Ackman-Like Activism Spurs Agrium, SNC Rallies
Targets including Agrium Inc. (AGU), Canadian Pacific Railway Ltd. (CP) and SNC-Lavalin Group Inc. (SNC) have rallied after minority investors sought to shake up management to boost earnings or spin off businesses.
“Post-Ackman, there has been a feeling among activists in Canada that it is open-season on Canadian companies and activists have been emboldened,” Walied Soliman, a partner at Norton Rose LLP, said in a phone interview from Toronto. “We’re seeing an increasing amount of Canadian-based activism. I think we are going to see more of it.”
There were 42 cases of shareholder activism among Canadian firms last year, almost double the 22 a year earlier, according to Kingsdale Shareholder Services Inc., the firm involved in 85 percent of the country’s proxy battles. An even larger number of investor fights may erupt this year, with more challenges led by domestic investors rather than U.S. shareholders, said Kingsdale Chief Executive Officer Wes Hall.
“There is a ton of opportunity here,” Hall said in a telephone interview from Toronto. “Canadian investors are just waking up to the fact that we need to play in our backyard.”
Canada, the world’s 11th-largest economy, has had fewer proxy battles than the U.S. in part because fewer institutional investors own large blocks of company stock, said Jeffrey Gandz, a professor of strategic leadership at the Richard Ivey School of Business in London, Ontario. That makes it more difficult for dissident investors to buy influential positions, he said.
“If it’s happening more, it’s probably because it pays,” Gandz said in a telephone interview.
Agrium, the Calgary-based fertilizer maker, has risen 18 percent since Aug. 13, 2012, the day before a report that New York-based hedge fund Jana Partners LLC pressed the company to spin off its farm-supply retail network and suggested a slate of directors. The farm retailer gained 45 percent last year, compared with a 25 percent decline the previous year.
“We just look for undervalued companies who have a variety of ways to unlock that value, no matter where they are located,” Barry Rosenstein, managing partner of Jana Partners, said in an e-mail yesterday. “While this is our first real foray into Canada, we’ve found that shareholders are just as supportive of value-unlocking change there as they are in the U.S., and we’re confident we’ve got the support we need to win.”
Canadian Pacific Railway has soared 54 percent since May 17, when Ackman won a proxy campaign to install new management and improve the operating ratio of the Calgary-based railroad. That compares with a 6.7 percent increase in 2011 and 14 percent in 2010.
Ackman’s battle with Canadian Pacific showed Canadian shareholders that activism can go to the final stages and benefit the stock, Kingsdale’s Hall said. Before this case, Canadians were timid, producing “significantly less” activism than the U.S., he said.
“No company is immune to activism,” Hall said. “Their size, performance, doesn’t matter.”
Moody’s Investors Service said in a report today “activists are increasingly setting their sights on larger targets,” allocating more capital towards such strategies.
West Face Capital is one Canadian firm that’s joining the trend. The Toronto-based fund increased its stake in SNC-Lavalin, the Montreal-based construction firm that’s suffered from a corruption scandal.
Leslie Quinton, a spokeswoman for SNC, confirmed via e-mail that the company learned late last year about West Face’s stake. SNC-Lavalin doesn’t know how large the holding is because only those that exceed 10 percent must be reported, she said, adding that company executives have met with West Face officials.
West Face also bought shares in Safeway Inc. (SWY), the U.S. grocery chain that operates in Canada, and Calgary-based energy producer Talisman Inc., the Globe and Mail reported last week. Teena Massingill, a spokeswoman for Safeway Inc., did not respond to a voicemail and e-mail seeking comment.
“I don’t dismiss activist investors at all,” Hal Kvisle, CEO of Talisman, said in a phone interview from Calgary. “We’re very interested in the messages they send us and we listen -- these are very smart people.” The company “has heard from” three or four activist shareholders on ideas including spinning off the Southeast Asia unit, Kvisle said. The majority of Talisman shareholders are not activists, and that many shareholders “have some sympathies” for the activists.
Greg Boland, CEO of West Face, declined to comment when contacted by Bloomberg News yesterday. Boland won a board seat at Maple Leaf Foods Inc. (MFI) in 2011 after pushing for changes at the Toronto-based food company. Maple Leaf has risen 19 percent in the past 12 months, compared with a 3 percent gain in the Standard & Poor’s/TSX Composite Index. West Face is the second-largest investor in Maple Leaf, according to data compiled by Bloomberg.
“We’re going to see more shareholder-driven activism in Canada this year; this is a growing trend,” said Robert Staley, a partner at the Bennett Jones law firm in Toronto. “This should increase the share prices of companies targeted.”
Some of Canada’s largest pension funds have traditionally been catalysts for change at Canadian firms, including the Caisse de Depot et Placement du Quebec.
The Montreal-based pension fund and Invesco Canada Ltd. pressed home-improvement retailer Rona Inc. (RON) last month to make a series of board changes that included the hiring of a new executive chairman. Rona, which rejected a hostile bid from Lowe’s Cos. last year, has soared 31 percent in the past 12 months.
“The vast majority of investors are no longer citizens, but economic tourists,” Michael Sabia, the Caisse’s chief executive officer told reporters in Montreal last month. “We are very comfortable with giving a CEO four or five years to reposition a company. It’s so difficult to do this nowadays due to the ’short-termism’ and the volatility in markets.”
Norton Rose’s Soliman, who has advised companies including Viterra Inc. and Telus Corp. (T), said activists who are looking to copy Ackman should exercise caution “before they jump into the lion’s den, because they will most certainly get hurt if they’re not careful.”
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