Barry Rosenstein, who generally likes to position himself as
a friendly activist, has told Canadian fertilizer company
Agrium that he plans to launch a proxy fight. The founder of
hedge fund Jana Partners has proposed five director candidates
— including himself — for the board of
directors of the company.
How likely is he to succeed taking his activist show to
Canada? The odds may well be in his favor. Experts say he
— and other shareholder activists looking to do battle
with corporate management teams — has a better chance
taking on a company north of the border than in the United
States, thanks to several differences in Canadian rules and
regulations that make it easier to take on companies there than
in the U.S.
"The consensus is that it is easier for activists to succeed
against Canadian companies," says Patricia Olasker, a senior
partner at the Toronto law firm Davies Ward Phillips &
Vineberg, who represented Pershing Square Capital Management in
connection with its successful proxy fight against Canadian
A couple of recent examples bear this out, at least
anecdotally. Back in May all seven of Pershing
Square’s nominees were elected to Canadian
Pacific’s board several days after the chief
executive resigned and five other directors, including the
chairman, said they would not seek re-election.
And although the U.S. hedge fund Mason Capital Management
has suffered some setbacks in its battle with Canadian wireless
telecommunications company Telus, it did win a victory last
month in the British Columbia Court of Appeals. The court
overturned a provincial Supreme Court ruling that prevented
Mason from calling its own shareholder meeting.
Olasker believes the regulatory environment tips the playing
field toward these activists. For example, investors in Canada
can also act in a stealthier way than they can in the U.S. For
one thing, they are not required to announce an ownership stake
until they acquire at least 10 percent of the shares, compared
with 5 percent in the U.S. And although they are required to
make this announcement immediately or within one day, depending
upon the situation (compared with 10 days in the U.S.), there
is an exception.
If the shareholder is eligible to use what is called the
Alternative Monthly Reporting System, it can file the report
within 10 days of the end of the month in which the 10 percent
threshold is crossed, Olasker explains. You just need to be
what is called an eligible institutional investor. And who can
qualify for this status? Mutual funds, pension funds and, yes,
hedge funds that are managed by a registered investment
Another stealthy rule allows investors to nominate directors
without providing advance notice under certain circumstances.
Unlike in the U.S., where dissidents must send out their own
separate proxy, which could become expensive, dissidents in
Canada can avoid sending a proxy circular to shareholders if
they solicit no more than 15 investors.
"In some instances in the past, dissidents have quietly
conducted limited solicitations of proxies from a smaller
number of large shareholders and ambushed management at an
annual meeting by nominating their own alternative slate of
directors from the floor without any prior warning," says
And another provision makes it easier for a shareholder to
swoop in at the last minute and influence an annual meeting. It
seems in several provinces of Canada, anyone who purchases
shares after the record date can vote at the meeting under
Also, shareholders with just 5 percent of the voting shares
can call a special shareholder meeting. This is what Mason was
finally able to do. "This is a very effective tool," says
Olasker, adding that it is used often.
Canada also has a version of proxy access. Under its rules,
any shareholder holding at least 1 percent of the outstanding
voting shares — and has held them for at least six
months prior to the shareholder submitting the proposal
— or whose fair market value is at least $2,000 can
propose their own director nominees.
And unlike in the U.S., it is rare to see a classified board
in Canada, whereby directors serve multi-year terms and only a
handful can be elected in any given year, making it difficult
to take control of a board in a single year. This is because in
Canada, shareholders can by simple majority vote to remove one
or more directors from office and elect their replacements.
Olasker also thinks short slate proposals — which
historically have not been popular — may become more
prevalent in light of Pershing Square’s success at
Canadian Pacific. This involved putting up candidates for
several board positions rather than trying to replace the
Rosenstein did not respond to requests for comment on the
Agrium matter. But clearly his move on the company is part of a
larger trend toward activism in general. According to Kingsdale
Shareholder Services, over the past 10 years, the number of
proxy contests has risen from five in 2003 to 21 in 2011, with
two extreme spikes in the number of contests in 2008 and 2009.
So far this year there have been 32.
What’s more, the success rate for dissidents
has increased, Olasker points out. She says the biggest reason
is that the wider shareholder community is becoming more
receptive to the efforts of shareholder activists, in part
because of an evolution away from the so-called corporate
raider tactics, made popular in the 1980s and revived in the
last decade, in favor of gentler tactics.
In any case, Olasker is bracing for more U.S. activism in
Canada. "We are all getting more inquiries from U.S. hedge
funds interested in Canadian situations," she says.