Presentation Title

Développements récents en
valeurs mobilières en 2014
Neil Kravitz
Sébastien Roy
23 avril 2014
Nos objectifs pour la présentation
1. Tendances clés relatives à la gouvernance
2. Problématiques liées au système de vote par procuration
3. S’adapter aux nouvelles règles de commercialisation des
placements publics
4. Financement participatif
5. Notes d’orientation concernant les meilleures pratiques en
contrôle diligent pour les preneurs fermes
6. Groupe TMX étend ses activités aux marchés privés
7. Rapport du Groupe de travail sur la protection des
entreprises québécoises contre des OPA non sollicitées
8. Activisme actionnarial : problématiques actuelles et
tendances
2
Tendances clés relatives à la
gouvernance
• La diversité au sein des conseils
– Propositions de la Commission des valeurs mobilières de
l’Ontario (la « CVMO »)
– Modèle « se conformer ou s’expliquer »
• Mandats à durée fixe et politiques de renouvellement
• Augmentation des votes consultatifs sur la rémunération
• Règlementation des agences de conseil en vote et
développements récents à leur égard
3
Nouvelle règlementation du
système de vote par procuration
• La problématique identifiée par Davies
• Consultation entamée par la CVMO
• Avis contraire de Broadridge et d’autres intervenants
• Prochaines étapes ?
4
Living with the "New" Marketing
Rules for Public Offerings
• Last summer wholesale changes to rules for marketing
activities
• New rules-based regime replaced policy and practicebased regime
– Detailed regulation of written materials
– Codified existing practices and conditions, and limitations for
bought deals
– New safe harbour to assess interest in potential IPO
5
Living with the "New" Marketing
Rules for Public Offerings
• New permitted materials for marketing
– Standard term sheets
• Used less often as content limitations are restrictive
– Marketing materials
• Issuer must publicly file template version prior to use
• Filed version must form part of final prospectus
• Now part of normal process for an offering – market has gotten
used to new requirements (translation, timing of filing)
• Now also applies to take-downs from a shelf prospectus
6
Living with the "New" Marketing
Rules for Public Offerings
– Road show rules
• Rules regulate written communications during road shows
• Include where investor is shown but does not take a copy of
presentations
– Bought deal exemption
• Rules expressly permit underwriters use of standard term sheets,
marketing materials and conducting road shows between
announcement and prospectus receipt
• Clear limitation on upsizing – cannot upsize beyond 100% of
original deal size
• Cannot reduce amount of securities to be purchased or price until
4th business day after bought deal agreement
7
Living with the "New" Marketing
Rules for Public Offerings
– IPO testing the waters
• Limited communication to potential IPO investors so long as they
are accredited investors
• Problems with rule: exemption does not extend to issuer's
management → how does the dealer make use of the exemption
without management?
8
Le financement participatif
(Crowdfunding)
• Le financement participatif : contexte problématique et
historique
• Les deux éléments principaux de la règlementation
proposée :
– le projet de dispense de prospectus pour financement
participatif;
– les obligations d’inscription pour les portails de financement
participatif.
9
Le financement participatif
(Crowdfunding)
• La dispense de prospectus
– Restrictions relatives aux émetteurs éligibles
– Modalité du placement, incluant type de titres, paramètres
du placement (1,5 M$), restrictions sur la sollicitation et la
publicité
– Mesures de protection des investisseurs (2500 $ par
placement, maximum de 10 000 $ en financement
participatif par année civile par investisseur et autres
mesures d’information et de protection)
10
Le financement participatif
(Crowdfunding)
• Inscription des portails
