The Canadian government’s unpredictable stance on foreign investment is hindering efforts by U.S. activist investors to shake up corporate boardrooms, said the head of one of the country’s largest shareholder advisory firms.
“For the first time, I’m seeing activists having concerns or displaying concerns about whether the government will step in to prevent an activist from changing a Canadian company,” Wes Hall, chief executive officer of Kingsdale Shareholder Services Inc. said in an interview at Bloomberg’s Toronto offices yesterday.
The government’s opacity is also damping cross-border mergers and acquisitions, said Hall, who advised Bill Ackman’s Pershing Square Capital Management LP in its successful proxy battle to oust the CEO of Canadian Pacific Railway Ltd. Unease has been rising since the federal government blocked BHP Billiton Ltd.’s $40-billion hostile bid for Potash Corp. of Saskatchewan Inc. in 2010, he said.
Toronto-based Kingsdale advised BHP on that transaction and Hall, 45, said he didn’t see any foreign ownership concerns on the deal before the federal government ruled it wasn’t a net benefit to Canada.
Canada’s stance was only made more confusing after Ottawa then approved China’s Cnooc Ltd.’s $15.1 billion acquisition of Canadian oil and gas company Nexen Inc. in 2013, while preventing takeovers of oil-sands companies by state-owned companies, except under “exceptional circumstances,” Hall said.
“When the Cnooc-Nexen deal came up with similar issues, people felt that the government is just unpredictable in their behavior,” Hall said.
The government’s approach has made it difficult to advise foreign investors on potential targets, he said.
The government is “non-committal,” he said. “I think they want to reserve their right to step in when they want to. But unfortunately it’s creating issues in the market not having that assurance there.”
Hall tells foreign clients to have conversations with the government before they take a run at a company. Even arbitrage investors are now hiring competition lawyers to give them advice before they get into a stock, he said.
Canada is open to investment that creates jobs, growth, and long-term prosperity for Canadians, said Jessica Fletcher, a spokeswoman for Industry Minister James Moore.
“Each application is examined on a case-by-case basis and on the facts and merits of each proposed investment,” Fletcher said in an e-mail. “Our balanced approach ensures that foreign investment transactions are reviewed based on the long-term interests of the Canadian economy.”
Hall said Ackman, who is currently embroiled in a battle with Valeant Pharmaceuticals Inc. to take over Allergen Inc., had “big concerns” about the Canadian government’s role in the lead up to the CP Rail fight, though the government didn’t intervene in the end.
The uncertainty of the federal government’s position on foreign investments has played a role in other would-be activists and acquirers from buying Canadian, including smartphone maker BlackBerry Ltd., Hall said.
“There have been people interested in BlackBerry but they have the same issues about will the government allow this Canadian company -- Canadian dynasty -- to just go off to a player in the U.S. or be broken up and be sold off and disappear,” he said, declining to name potential suitors or whether he acted on any potential transactions.
“That’s the reason why there hasn’t been a bid on that company and there hasn’t been any activism on that company,” he added.
Adam Emery, a spokesman for BlackBerry, said the company declined to comment on the matter.
Ottawa’s unpredictable stance hasn’t prevented foreign mergers and acquisitions or activism altogether, Hall said. There have been $18.7 billion in pending or completed deals involving Canadian targets and foreign acquirers since the start of the year, up 59 percent from the same period last year as Canada joins in on a wave of global dealmaking, according to data compiled by Bloomberg.
Kingsdale expects to officially launch in the U.S. in September after New York-based MDC Partners Inc., run by fellow Canadian Miles Nadal, bought a majority stake in Kingsdale in February for an undisclosed sum.
Kingsdale had originally planned to acquire another U.S. firm to facilitate its expansion but valuations have made that difficult and the firm will grow organically, the same way it in Canada, Hall said.