Adam Torres and Jonathan Feldman discuss shareholder activism in Canada.
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Show Notes:
In what ways is Canada an activist friendly market and in what ways is it not? In this episode, Adam Torres and Jonathan Feldman, Partner, Mergers and Acquisitions and Head of Shareholder Activism Practice at Goodmans LLP, explore shareholder activism in Canada and the upcoming Activist Investor Conference Jonathan will be presenting at in New York City.
About Jonathan Feldman
Jon Feldman is a partner and heads a business law group at Goodmans. His practice focuses on corporate and securities law with an emphasis on mergers and acquisitions (M&A). Jon has extensive experience acting for buyers and sellers in a wide range of industries in both private and public M&A transactions.
Jon’s market leading practice in Canada in the area of shareholder activism is highlighted by his involvement in a number of the most high profile proxy contests representing both dissident shareholders and boards of directors. Jon also provides strategic advice in litigation matters requiring corporate and securities law knowledge.
About Goodmans LLP
Goodmans LLP is internationally recognized as one of Canada’s leading law firms for M&A, capital markets, securities and finance, private equity, real estate, tax, restructuring, dispute resolution, and other business-related specialties.
Full Unedited Transcript
Hey, I’d like to welcome you to another episode of mission matters. My name is Adam Torres. And if you’d like to apply to be a guest in the show, just head on over to mission matters. com and click on be our guest to apply a ride to today. My guest is Jonathan Feldman. He’s a partner of merger and acquisitions and head of shareholder activism practice at Goodman’s LLP.
John, welcome to the show. Thank you, Adam. Great to be here. All right, John. So you came over to us as a guest from the deal flow events. I understand that you’re going to be a speaking at the activist investor conference in New York city. Hey, I’m excited. Are you excited for this conference, man? I am.
It looks like a, great event. There’s some really great speakers that are attending some really interesting topics that are going to be covered. And, you know, I always love. being New York and meeting people there. It’s always always fun to be there. It’s awesome. and I know that the programming and everything is not like 100 percent settled.
So if you’re I’m not holding to this, but like, broad strokes here. What are some of the things and themes that you you plan on talking at the event? Well, I think what we will probably be covering to a large degree are, are recent trends in shareholder activism and in particular in my case, probably in Canada and also where there are cross border fights that take place and there’s more and more of that happening.
And so I think there should be some interesting discussion about how the different systems work together, don’t work together, and the dynamics and complexities associated with cross border shareholder activism that we’re really seeing quite a bit of these days. I’ve been covering this conference for a bit now, interviewed a lot of different people, and I’m just interested to get the perspective of each speaker and individual that’s been on here.
Like, what’s your definition of shareholder activism just for our audience? Don’t want to assume. Well, for me, it’s, great business, but the other perspective is that there’s always an interplay between shareholders wanting to exercise their rights and companies slash boards wanting to exercise theirs.
And at a very fundamental, at a very fundamental level, shareholder activism generally generally arises where the owners of a company. Are unhappy with its current management and so in circumstances where there’s a disconnect between what the board views is the proper direction, I guess, board and management views of the proper direction of a company what its owners view as the proper direction.
That’s where conflict arises. And. More and shareholders get more and more emboldened to exercise their rights and boards get more and more emboldened to fight back and in that sort of melee is where shareholder activism really lives. did you originally get active in shareholder activism?
Pun intended. Come on, man. Give me 1. Yeah, good 1. star for that. Thank you. Give me 1. Absolutely. I will. I will say that. Send you one as soon as we’re done. I was, a lawyer. The practices, I’m a corporate lawyer. I, I do a lot of deals in sort of the merger and acquisition space, private m and a, public m and a, private equity, all that type of stuff.
And about 10 years ago I was doing. Quite a lot of that. And it was great, but I kind of said to myself, at some point, I need a challenge. And it’s different than what I’m doing. And by complete happenstance, there was a I was working on a file. it was a hostile takeover bid, hostile tender, where we were also thinking of having a shareholder meeting to, you know, to do a whole bunch of different crazy things.
And the client asked me. You know, could we ever ambush a shareholder meeting? And I said, well, gee, that’s a really interesting question. I’m going to look into it. And wording, wording, right? We don’t want to exactly wording. Yeah, exactly. Exactly. Like, how do we, how do we, how do we surprise the hell out of everybody?
