Institutional Shareholder Services (”ISS”) recently released their 2017 Canadian Midseason Activism Review and noted that shareholder activism has remained relatively consistent since the high point in 2012. In the first half of 2017, ISS observed 6 proxy battles for board control with an average market capitalization continuing to be below $100m ($56m in 2017). This is consistent with 6 at the same time in 2016 and 9 in 2015. The decrease in full-blown proxy battles over the years is largely viewed to be a consequence of several developments. Notably, an increase in issuer preparedness, the adoption of advance notice policies, an increase in shareholder engagement and a greater willingness to settle prior to full a blown battle over the past few years and, of course, the costs. By way of example, a recent battle south of the border has record anticipated costs of USD $65 million.
Activist Success Rate
Of particular note, however, is that the activists have won 3 of the 6 battles in 2017. This is a significant increase to the past three years where ISS identified activist win rates declining from 27% to 17% to 14% for 2014-2016. As the level of preparedness and sophistication has improved at the Issuer level, so too has the activists’ approach. More than ever, activists are attempting to work with the board and only using proxy battles as a measure of last resort after all other avenues have been exhausted. As such, they have defined strategies and well-laid out actions for the target. Previously, it was not uncommon for activists to be focused on short-term efforts which were less aligned with the longer term shareholders.
Laurel Hill is pleased to note that we have acted on 3 of the 6 proxy battles with a perfect 3-0 win record, representing Delbrook Capital in their win to replace the Board of Rapier Gold and both Espial Group and Eagle Energy in their defenses against activists. These results add to our unparalleled industry record of 42-12 in proxy battles since our inception in 2008.
Activism in the M&A World
We would be remiss if we did not mention the continued level of activism in the M&A world. Last year, we saw several board supported transactions fail to receive the necessary approval or succeed only following an increased offer price as a result of shareholder opposition. So far this year, Rayonier had to increase their offer from $4.05 to $4.75 for Tembec after opposition from major shareholders and Milestone REIT was similarly pushed to a higher offer by institutional opposition. Similar situations, which were less public, but opposed nonetheless, were alive and well in the first half of 2017.
We will continue to track the developments in activism and provide further information to our clients.