This blog has repeatedly reported on the use of empty voting strategies at the Canadian telecommunications provider Telus Corporation. (see, e.g., here and here). Empty voting – that is, the strategic separation of economic risk from voting rights – has been considered by courts, regulators and academics over the past years in various forms. The latest account is the case of Canadian telecommunications company Telus, which became the target of US hedge fund Mason Capital. After a lengthy battle in various courtrooms, the dust has settled around this conflict. The Telus saga sheds new light on how empty voting structures are used by businesses in practice and supports calls for regulatory activity. In my recent paper, Empty Voting Revisited: The Telus Saga, I analyze the various instances of this important legal battle and develop regulatory implications.
Posts Tagged ‘Canada’
About a year ago, we published A New Playbook for Global Securities Litigation and Regulation, in which we detailed dramatic changes in the global securities regulatory and litigation arena driven by various factors, including not only the financial crisis of 2007-2008, but also changes in tolerance in the United States to litigation brought by foreign investors against public companies listed on non-U.S. exchanges.
One year later, the regulatory environment continues to revamp with new rules being issued constantly in the United States to conform to the legislative mandates set forth in the Dodd Frank Act. The United Kingdom and European Union also seek to reinforce previous global initiatives to reform and strengthen the Pan-European financial markets.
What is more ever-present, however, is the marked increase in global enforcement activities by regulators in the United Kingdom, Canada, and the European Union, which are attempts to give teeth to the global financial reforms each jurisdiction felt necessary to potentially prevent a “repeat” of the financial crisis. This article seeks to address the increase in global securities enforcement activity and concludes that continued cooperation and coordination in enforcement activities will be required to seamlessly address the desire to strengthen global regulatory initiatives aimed at harmonizing and centralizing international securities regulation to create safer, more fundamentally sound financial markets for investors.
The Canadian Securities Administrators (CSA) recently proposed changes to Canada’s early warning regime for the disclosure of substantial blockholdings, including to lower the initial reporting trigger to 5% from 10%, to require disclosure no later than the opening of trading on the next business day, and to include equity equivalent derivatives and securities lending arrangements in the ownership calculation. Separately, the CSA proposed a new policy of greater flexibility as to rights plans, including in connection with unsolicited takeover bids. These proposals reflect sensible and necessary improvements to Canadian market regulation, to protect shareholders from the sorts of activist and takeover techniques and abuses that militate for changes in the U.S.’s Section 13(d) rules, and which, in the context of unsolicited takeover bids, the U.S. acceptance of rights plans have largely banished from the U.S.
Hedge funds first began engaging in the assertive form of shareholder activism for which they are renowned in the United States, and the United States is where hedge fund activism has become most firmly entrenched as part of the corporate governance landscape. Nevertheless, hedge fund activism is a global phenomenon, with companies in numerous countries being targeted. The United Kingdom, Japan and Canada are the three countries other than the U.S. where hedge fund activism has been most prevalent. The efforts of hedge fund activists in Britain and Japan have begun to capture the attention of academics (e.g. Iris Chiu, The Foundations and Anatomy of Shareholder Activism (2010) and John Buchanan, Dominic Chai and Simon Deakin, Hedge Fund Activism in Japan: The Limits of Shareholder Primacy (2012)). In the case of Canada, however, little has been said about hedge fund activism in the academic literature. Correspondingly in “Hedge Fund Activism Canadian Style,” recently published on SSRN, I describe the emergence of hedge fund activism in Canada, identify the legal and economic variables that account for its rise to prominence and offer predictions on whether the trend will be sustained.
Whether the issue is climate change, biodiversity, labour and supply chains, or human rights, corporate sustainability disclosure is of increasing relevance to shareholders. In a recent report submitted to Ontario, Canada’s minister of finance, the Ontario Securities Commission (OSC) made various recommendations regarding corporate reporting that may be controversial to some, but are a step in the right direction.
The report follows the Ontario Legislature’s unanimous approval of a private member’s resolution calling on the province to review existing reporting requirements and issuers’ compliance.
The resolution asked the OSC to undertake a broad consultation in order to “establish best practice corporate social responsibility…and environmental, social and governance…reporting standards”. In response, the OSC – supported by the Hennick Centre for Business and Law at York University – convened a multi-stakeholder roundtable and held various consultations with interested parties.
Update: The ruling of the Superior Court was subsequently affirmed on appeal; that decision can be found here.
A Canadian case decided this month is destined to become a landmark decision on the difficult issue of comparative fairness in change-of-control transactions involving collapse of two classes of stock into a single class.
In Magna International, Ontario Superior Court No. CV-10-8738-00CL, major institutional shareholders attacked the restructure of Magna from a dual-class to a single-class stock capitalization. The investment bank retained by the special committee of directors did not give a fairness opinion. (Major investment banks generally do not give “comparative” fairness opinions.) The special committee did not make a recommendation to the shareholders. The high-vote shares received a date-of-announcement premium of 1,800% and the low-vote shares suffered an 11.7% dilution; each far larger than any Canadian or U.S. precedent transaction. Announcement of the proposal for the dual-class collapse was well received by the market with a material increase in the low-vote share price, despite the dilution. A proxy statement for the shareholder meeting called to consider the transaction was approved by the Ontario Securities Commission as satisfying requirements for full disclosure of the facts relevant to the shareholder decision. At the meeting, 75% of the low-vote stock voted to approve the transaction.
The Magna transaction and the Court’s decision provide a clear road map for a company’s directors, and the investment bankers and lawyers advising them, in a dual-class restructure to create a single class of stock. They also provide interesting facts and analysis that may be of use in other types of change-of-control dual-class transactions.