And yeah, exactly. Unexpected on an ask, So I said, this, this could actually be fun. So I said, okay, well, let me look into this. So we looked into it, we had a plan and then he said, Hey, you know what? Don’t bother. It’s, we’re not going to do it. I’m like, Oh, okay. So I’m like, I had all this, this new knowledge or something that I thought was kind of interesting.
And I said, what am I going to do with this? time I didn’t even know what shareholder activism really was, but I said, okay, well I have this knowledge. I’m going to write a paper and I called it the mechanics of an ambush. And I wrote this paper, I put it out there into the world and people started reading it.
And asking questions. And of course, they were asking questions about shareholder activism, for which I had no answer, because I’d never done them before. But you know, you do one, you eventually take one, you do another one, and then it becomes, you know, you, you know, a lot of like in our, in our business, like, you do it once, you become an expert, you do it twice, you become a real expert, and then, it just kind of snowballs, and so from sort of just a lark of a question, to a real interest, is kind of how that That kind of evolved, and I’d say now, like, there are years where the vast majority of my practice is only activism.
It really is a function of what’s happening in the market. The last two years, I’d say, there’s been a lot of that happening. So, that’s the short story. Man, that’s a great story, I’ll tell you, because a lot of people watching this, it’s funny.
I mean, I’ve done, you know, over 6, 000 interviews and I’m just always amazed at how, what we think is serendipitous or this, these, this conversation or this, whatever. And it’s like, it leads to a different, you know, path in life, like these forks in the road that we don’t always see.
God has a plan. I don’t know what it is, but I’m I’m along for the journey. Totally. Could you talk to me about maybe some of the nuances before I do want to get to, you know, present day events and other things, but just structurally, I don’t know if we would say if we would say structurally or otherwise, like maybe some of the nuances just in the marketplace between Canada and the differences between Canada and the US when it comes to shareholder activism.
Sure. I mean, is pretty well established for those that are in the know, and I appreciate that as a small subset of the entire universe, but know, the Canada is an activist friendly country in the sense that it is very easy for a shareholder to accumulate a relatively small position 5 percent and have the power to requisition me.
A special meeting of shareholders for the purpose of removing and replacing boards directors. And also, you know, any company that’s listed in the TSX doesn’t have staggered board. So you as a 5 percent shareholder have the power to get a process started that could remove an entire board. That’s a huge power that shareholders have in Canada.
a big development. In the U. S. Is this notion of universal proxy that’s been in Canada basically forever. So these new rules that came into the U. S. Was great fanfare is kind of old news in Canada. It’s been here forever. The another thing that’s kind of shareholder friendly and to a certain degree, it’s a function of the size of the companies in Canada versus the U.
S. But the reporting obligation under 13 D in in the U. S. Is once you cross a 5 percent threshold in Canada, the reporting obligation is 10%. So you can build a pretty meaningful position in Canada before the world knows you have it. so you come to a board with call it 9. 9%. That’s a pretty meaningful position.
In a company where, you know, in most cases, you’re never getting anything close to a hundred percent turnout of shareholders. So with the 9%, 9. 9 percent in a pretty good position to sort of, you know, potentially influence the outcome of a meeting. there’s a bunch of others, but to me, those are the main.
There’s also what we call an oppression remedy, which is basically built into the corporate statute, the right of shareholders to go after a board if they’ve acted in a, in a way that is inconsistent with their reasonable expectations and prejudices them. And that just opens the door for shareholders to go after companies, boards for a whole range of, of issues.
That is not necessarily available in the U. S. So there’s a whole bunch of legal structural arrangements out there that just on balance make Canada very shareholder friendly when it comes to those seeking activist type of activities. it’s activist friendly, but I have to ask, is it is it activist active?
Like, is there is there a lot of motion in this sector in Canada? There’s a ton. I mean, look, we will never, like, the volume in the U. S., like, we are the, you know, we are like, we are a little, we are a little minuscule little minnow compared to the whale that is the U. S., but within our, our our market.
significant volume in, in the space. And I think, and it’s growing sort of on an annual basis, you know, and part of that I think is probably not dissimilar from, you know, why it’s happening elsewhere in the world, which is companies to a certain degree, haven’t, haven’t, Fully delivered on on what shareholders were expecting it’s, you know, arguably a quote unquote cheap way to take over a company without having to, you know, pay a control premium.
