Corporate governance, shareholder activism, and hostile M&A - key developments in 2017 and a look ahead in 2018

Transcription

1 Corporate governance, shareholder activism, and hostile M&A - key developments in 2017 and a look in 2018 Orestes Pasparakis, Co-Chair, Special Situations Team Walied Soliman, Co-Chair, Special Situations Team March 8, 2018

2 Speakers Orestes Pasparakis Partner Toronto Norton Rose Fulbright Canada LLP Walied Soliman Partner I Chair, Canada Toronto Norton Rose Fulbright Canada LLP walied.soliman@nortonrosefulbright.com 2 I

3 Trends in shareholder activism Canada is one of the top 3 jurisdictions globally for number of public activist campaigns Data for chart and bullet 1 from Activist Insight, Activist Investing Annual Review 2018 Shareholder activism globally and in Canada remain extremely strong US $62 billion deployed in activist campaigns in 2017, which is twice the amount in 2016 (Financial Times) 3

4 Trends in shareholder activism In 2017, activists enjoyed more success Management vs. activist wins in proxy contests Activist Win or Partial Win Management Win Data for chart from Kingsdale Advisors, Proxy Season Review As of Aug 31, As of that date, outcome in 1 proxy contest was TBD. Relatively strong returns for activist funds According to evestment, hedge funds with activism as their primary strategy had average aggregate returns of 8.49% in 2017, placing activism in the top 3 strategies 4

5 Trends in shareholder activism In the US, management appears less willing to settle, but this trend has not taken hold in Canada US In campaigns where boards said they would not add the activist nominees, only 21% then settled, down from 33% in 2016 and as high as 37% in 2014 (Activist Insight) In 2017, more high-profile, large-cap fights taken to votes: Trian vs. P&G, Pershing Square vs. ADP Canada Less disclosure than the US Increased settlements based on realistic outcomes 5

6 Trends in shareholder activism Key observation for activists in 2018: Activists are enjoying particular success where they make modest demands, such as seeking to install a short slate (ie. not a majority of the board) In the first 8 months of 2017, while the majority of activists campaigning for board seats sought majority representation, those seeking short slates in Canada enjoyed a 100% success rate, vs. 73% for those seeking a majority (Kingsdale) Key observation for issuers in 2018: Repelling an activist in the past does not make a company permanently immune In the 12 months ending June 30, 2017, approximately 20% of companies targeted in the US had been targeted by an activist during the proxy seasons (JP Morgan) 6

7 Value of Announcements ($Bn CAD) Number of Announcements Trends in M&A and hostile M&A More Canadian deals than last year, but lower overall value Deals involving Canadian parties Deal Value Deal Count Data for chart from Crosbie & Company, Canadian M&A Report Q Deals included are all M&A deals involving a Canadian party as a material counterparty. 7

8 Deal Value ($Bn USD) Deal Count Trends in M&A and hostile M&A Canada s outbound deal activity continues to exceed inbound Canadian deal activity: inbound and outbound Inbound Value Outbound Value Inbound Deal Count Outbound Deal Count Data for chart from Mergermarket, Canada Trend Report Q1-Q

9 Trends in M&A and hostile M&A Hostile M&A activity has remained strong since the adoption of new Canadian takeover bid rules in May hostile bids since adoption of new rules Key observation for bidders in 2018: Get hard lock-ups early Key observation for targets in 2018: Creative defensive tactics will have an increased role 9

10 Marquee cases in 2017 Eco Oro (OSC, June 2017) After dissidents had launched a proxy contest, management applied to the TSX for approval of a private placement Hearings at the TSX, BCSC, OSC The OSC declined to defer to the TSX s or BCSC s decision, and prevented those shares from being voted at the meeting unless shareholder approval was obtained for the issuance The takeaway: Much recent case law suggests securities regulators will be reluctant to overturn exchange approval (Dolly Varden, Hemostemix) But is this an expansion of commission remedies? Winning requires more 10

11 Marquee cases in 2017 CanniMed/Aurora (OSC, December 2017) Aurora launched unsolicited bid for CanniMed Aurora had signed hard lockups with holders of ~38% of CanniMed s shares CanniMed then entered into an arrangement agreement to acquire Newstrike with CanniMed shares, adopted poison pill Outcome: OSC cease-traded pill, ordered Aurora to amend bid disclosure to contain certain information obtained from Aurora insiders The takeaway: Controversial deal protections (eg. hard lock-ups) may be ok under new regime, but regulators may frown on tactical pills Bidders fighting tough to get the prize pay a price 11

