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Our findings—at least from a target’s perspective—were startling but consistent with the outcome in the Canadian Pacific contest: dissidents had better-than-even odds of success (55 per cent) and had amassed a winning record in all but one of the five years studied. Our study also made clear that the number of formal board-related contests was on the rise and no company was immune from attack.
Looking back over the last four years, it is clear that the landscape has shifted dramatically. After peaking in 2012, the number of formal board-related proxy contests has been steadily declining. At the same time, management has turned the tables and established a winning streak of its own. 2016 was a particularly strong year for management in fighting formal board-related proxy contests: not only did the number of formal board-related contests decline to a 10-year low of seven, management also posted a near-perfect record, winning all but one of those contests. These results are in stark contrast to a management success rate in formal board-related contests of 37 per cent in 2013 and a 50 per cent overall success rate in the past 10 years.
One possible explanation for management’s shift in fortunes is that more companies are engaging in advance preparation by, among other things, proactively examining their businesses, engaging with shareholders and addressing festering issues before they are viewed as an avenue of attack by shareholders. The data may offer some support for this thesis: in the past three years, dissidents’ only success in formal board-related contests came against companies with market capitalizations of less than $50 million, being companies that might be expected to have minimal resources to devote to advance preparation or to mount a robust defence.
On the other hand, we note that our studies focus only on formal proxy contests and do not capture activist activity in which a dissident solicited proxies on an exempt basis and without mailing a dissident proxy circular to shareholders or where the activist agitated for change without soliciting proxies at all. In that regard, we note there were at least 16 additional publicly disclosed activist situations involving Canadian-listed companies in 2016 and an unknown number of private approaches by activists that were never publicly disclosed. Given that a formal proxy is often the last resort when negotiations between the activist and the target have failed, an alternative explanation to the shift in fortunes our studies have detected may be that, in many cases, management is simply settling with the activist before the dispute becomes a formal contest, and their winning record in recent years is evidence of their choosing more wisely which battles to fight.
We will continue to issue updates and commentary on the activist landscape in Canada. With the recent adoption of new, more board-friendly take-over bid rules in May 2016, it is possible that proxy contests will become a new avenue for hostile take-over suitors to pursue, thus potentially shifting the landscape again.
You can download a copy of our 2017 Canadian proxy contest study at: http://www.fasken.com/en/canadian-proxy-contest-study-2017-update/