– Courtiers d’exercice restreint
– Obligations supplémentaires des portails
– Certaines activités autorisées et d’autres interdites
• Nouvelle dispense disponible pour entreprises en
démarrage – au delà du financement participatif
11
New Guidance Codifies Underwriting
Due Diligence Best Practices
• In March, the Investment Industry Regulatory Organization
of Canada (IIROC) published proposed guidance on
underwriting due diligence for public offerings
• Guidance, while largely reflecting current best practices,
represents an attempt to promote consistency and
enhancement of standards among investment dealers
• Underwriters long recognized as important gatekeepers to
capital markets. In order to responsibly sign a prospectus
and establish a statutory due diligence defence,
underwriters must conduct a "reasonable investigation"
that provides reasonable grounds for a belief that there
has been no misrepresentation
12
New Guidance Codifies Underwriting
Due Diligence Best Practices
• IIROC acknowledges that due diligence practices must be
customized to circumstances, the issuer, the industry and
the type of security
• Proposed guidance outlines key principles that should
govern performance of due diligence, including:
– Adoption of written policies and procedures that acknowledge
that what constitutes "reasonable" due diligence is contextual;
– Effective oversight of all aspects of underwriting process;
13
New Guidance Codifies Underwriting
Due Diligence Best Practices
– Due diligence plan tailored to circumstances of offering that
reflects a reasonable level of diligence;
– Business due diligence by investment dealer sufficient to
understand the key internal and external factors affecting the
issuer's business;
– Clarity as to boundary between business due diligence and
legal due diligence, to ensure that only appropriate matters
are delegated to underwriters' counsel; and
– Documentation of due diligence process to demonstrate
compliance with policies and procedures, IIROC requirements
and applicable securities laws.
14
New Guidance Codifies Underwriting
Due Diligence Best Practices
• In requesting comments on the proposed guidelines,
IIROC posed specific questions on which it is seeking
guidance. They include:
– Are there other considerations unique to specific types of
public offerings, such as "bought deals" or debt offerings, or
public offerings by issuers in specific types of industries (e.g.,
mining, oil and gas, technology)?
– Are there other circumstances that constitute "red flags"
indicating that heightened due diligence and/or enhance
disclosure may be appropriate (for example, offerings by
emerging market issuers)?
15
New Guidance Codifies Underwriting
Due Diligence Best Practices
• IIROC is not seeking to establish a standard of what
constitutes reasonable due diligence, create new legal
obligations or modify existing ones. It also makes clear that
proposed guidance is not intended to create a "form over
substance" model that would detract from the exercise of
professional judgment
• Proposed guidelines represent both risks and opportunities
for the investment dealer community
16
New Guidance Codifies Underwriting
Due Diligence Best Practices
• Potential risk for dealers is that a written set of guidelines
may form the first line of inquiry for plaintiffs' lawyers in a
misrepresentation action. Any deviation from key principles
of the proposed guidelines would have to be justified with
reference to the particular circumstances and the
professional judgment of the dealer
• Another risk is need to avoid inadvertent non-compliance
with procedural aspects of the proposed guidance,
particularly with regard to documenting implementation of
the due diligence plan for a particular offering
17
New Guidance Codifies Underwriting
Due Diligence Best Practices
• Proposed guidelines may have a number of beneficial
