial wins were
invariably the result of settlements, we hypothesized that nomination of a full
slate – effectively, setting up a “winner takes all” scenario in which each side
was faced with the prospect of having all of its director nominees rejected –
may have pressured management to cede to some of the dissidents’ demands.
2013 appears to have provided support for last year’s hypothesis. With the
increased use of full slates, dissident success rates reached close to record highs
in 2013. As the graphic below illustrates, their success rate of 75%, relative to
the 48% success rate achieved during the study period in which they nominated
a short slate, was again chiefly attributable to partial wins.
10
Dissident Win Rate
Full vs. Short Slate
2013
(13 Contests)
50%
25%
Full Slate
(12)
Short Slate
(1)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dissident Win Dissident Partial Win Average
11
Since dissident partial wins in 2013 (as in the study period) were always the
results of settlements, a potential pay-off from nominating a full slate appears
to have been that it pressured management to settle. But of course, if that
was the case, then we should expect the rate of settlements to have increased
dramatically in 2013 given that full-slate nomination by dissidents became a
near-universal practice. As it happens …
Dissident Win Rate
Full vs. Short Slate
2008-2012
(87 Contests)
40%
17%
38%
10%
Full Slate
(58)
Short Slate
(29)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dissident Win Dissident Partial Win Average
5. The rate of settlements almost doubled in 2013. and parties
settled much earlier in the process.
One-third of Board-Related Contests ended with an announced settlement in
2013, compared to 18% of Board-Related Contests from 2008-2012.
In light of the considerations discussed in the previous section, it is not
unreasonable to suppose that the near-universal adoption of full-slate
nominations by dissidents was partly responsible for this increase in the rate
of settlement. Increased media attention on proxy contests in the past few
years has almost certainly also exerted an influence on settlement rates by
converting the possibility of a clean sweep of the boardroom into the threat
of a very public and humiliating defeat.
12
67%
No Settlement
33%
Settlement
Settled
Contests
2013
(15 Contests)
82%
No Settlement
18%
Settlement
Settled
Contests
2008-2012
(87 Contests)
13
60%
Before Proxy
Deposit Deadline
40%
On or After Proxy
Deposit Deadline
Settlement
Timing
2013
(5 Contests)
For its part, management seems to be responding to these pressures, not only
by settling more often but by settling more quickly. 60% of settlements in
2013 occurred prior to the proxy deadline, roughly twice the percentage of
settlements that arose before the proxy deadline in our five-year study period.
The upshot of this is that, unlike in past years, management did not typically
wait for preliminary visibility on voting results before settling in 2013. This is
interesting in and of itself. It may suggest a softening of the historic tendency
of management to fight to the bitter end (or at least until preliminary voting
results gave reason to believe that the end would be bitter). Alternatively,
or in addition, it may be that management is improving in its ability to read
shareholder sentiment in a more timely and accurate fashion.
31%
Before Proxy
Deposit Deadline
69%
On or After Proxy
Deposit Deadline
Settlement
Timing
2008-2012
(16 Contests)
14
2013 Board-Related Contests
TARGET NAME TARGET
INDUSTRY
TARGET
MARKET CAP
OUTCOME OF CONTEST
Agrium Inc. Diversified
Industries
Mid/Large Cap Management Win
Atikwa Resources Inc. Energy Micro Cap Management Win
Auro Resources Corp. Mining Micro Cap Dissident Win
Bioniche Life Sciences Inc. Life Sciences Micro Cap Dissident Partial Win
Boss Power Corp. Mining Micro Cap Management Win
Formation Metals Inc. Mining Micro Cap Management Win
Genesis Land Development
Corp.
Diversified
Industries
Small Cap Dissident Partial Win
Intrepid Mines Limited Mining Small Cap Management Win
Intrinsyc Software
International, Inc.
Technology Micro Cap Dissident Partial Win
Majestic Gold Corp. Mining Small Cap Dissident Win
MFC Industrial Ltd. Mining Mid/Large Cap Dissident Partial Win
Oremex Silver Inc. Mining Micro Cap Dissident Win
PacificOre Mining Corp. Mining Micro Cap Dissident Win
Partners Real Estate
Investment Trust
Diversified
Industries
Small Cap Dissident Win
Selwyn Resources Ltd. Mining Micro Cap Dissident Win
2013 Transaction-Related Contests
TARGET NAME TARGET
INDUSTRY
TARGET
MARKET CAP
OUTCOME OF CONTEST
KEYreit Diversified
Industries
Small Cap Management Win
Appendix - Proxy Contests
15
About Our Study
For information on our methodology, please see “About Our Study” in our
2013 Canadian Proxy Contest Study. Consistent with the approach in our 2013
Canadian Proxy Contest Study, we reviewed only those proxy contests in which
a dissident formally solicited proxies. Accordingly, we include all contests in
which a dissident prepares and files a proxy circular on SEDAR.