, if you can win a board and I think. the class, the activist class itself is growing, so there’s just more players and they’re looking for opportunities and, you know, many, many times activists, bankers, people trying to bring them in are running screens, looking at companies to figure out, you know, which ones are potentially vulnerable.
And so I just think market itself has grown. Canada is known to be activist friendly. And as a result of that. There’s just so much activity, like, it is, it’s nuts. And, you know, it’s interesting, the other thing that’s interesting, and I’ve talked about this sort of in previous sort of panels I’ve done in the U.
S., in the U. S., it’s religion. You are either representing activists or you are representing companies. Never would you represent. Oh, really? and there’s, and it’s almost like, really, it’s like religion. Like, you know, like the, those that represent activists will rarely if ever represent boards and those that defend companies, boards.
In Canada, it’s completely different. Like we just don’t have the volume to be that selective. So we will do both. And, you know, at any given time, I’ll be representing that’s interesting. So you meet up and you’re like, Oh, what side are you on this time? Or what are you doing? And you got to kind of, it out of it happens all the time.
And sometimes you forget what argument you’re making and which file you’re working on. And what, what position you should be vigorously. You know, claiming that you believe it at a moment in time, but, but really it is so that is, you know, that is, that is very different than the U. S. situation, but it’s also helpful because you, you know, if you do enough of these, you start to see patterns and you almost know.
What the other side’s move is going to be before they even make it because you’ve seen the movie so many times before and you’ve been in the position making that movie. So it’s an interesting, my American friends were always amazed that we can do, do it on both sides, but, you know, we didn’t we might not be fully gainfully employed on a regular ongoing basis and it’s helpful, you know, like it really, you know, it’s, it’s like, I guess, like anything in life.
If you can understand how the other side. Thanks. Or why they think what they think. It’s actually a good thing because the reality is as testy and as contentious as these things are, for the most part, you end up settling. And so if you can come to the table sort of understanding where the other side is coming from, you can usually get to the solution reasonably quickly.
In most cases, I mean, in some cases, you know, you just can’t, but there is, there is that understanding that, you know, you are here now, but you’ll be on the other side tomorrow and vice versa with the other party. And so there is, you know, there is a rhythm to it and understanding you know, and a market practice.
So, you know, it’s kind of, our smallness gives us that advantage to a certain degree, I would say, or like, or at least gives us empathy for the other, side. Yeah, did it? I’m just curious, like, historically, I know in the U. S., if I think about, when I think about, way back when, like, the movie Wall Street, or this or that, like, we, like, in my mind, you know, and I, and you might, you don’t, you may not know this, but I was in, I was in finance for almost 14 years, and I, so when, like, historically, what this, this whole, you know movement kind of grew out of, I think was more in the kind of like the early days of hostile takeovers and this and that and all the other things like did, Canada’s like development of this kind of side of things, did it also stem from that or did it sprout from other things?
I’m just curious. Well, it’s interesting, you know, like the, the hostile takeovers was a, was certainly a phenomenon in the eighties and both in the US and Canada. And it’s interesting, you know, , our laws are written like when you think of like defense, like when a board is doing a defense or when the regulators are looking, our regulators, for example, the Ontario Securities Commission, know that the equivalent of the SEC, when they’re looking at defensive tactics, it’s all through the lens of takeovers of hostile takeovers.
Hospital tenders, that type of thing, but the reality is like, we don’t see them anymore because there’s such a pain in the butt to actually do and to be successful on. There’s so many better ways to, you know, to take a company private than for a hostile takeover, but it’s very challenging to do it. It’s not impossible and it gets done, but the amount of hostile takeovers that you see in a given year, you can, at least in Canada, you can usually count on one hand, maybe two.
But the number of proxy fights are coming, it’s like, you know, you need all your fingers, all your toes and maybe somebody else’s to get there now. it really is. So, you know, like It’s interesting because we talked about this a lot. Like it is an evolution of the way that shareholders, I guess, go hostile against companies.
