Law Times

Page 9 Law Times • August 5, 2013 Focus On Corporate/Commercial Law Agrium key turning point for shareholder activism in Canada BY Julius Melnitzer For Law Times T he Canadian Pacific Railway Ltd. proxy battle that seared Canada's business media outlets for the first half of 2012 has been held up as the flagship example of just how far shareholder activism has come in Canada. There's an argument, however, that the Agrium Inc. proxy battle makes the point at least as well if not better. "Until the Agrium fight, it was highly unusual in Canada to see a company that was thought to be well run with a strong business become the object of affection for activist investors," says David Woollcombe of McCarthy Tétrault LLP's Toronto office. It's true that the CP battle made it clear 'A key difference between CP that any Canadian company, no matter and Agrium was that the core how large or prominent, is susceptible to message in the Agrium fight was activism. The railway, after all, had a long not about the underperformance history of profitability, a blue-chip board, and a reputation for leadership in corpoof the company's business,' rate governance. But its stock-market persays David Woollcombe. formance was dismal and that's what made it such a good target for Pershing Square To achieve its aim, Jana waged a 10-month-long proxy Capital Management LP, the hedge fund that won the proxy battle in May 2012, promptly installed battle that began in October 2012. The goal was to get new management, and saw a 54-per-cent rise in the stock's some representation, albeit a minority, on Agrium's board in the hope of influencing the company's direction. value over the next nine months. "If you don't have a majority, you'll still be running The attack on CP, then, was a vehement expression of dissatisfaction with the competence of management itself. up against incumbents who will outnumber you," says "The archetypical proxy battle is 'We don't like man- Atkinson. "But this having been said, two new faces on a board of agement,'" says Aaron Atkinson of Fasken Martineau 10 or 12 can, in some cases, make a lot of difference, espeDuMoulin LLP's Toronto office. "It's like voting out the government on a non-confi- cially if those new faces represent an activist who has just won a public campaign." dence motion." But the hedge fund's efforts were in vain. At Agrium's By contrast, there's an argument that Agrium was an unlikely target. Its stock price was doing quite nicely, hav- annual general meeting in April 2013, none of the fund's five nominees and all of the company's 12 candidates ing risen some 450 per cent since late 2005. "A key difference between CP and Agrium was that won election. Still, Jana attracted some 40 per cent of the vote. the core message in the Agrium fight was not about "Ultimately, Jana had the wrong target and the wrong the underperformance of the company's business," says thesis for change," says a source close to the company. Woollcombe. "As it turned out, the loser didn't do too badly and if But Jana Partners LLC, a New York-based hedge fund the company hadn't defended itself as staunchly as it did, that became Agrium's largest shareholder, wasn't happy. It sought to unlock value by calling for better cost controls, the vote could well have been different. The story isn't that governance, and capital management. Jana also wanted to Agrium won but that it came under attack in the first place." While activism aimed at unlocking value is relatively spin off the company's retail arm from its wholesale division. new to Canada and still most commonplace here among companies with smaller market capitalizations, large U.S. businesses have had to contend with the Agriumtype of activism for years. "Canadian boards have long been accustomed to a level of deference from investors, but now that we're on the radar screen for hedge funds and activist investors, widely held large-cap Canadian issuers are going to have to contend with this sort of thing more often," says Woollcombe. "What the Agrium fight highlights is that selling long-term strategy to shareholders may become more difficult for management where some investors see opportunities for shorter-term value creation." As David Salmon, senior vice president for Western Canada for Laurel Hill Advisory Group LLC, sees it, the attack may increasingly be linked, as it was to some extent in Agrium, to governance issues. "Once activists start to believe they can extract more short-term value, they're also going to find governance issues to help their cause," he says. And as CP demonstrated, support for activists from Canadian institutional shareholders can be forthcoming in the proper case, enhancing activists' prospects and providing motivation for potential challenges. "It's now evident not only that Canadian institutional shareholders will support change where a case that change is necessary exists but that institutions are evidencing less tolerance for the status quo following a long period of low investment returns," says Andrew MacDougall of Osler Hoskin & Harcourt LLP's Toronto office. Indeed, the impact of institutional support extends beyond the votes that the institutions themselves control. "Pension funds have an enormous amount of credibility as sophisticated investors and they are rightly accorded a significant amount of respect in the market because they put in a great deal of time and effort towards understanding the companies in which they have large holdings," says Woollcombe. "They're also seen as patient money and consequently are taken very seriously when they actually do stand up and support the kind of initiative that characterized the CP proxy battle." LT Get fast and easy access to l t y ble to you s and itt's availa s a day. 24 hour Canada's legal professionals! Canada's most comprehensive online directory of legal professionals gives you a direct route to the information you need. departments location and area of practice Visit www.CanadianLawList.com and find out how we're serving you better than ever. compiled by top Canadian legal researchers Untitled-1 1 www.lawtimesnews.com 13-01-03 9:02 AM

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