Authors
Aaron J. Atkinson
Partner
+1 416 865 5492
[email protected]
Aaron’s practice is focused
on mergers and acquisitions,
corporate governance
and corporate finance.
Aaron’s practice includes
advising boards and board
committees, including
in contested take-over
transactions, proxy contests,
internal investigations and
day-to-day governance
issues. Aaron also organizes
and teaches a course in
corporate finance and M&A
at the University of Windsor
Faculty of Law. Aaron is
recognized in Chambers
Global: The Guide to the
World’s Leading Lawyers
for Business as a leading
lawyer for Corporate/M&A
and in 2013 was a recipient
of Lexpert’s “Rising Stars:
Leading Lawyers Under 40
Award”.
Daniel Batista
Partner
+1 416 868 3423
[email protected]
Dan, a recipient of Lexpert’s
“Rising Stars: Leading
Lawyers Under 40 Award”,
has an M&A focused
transactional practice that
includes advising boards,
special committees and
management on a wide
range of strategic, corporate
and regulatory matters.
He provides counsel on
mergers and acquisitions,
proxy battles, public
offerings and private
placements of equity and
debt securities, corporate
governance matters, stock
exchange requirements and
other regulatory matters.
Dan also serves as a sessional
instructor at the University
of Windsor Faculty of Law
where he teaches a course in
corporate finance and M&A.
Bradley A. Freelan
Partner
+1 416 865 4423
[email protected]
Brad’s practice is focused on
mergers and acquisitions,
proxy contests and corporate
finance. Brad has been
involved in a number of
contested transactions,
including hostile take-over
bids, topping bids and
proxy contests, and also
has significant experience
representing acquirors and
targets in connection with
negotiated transactions. Brad
also regularly acts for issuers
and investment dealers in
connection with public and
private financings, including
cross-border and international
offerings. Brad also serves as
a sessional instructor at the
university of Windsor Faculty
of Law where he teaches a
course in corporate finance
and M&A.
We wish to acknowledge the tremendous effort of our associates, students and clerks who
devoted many hours to make this publication possible, including Andrea Kruyne, David Steinhauer,
and Jack Yu.
We also wish to acknowledge and extend our thanks to our partners who provided their helpful
thoughts and feedback including Richard Steinberg and Niko Veilleux.
16
Fasken Martineau is a leading international business law and
litigation firm. Tracing our roots back to the mid-1800s, we now have
more than 770 lawyers with offices in Vancouver, Calgary, Toronto,
Ottawa, Montréal, Québec City, London, Paris and Johannesburg.
Fasken Martineau lawyers are regularly ranked for their expertise and
experience by Chambers & Partners, International Financial Law Review,
The International Who’s Who of Business Lawyers, Canadian Legal Lexpert
Directory, Legal 500 and others. The firm operates in English and French in
common law and civil law jurisdictions worldwide.
For additional information, please visit the firm’s website at
www.fasken.com. Copies of this and other Fasken Martineau publications
are available at www.fasken.com/en/publications.
About Fasken Martineau
Vancouver
2900-550 Burrard Street
Vancouver, British Columbia
Canada V6C 0A3
Tel: +1 604 631 3131
Fax: +1 604 631 3232
[email protected]
Calgary
3400 First Canadian Centre
350-7th Avenue SW
Calgary, Alberta
Canada T2P 3N9
Tel: +1 403 261 5350
Fax: +1 403 261 5351
[email protected]
Toronto
333 Bay Street, Suite 2400
Bay Adelaide Centre, Box 20
Toronto, Ontario
Canada M5H 2T6
Tel: +1 416 366 8381
Fax: +1 416 364 7813
[email protected]
Ottawa
55 Metcalfe Street, Suite 1300
Ottawa, Ontario
Canada K1P 6L5
Tel: +1 613 236 3882
Fax: +1 613 230 6423
[email protected]
Montréal
Stock Exchange Tower
P.O. Box 242, Suite 3700
800 Victoria Square
Montréal, Québec
Canada H4Z 1E9
Tel: +1 514 397 7400
Fax: +1 514 397 7600
[email protected]
Québec City
140, Grande Allée Est, Suite 800
Québec City, Québec
Canada G1R 5M8
Tel: +1 418 640 2000
Fax: +1 418 647 2455
[email protected]
London
17 Hanover Square
London, United Kingdom
W1S 1HU
Tel: +44 20 7917 8500
Fax: +44 20 7917 8555
[email protected]
Paris
32 avenue de l’Opéra
Paris, France 75002
Tel: +33 1 44 94 96 98
Fax: +33 1 44 94 96 99
[email protected]
Johannesburg
Inanda Greens, Building 2
54 Wierda Road West
Sandton
PO Box 652057 Benmore 2010
South Africa
Tel: +27 11 784 7322
Fax: +27 11 784 4572
[email protected]
VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG
www.fasken.com