It’s always been there. I mean, it’s always been, it’s always been a tool available to shareholders, but it’s now a tool that’s way more used. Way regulated and we’ve been talking to the regulators for years now saying, like, you need to step in and sort of help with the rules of the game so that, like, we can live in, like, this century, not last century, but that is a slow process.
And so it is certainly a derivative of the hospital takeovers. It’s certainly analogous in many ways. But it’s something that’s always existed, but it’s just something now that is so it’s it is a hot topic and a hot issue that arises so often these days, whereas, you know, hospital beds, just very rare.
Like, it happens on occasion, but it is. It is very unusual. And part of that is, like, the rules in Canada changed. Like, now they have to, they used to have to be open for 35 days. Now they have to be open for 105 days. There was a whole bunch of rules that, like, there was a whole, I won’t even get into the details of it, but there was a whole game that used to be played.
Then they changed the rules in 2016 to basically make them doable. But it takes a lot of time. It takes a lot of money. You have to have all your financing lined up well in advance. it’s really difficult to do a hostile bid right now. And so you just don’t see them that often. Any companies that are active right now that you’re, that you’re following or otherwise, like any big news in Canada that I don’t know about.
Well one that I’m involved in right now that’s very high profile, and obviously it’s a live one, so I’ll just mention it, but without getting into the details of it, is Gildan Activewear. My firm represents a, a significant shareholder named Browning West and they are, are looking, I mean, it’s all in the public domain, they’re looking to to, to remove To basically replace the board because they’re very unhappy that the board fired longtime CEO who is extremely successful and loved by shareholders without really any good reason.
And so there’s a major fight happening right now on this particular issue. In an effort to number one, replace the board, and then it’s up to the board to decide who the CEO is, but then that new board, but then reinstate the 40 year long CEO who all these shareholders love. And so that’s been a very contentious, high profile fight.
And what’s interesting about that one, and I’ve never seen this before, is other shareholders independent, completely unsolicited by our client, Browning West, have written letters, public letters, saying this is egregious, this board needs to go. Wow, so they’re like backing him publicly, like like, wow, that’s amazing.
it’s very unusual because, you know, everybody likes to, like, unless they’re leading the charge, they just want to put their head down, but this has been so egregious from their perspective that they have to say something and the company is, you know, trying to delay, they’re trying to sue the shareholders, they’re doing all these tactics to try to, you know, to try to find a buy themselves time or try to deter the fight.
But, you know, as the public records says, like, they’re not deterred, like, they want to get to this meeting, which is now scheduled for May hopefully by at that point, you know, this board will be gone. But, you know, never a straight line and there’s never. it was that easy, everybody would do it.
Man, there’s an episode of Dallas right now for those that watch the archives. Come on. Yes, yes, yes. but the hair is not nearly as good, nor the outfits, but but yeah, other than that, you know, other than those factors, it’s exactly the same. Yeah, yeah, exactly, exactly.
But it is, it’s a lot of high drama, that’s for sure. That’s for sure. Oh, man. Well, hey, John. I just want to say it’s been, great having you on the show today, learning more about what you do and also what’s going on at shareholder activism in Canada. That being said, if somebody obviously for everybody watching, John is going to be speaking at the upcoming activist investor conference in NYC, so definitely check that out.
But John, if somebody wants to follow up and connect with you and your team and keep the conversation going, what, the best way to do that? Oh, I appreciate that, Adam. One way, obviously, is through LinkedIn, and the other way is you can find me on the Goodman’s LLP website. We’re based in Toronto, and can find me there too.
So if anyone does want to reach out, you know, always happy to, chat with people. Fantastic. Well, and for the audience, we’ll leave all that info in the, show notes. So you could just click on the link and go check them out. And speaking to the audience, if this is your first time with Mission Matters when you haven’t hit that subscribe button yet, well, Hey, guess what?
This is your invitation. Hit that subscribe button. We have a bunch of mission based individuals coming up on the line. And we don’t want you to miss any of the program. Best way to get it. is to hit that subscribe button. And if you’re a long term listener, then you haven’t left us a review yet. I’m not even going to say it.
You know what to do. We need that review. We like that review and we appreciate that review. So I did say it anyway. See John, Hey, seriously. Well thank you again for coming on the show and best of luck in your speech and everything else that you’re doing. So thank you so much. Thanks Adam. It was great meeting you.
Appreciate the time.