effects. Investment dealers will have a new framework for
evaluating their due diligence practices and best practices
may become more consistently defined. As IIROC
suggests, this would serve broader capital markets
objectives
18
New Guidance Codifies Underwriting
Due Diligence Best Practices
• Principal challenge is likely to be how due diligence
practices in proposed guidance are applied contextually
• Business, market and timing considerations of executing a
public offering are vastly different depending on
circumstances, which range from an initial public offering
to a "jump ball" overnight offering. This challenge is
recognized by IIROC in proposed guidelines and specific
questions they have posed
19
TMX Group Expands into Private
Markets
• TMX Group announced in late March launch of a new
business to facilitate capital raising and trading of
securities in the exempt market
• New business venture to be known as "TSX Private
Markets". TMX stated that it will allow it to serve
companies from inception/start-up through life cycle to a
public company
• May significantly impact market for and way of conduct
private placements/private financings
• Planned launch for third quarter of 2014
20
TMX Group Expands into Private
Markets
• Will facilitate capital formation and secondary trading of
securities in exempt market across Canada
• Will also help to provide investors and shareholders with
"unique investment opportunities and increased liquidity"
• Plans to work closely with registered dealers
• Service for private and public companies to include:
– Secondary trading of private issuer securities and public issuer
"hold period" shares;
– Facilitation of public issuers' private placements;
– Capital formation for private issuers; and
– Management of shareholder registry
21
Le rapport du Groupe de travail sur la
protection des entreprises québécoises
contre des OPA non-sollicitées
• Recommandations concernant la Loi sur les sociétés par
actions (Québec)
– Droit de vote variable, modulé en fonction de la durée de
détention des actions
– Interdiction de certaines opérations au sein d’une société
faisant l’objet d’une offre publique d’achat (« OPA ») nonsollicitée
– Extension de ces mesures aux fiducies québécoises
• Recommandations relatives aux organismes régissant les
valeurs mobilières
– Permettre aux conseils de sociétés visées par une OPA nonsollicitée d’exercer pleinement leurs devoirs de fiduciaire
– Transformation du Bureau de décision et de révision en
22
tribunal administratif spécialisé
Le rapport du Groupe de travail sur la
protection des entreprises québécoises
contre des OPA non-sollicitées
• Recommandations liées à la pérennité des sièges sociaux
– Reporter l’imposition des employés de sociétés cotées en
bourse et des actionnaires de ces dernières au moment de la
vente des actions plutôt que leur acquisition
– Traitement fiscal plus favorable des gains sur options d’achat
d’actions qu’ailleurs au Canada
– Permettre aux propriétaires et actionnaires importants d’une
société de reporter l’imposition lors d’un transfert
générationnel
– Permettre aux fiducies familiales de reporter la réalisation du
gain attribuable à une participation importante dans une
entreprise au moment de la vente plutôt que tous les 21 ans,
tant que l’entreprise est active
• Impact réel de cette initiative ?
23
Shareholder Activism: Current
Issues and Trends
1.Why an issuer might be vulnerable to attack
2.The hottest topics in shareholder activism
–
–
–
–
–
–
Vote buying
Golden leashes
Zombie directors
Trends in regulatory developments
Trends in case law
Shareholder smack-down
3.Practical advice to public company boards
24
Why an Issuer may be vulnerable
• Different types of activists
• Performance issues
• Say-on-pay
• Poison pill vote
• Executive terminations
• Majority voting
• Major corporate events
• Asset class and business line
25
Canadian Large Cap Activism
 Pershing Square

