Growth in Canadian shareholder activity will face a test next month as new rules are introduced By Reuters

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© Reuters. FILE PHOTO: Moon rises over skyline and financial district in Toronto, November 25, 2015 REUTERS/Mark Blinch 2/2

Maya Kaidan

TORONTO (Reuters) – The recent uptick in shareholder activity in Canada will face a practical test next month when a new law that gives investors more power to choose board candidates is put to the test and could spur new campaigns this year, lawyers say .

Canada is an ideal environment for activists with favorable regulations, but it has failed to attract huge numbers of activists to its shores.

The country is lagging behind the growing trend of activity seen around the world, but that could change, lawyers say. About 53 Canadian companies are facing active campaigns in 2022, up 17.8% from the previous year, compared to a 10.6% rise in the US to 511, according to data from Insightia, a Diligent brand.

Last August, Canada changed federal laws allowing investors to vote yes or no for every director nominated to a company’s board of directors. Previously, shareholders could only vote “for” a candidate or “abstain” from their vote, meaning that the majority was not legally binding.

While not mandated by law, most companies often used voting in their policies prior to the change. But in the past, directors have not faced a legal requirement to resign unless they receive a majority of yes votes, lawyers say.

“If I were an activist, it would make things easier,” said Heidi Reinhart, partner at Norton Rose Fulbright.

Reinhart said that if an investor now calls for a “no” campaign and gets enough votes, the person won’t get elected. “So I think there will be more targeted campaigns against specific directors. This gives shareholders some leverage,” Reinhart added.

While the rule change happened in August, lawyers note that this is the first proxy season in which the amendment will be tested.

Next month, Luxor Capital Group and Sandpiper Group’s campaigns against Ritchie Bros (NYSE:) Auctioneers and First Capital Real Estate Investment Trust (REIT), respectively, will see both companies under scrutiny from fellow investors.

Luxor opposes Ritchie Bros’ $6 billion acquisition of IAA (NYSE:) Inc, while Sandpiper seeks to overhaul First Capital REIT’s board of directors.

Activist hedge funds are likely to be even more emboldened after betting on M&A transactions around the world gave them a huge gain of 8.5% in January, making them the best-performing strategy for the month after losing an average of 17 .23% in 2022, data from the Hedge Fund showed. Research.

However, when it comes to wins and losses, according to Insightia, only 22% of community activists’ demands in Canada were even partially met in 2022, down from 26% in the US and 34.1% in Europe.

Campaigns in Canada have been more successful in the previous four years, with 34% in 2021 and 43% in 2018.

It is expected that the increase in activity will not only increase the transparency of transactions, but also increase the profitability of shares.

In the case of Elliott Investment Management calling for a strategic review and board change at Suncor Energy (NYSE:) Inc, for example, the stock is up 56% since the activist first announced his involvement in April.

Canadian energy stocks, by contrast, rose 3.14% over the same period.

And oil and mining companies may remain the sector that is facing activity, market participants say.

“There are a lot of resource companies and those sectors are often in trouble, and often it’s people who are in trouble in their business,” said Adam Givertz, partner at Paul Weiss’ law firm.

“These challenges, if they represent good company, can get the activist’s attention.”