12 Marquee cases in 2017 Sandpiper/Agellan REIT (September-November, 2017) Agellan announced it was entering into a transaction Sandpiper requisitioned a meeting Agellan called the meeting for more than 7 months after requisition TSX approved transaction; Sandpiper/Agellan litigated before the OSC and Superior Court The takeaway: creative and aggressive tactics can fail badly if done incautiously 12

13 Governance update: new rules on related party transactions Related party deals are disproportionately subject to controversy/attack (recent examples: Eco Oro, Smoothwater) To address concerns in this context, the CSA have issued new guidance on related party deals that fall under MI (July 2017) Regulators now reviewing them in real-time, and expect meaningful and full discussion on the review and approval process, fairness opinions Main effect: parties should expect greater scrutiny of related party transactions and fairness opinions (even outside of the MI context) 13

14 Governance update: new corporate legislation The federal government has proposed amendments to the Canada Business Corporations Act, which are expected to pass soon. They will require: Majority voting for directors Annual, individual election of directors Mandatory diversity disclosure Largely mirror existing TSX requirements Main effect: no more zombie directors, who can use a loophole under current TSX rules to avoid resigning even if they fail to receive a majority of the vote 14

15 Co-Chairs of the Special Situations Team Orestes Pasparakis is Co-Chair of our Canadian Special Situations Team, which encompasses Canada s leading hostile M&A, shareholder activism and complex reorganization transactions. Mr. Pasparakis has led and won some of Canada's most contentious and complex corporate disputes Mr. Pasparakis focuses on high-stakes disputes that often proceed in real time or on an urgent basis. His approach is practical and results-oriented. Many of his cases are international, involving cross-border issues. Mr. Pasparakis has specific expertise with complex commercial litigation, financial restructurings, insolvency proceedings, injunctions and class actions. Mr. Pasparakis is widely regarded as one of Canada s leading experts in proxy contests. Orestes Pasparakis Partner Toronto Norton Rose Fulbright Canada LLP orestes.pasparakis@nortonrosefulbright.com Mr. Pasparakis has appeared as lead counsel before the Supreme Court of Canada and courts at all levels in Ontario, British Columbia, Alberta, Quebec, New Brunswick and the federal courts, the Ontario Securities Commission, the Competition Tribunal and the Tax Court of Canada, as well as numerous arbitral and other administrative tribunals. Rankings and recognitions: Chambers Canada, Ontario: Litigation - General Commercial, Chambers and Partners, 2018 Canadian Legal Lexpert Directory, ( ): most frequently recommended in Litigation Corporate Commercial; Litigation Securities Canadian Legal Lexpert Directory, ( ): repeatedly recommended in Insolvency & Financial Restructuring LMG Life Sciences Award 2016, Canadian IP Contentious Impact case of the year 15 I

16 Co-Chairs of the Special Situations Team Walied Soliman is Co-Chair of our Canadian Special Situations Team, which encompasses Canada s leading hostile M&A, shareholder activism and complex reorganization transactions. Over the past several years, Mr. Soliman has been involved in almost every major proxy battle in Canada, acting for both issuers and activists. He is widely regarded as one of the leading special situations practitioners in Canada. In addition, his practice focuses on mergers and acquisitions, restructurings, financings, corporate governance and structured products. Rankings. and recognitions: Walied Soliman Partner I Chair, Canada Toronto Norton Rose Fulbright Canada LLP Acritas Stars, 2017 Designated as a Star lawyer by ranking in the top 28 globally (over 5,000 lawyers) by a panel of over 3,000 senior in-house counsel Only lawyer recognized in the Globe and Mail's Report on Business Magazine Power 50 list for 2017 Ranked in Chambers Canada, Ontario: Corporate/Commercial, Chambers and Partners, 2018 Named as one of the 25 most influential lawyers in Canada by Canadian Lawyer magazine in 2014 Ranked as one of the Top 40 lawyers under 40 in Canada by Lexpert magazine in 2009 walied.soliman@nortonrosefulbright.com 16 I

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