Underperformance

Management change
 Jana Partners

Underperformance

Return of capital

Spin off
 Invesco

Failed strategy

Underperformance

Board renewal
 Highfields

Capital allocation

Return of capital / REIT proposal
 Jaguar Financial / Northwest & Ethical

Corporate governance
 Icahn

Strategic alternatives
26
Soliciting Dealer Fees
• Compensation to retail brokers for soliciting client votes
• Practice began in M&A  Take-over bids
– Morphed to Plan of Arrangement  Fees for proxies
• e.g., TSX/LSE merger
• Telus non-voting share collapse
• Use in proxy contest is new
– EnerCare (2012)
– Agrium (2013)
27
Nominee Compensation
• Nominees' independence scrutinized
– Independence from dissident matters
– JANA/Agrium
• JANA's nominees were offered a profit
participation in JANA's Agrium investment
• Crystallizes on three year anniversary
• Agrium labelled these "golden leashes"
that created short-term incentives
– Hess/Elliot Partners
• Elliot offered similar compensation to its
nominees but rescinded the
compensation in connection with a
settlement
• CCGG has come out against nominee
compensation
28
Majority Voting
• 87% of the TSX Composite Index have majority voting
policies
• TSX rule changes now prohibit slate voting but majority
voting policies not mandatory – "comply or explain"
• Rare for a director to receive withhold vote - average
percentage of votes withheld from an individual was 4.4%
29
Majority Voting
• Emerging issue in how boards deal with directors who fail
the vote
• Banro Corporation board rejected resignations offered by
directors receiving majority withhold votes
• Potential regulatory response to prescribe how issuers
deal with offers of resignation
30
Regulatory Developments to
Watch
• CSA Guidelines for proxy advisory firms
• Proposed changes to early warning reporting regime
– Lowering threshold from 10% to 5% and other changes
• Poison pill/defensive tactics proposals
– Shareholder collective decision making (CSA) versus
deference to board decisions (AMF)
31
Trends in Case Law
• Significant shift from where we thought courts might be
heading based on developments two years ago
• Recent cases have demonstrated increasing deference to
board actions that limit shareholder franchise
• Business judgment rule and presumptions of good faith are
formidable obstacles to any challenge by a dissident
• BC courts continue to issue a large proportion of notable
decisions on shareholder contests
32
Trends in Case Law
Independent Chair Decisions
• Several cases addressing when an independent chair for a
shareholders meeting is required
• An interest in the outcome of the meeting does not
disqualify the chair – Hastman v. St. Elias Mines
• However, chairs should be careful to stay above the fray:
– Court may order an independent chair to "create a perception
of fairness" – Shopplex.com v. Brown
– "Reasonable apprehension of bias" – Western Wind Energy v.
Savitr Capital
33
Trends in Case Law
Courts giving leeway to Boards/Chairs
• Perpetuation of a board of directors due to repeated failure
to obtain minimum quorum at AGM was not oppressive to
a dissident shareholder – Ebrahim v. Continental Precious
Minerals Inc.
• 5 month delay to hold requisitioned special shareholder
meeting in tandem with AGM was reasonable – Marks v.
Intrinsyc Software
34
Trends in Case Law
• Court upheld a board's cutting off of meeting requisition
right on the basis of board's determination that a
requisitioned meeting was not in the best interests of the
company when AGM would be held in six months – Wells
v. Bioniche Life Sciences
• A director need not recuse himself from consideration of a
requisition to remove him from the board – Xemplar
Energy Corp v. Tam
• Advanced notice bylaw is not oppressive, even when
coupled with an adjournment of a shareholders meeting –
Northern Minerals v. Mundoro Capital; Maudore Minerals
v. The Harbour Foundation
35
Trends in Case Law
Holding Shareholders to a High Standard
•
A chair may disallow proxies that were solicited on the
basis of a misleading circular – Hastman v. St. Elias
Mines
•
Joint actor relationship may be formed by participation in
a solicitation – Genesis Land Development v.
Smoothwater Capital
•
Failure of a dissident to disclose joint actor may require
adjournment – Genesis Land Development v.
Smoothwater Capital
•
Meeting requisition invalid for failing to identify nominees
Wells v. Bioniche
36
Trends in Case Law
Mason v. TELUS empty voting saga
• Trial judge upheld board's rejection of Mason requisition
on technical grounds
• BC Court of Appeal reversed – requisition was valid
• BC Motions court ordered Mason's business to be
included at meeting called by TELUS (2 days later) even
though Mason had not had opportunity to solicit proxies
for its resolution
37
Shareholder Smack-Down
• Recent successes in court battles may embolden boards
to be more aggressive. For example:
–
–
–
–
–
cutting off requisition rights
postponing meetings
more aggressive advance notice by-laws
discarding dissident proxies
vote buying
38
Shareholder Smack-Down
• However, issuers should tread with caution
• Courts appear to be applying deferential standards of
review (business judgment rule) uncritically – can this
last?
• Contrast to Delaware standard of review:
– When directors faced with threat to corporate control, they
must demonstrate a "compelling justification" if their acts have
the primary purpose of thwarting shareholder rights (Blasius
Indus. v. Atlas)
39
Practical Advice for Boards
• Fix corporate governance foot faults on your own and
proactively
• Know thy enemy
• Pre-empt activist's agenda
• Engage communications strategist
• Engage proxy solicitation firm
• Communicate with proxy advisory firms
• Think about settlement
• Don't assume shareholder loyalty
• It's about money not loyalty
• Don’t make enemies
40
Merci !
Thank you!
Neil Kravitz
514 841-6522
[email protected]
Sébastien Roy
514 841-6493
[email protected]