Activist Insight recently published the sixth edition of its annual report, entitled “The Activist Investing Annual Review 2019” (the “Review”). The Review analyzes recent global shareholder activism trends, forecasts expected developments in 2019, and highlights and compares jurisdictional data.
Oh, Canada: Increased Canadian Activism
As the Review outlines, 2018 was a notable year in Canada for shareholder activism. Not only did one of the biggest proxy fights of the year stem from Canada, but 75 Canadian companies received public demands from activist investors. The number of public demands received last year is significant considering there were 56 Canadian target companies in 2017. Activist Insight attributes this increase, in part, to greater activity in Canada’s basic materials industries, which accounted for 37% of Canadian targets in 2018. Canadian companies received the third highest number of public demands in the world. Australia narrowly surpassed Canada as 78 Australian companies received public demands last year. With regards to the number of activist short campaigns in 2018, Canada came in second place. Not surprisingly, the U.S. took first place by having 98 bets against companies, while Canada had 22.
M&A activism in Canada decreased by 2.4 percentage points from 2017 to 2018, which was a more modest decline than in Europe. By contrast, Australia and the U.S. showed increases of 2.2 and 7.7 percentage points, respectively.
The Review also noted that board representation demands increased at a faster rate than settlement agreements. Of the 48 board seats obtained in 2018 in Canada by activist nominees, 30 were won by settlement and the remaining seats were achieved by vote.
Looking Back at 2018
The Review identified the following overarching trends of shareholder activism in 2018:
- Riding the wave. The success of many activist investors had a ripple effect around the world and served as encouragement for others. As a result, the sustained efforts of activists led to further success in obtaining board seats and securing proposed improvements. Activists were undeterred even when companies used defense tactics, such as high insider ownership and dual-class stock.
- The M&A machine. There was a marked increase in worldwide mergers and acquisitions (“M&A”) that were related to activism, as most of the year’s high-profile battles were accompanied by a deal. Further, over 60% of demands saw an activist advocating for a deal, and hostile or unsolicited bids acted as springboards for activists to demand even higher offers. Certain activists also employed the strategy of encouraging a company to put itself up for sale, despite a lack of bidders.
- Good governance vs. ESG concerns. Despite the world’s growing interest in environmental, social and governance (“ESG”) issues, there was a particular focus on governance and shareholder rights. It was hypothesized that this heightened concern relating to governance led to there being fewer ESG proposals. However, many ESG issues may not have been on proxies due to them being resolved by way of negotiation.
- Global increase in activism. Outside of the U.S., there was a record level of shareholder engagement as over 400 companies received requests from activists. These 400 companies represented 47% of all target companies in 2018.
- Settlements abound. There was a significant rise in companies reaching settlements with activist shareholders. This represents a growing acceptance by companies of such investors as important stakeholders, and a willingness to consider and accommodate reasonable activist suggestions.
The 2019 Forecast
Looking forward, the Review projected a variety of trends in 2019, including:
- Eyes overseas. If U.S. valuations revert to their past highs, American activists will likely turn their attention to the U.K., Germany and Japan.
- Continued ESG Concerns. ESG will continue to be a consistent theme in 2019, which will lead to specialists being particularly sought after by activists and advisory companies.
- Dark deal days ahead. It is expected that a flurry of transactions and related activism will take place in 2019, particularly in the mining and energy sectors. However, the total number of deals is likely to decrease, while attempts of hostile takeovers increase.
The complete Review may be obtained from Activist Insight here.
The author would like to thank Sarah Pennington, articling student, for her assistance in writing this legal update