Increased Canadian shareholder activism put to the test next month with new rules in place By Reuters

By Maiya Keidan

TORONTO (Reuters) – A recent surge in Canadian shareholder activism faces a reality next month when a new law is put to the test that gives investors more powers to pick board candidates and could boost more campaigns this year, lawyers say.

Canada is a perfect environment for activists with advantageous regulatory rules, but it has failed to attract large swaths of activists to its shores.

The country has lagged behind the growing trend of activism seen globally, but that could be about to change, lawyers say. Some 53 Canadian businesses faced advocacy campaigns in 2022, an increase of 17.8% from the previous year, compared with a 10.6% increase in the US to 511, according to data from Insightia, a diligent brand.

Last August, Canada changed federal laws that allow investors to vote ‘for’ or ‘against’ each director nominated for a company’s board. Previously, shareholders could only vote ‘for’ a candidate or ‘withhold’ their vote, meaning a majority was not legally required.

Although not enshrined in law, companies used to adopt majority voting in their policy before the change. But the directors previously faced no legal requirement to resign unless they won a majority ‘yes’ vote, the lawyers said.

“If I were an activist, this would make things easier,” said Heidi Reinhart, a fellow at Norton Rose Fulbright.

Reinhart said that if an investor now calls for a ‘against’ campaign and secures enough votes, the person is not elected. “So I think there will be more targeted campaigns against specific directors. That gives a certain advantage to a shareholder,” Reinhart added.

While the rule change came in August, lawyers note that this is the first representation season in which the amendment will be tested.

Next month, in activist campaigns by Luxor Capital Group and Sandpiper Group against Ritchie Bros (NYSE:) Auctioneers and First Capital Real Estate Investment Trust (REIT), respectively, both will face scrutiny from other investors.

Luxor opposes Ritchie Bros’ $6 billion acquisition of IAA (NYSE:) Inc, while Sandpiper seeks to overhaul the First Capital REIT board.

Activist hedge funds are likely to get even more buoyant after betting on global M&A deals netted them a whopping 8.5% gain in January, making them the best-performing strategy of the year. month, after losing 17.23% on average in 2022, according to Hedge Fund data. Investigation.

However, when it comes to wins and losses, only 22% of public activist demands in Canada were at least partially met by 2022, down from 26% in the US and 34.1% in Europe, according to Insightia.

Canadian campaigns were more successful in the previous four years, with a rate of 34% in 2021 and 43% in 2018.

An uptick in activism is expected to not only increase transparency in deals, but also boost stock performance.

In the case of Elliott Investment Management calling for a strategic review and board changes at Suncor Energy (NYSE:) Inc, for example, shares are up 56% since the activist first announced his involvement in April.

By contrast, Canadian energy stocks rose 3.14% over the same period.

And oil and mining companies could continue to be the sector facing activism, market participants say.

“There are a lot of resource companies and those sectors are often facing dislocations and are often people facing challenges in their businesses,” said Adam Givertz, a partner at law firm Paul Weiss.

“Those challenges, if they are good company, can attract the attention of an activist.”