Alberta Chapter Update

Harold ‘Hal’ Kvisle, former CEO of TransCanada and Talisman Energy, presented his thoughts on shareholder activism at a CIRI Alberta luncheon in January 2018.

Shareholder activism has been around for over 70 years and activists are, first and foremost, looking to make money, he said. Some activists are very short-term, others are willing to capture value over three to five years, according to Kvisle. 

He said that, in most cases, activists want:

• Governance changes – CEO and/or Board;
• Changes to dividends and perhaps share buybacks;
• Asset restructuring (splitting the company);
• Accelerated growth, or sometimes less capex with more cash to shareholders;
• Financial leverage changes – roll the dice with higher debt; and
• Acquire the company, take it private.

Usually activists will start quietly, communicating with management and the Board, Kvisle commented. In ramping things up, they may publicly criticize management and/or the Board, he said, while at the next level, they may threaten legal action or a proxy contest. If threats don’t work, expect a proxy contest to replace the Board and fire management, according to Kvisle.

Most short-term activists have no interest in the long-term success of the company – their objective is to quickly drive up the share price and get out, he said. Short-term activists can do a lot of damage if they force a company to shed long-term opportunities in favour of short-term gain, he added.

However, some activists bring a long-term strategic perspective to the table – they are genuinely interested in long-term value creation and they want the company to do better, Kvisle said. Longer-term activists identify companies with low market multiples, weak cash flow, dormant assets and underperforming management teams, he stated. 

According to Kvisle, the first question a CEO and Board must answer is what kind of activists are we dealing with? Are these successful, thoughtful, long-term investors, or just short-term opportunists? Do they have a substantial shareholding, or are they just expressing opinions and making a lot of noise? What are their motivations and their track records?  

The second question, he said, is what do they really want and is there merit in their proposals? The third question he posed is does the company need to accommodate the activists? Do they have shareholder support? If an activist is a substantial shareholder, there is a role for both the CEO and the Board Chair, said Kvisle; the CEO and management team will handle most interactions with shareholders but when a shareholder is particularly influential or grumpy it’s time for the Chair to join the discussion. 

He commented that well-run companies are unlikely to attract activist attention. Strong near-term performance, significant value creation upside, a strong balance sheet and excellent shareholder communications will cause activists to look elsewhere, Kvisle said – and strong companies will know where they stand relative to competitors. 

However, Canadian boards should take activist risks very seriously, he added; management must be in close contact with major shareholders and strong relationships must be in place before an activist appears. If management has communicated the upside, a short-seller activist won’t get much traction, according to Kvisle.

Ontario Chapter Update

The Ontario Chapter had a busy end of the year, hosting a sold-out luncheon in November on Markets in Financial Instruments Directive (MiFID) II. Thanks to RBC Capital Markets for hosting this event. Three speakers provided insight into the upcoming regulatory changes to the European markets: Jordan Lorch, Global Head of Client Strategy & CSA, RBC Capital Markets; Garry Wilson, Director of IR Services, Eagle IR (UK); and Dan Romito, Global Head of Investor Analytics, Nasdaq. The main takeaway was that there are still many unknowns, as MiFID II is entirely new to the investor community.

The Chapter came together again for its Jingle & Mingle party. Over 50 members and non-members met at a local spot to catch up before the holidays. 

We kicked off the 2018 season in January with an event aimed not only at members of the Ontario Chapter but those of Women in Capital Markets as well. A panel of economists gave all attendees great insights into what to expect for the year and how to better position their organizations in a global context. They were: Pierre Cléroux, Vice President, Research and Chief Economist, BDC; Megan E. Greene, Managing Director and Chief Economist, Manulife Asset Management; Eric Lascelles, Chief Economist, RBC Global Asset Management Inc.; and Dr. Avery Shenfeld, Managing Director and Chief Economist, CIBC. The luncheon was hosted by CIBC World Markets.

Your Executive is looking forward to upcoming events, so make sure to watch our weekly eblasts for more details!  

Quebec Chapter Update

Last December, while the city was being covered in snow, the Quebec Chapter hosted the National event AGM Best Practices and Trends. The event was well attended as people came out to hear panel members: Julien Lavallière, Directeur Principal, Relations avec la clientèle, Fiducie TSX; Pat Marshall, Vice President, Communications & Investor Relations, Cineplex Entertainment; and Sonia J. Struthers, Senior Partner, McCarthy Tétrault LLP. As an added incentive, the cocktails served following the event probably convinced a few attendees to brave the weather! They chose wisely, as the panel highlighted very interesting conclusions regarding the intricacies of by-laws and business acts across provinces and the impact on virtual AGMs. Cineplex Odeon also revealed the secret of its AGM, thanks in part to the company’s line of business: popcorn and a look at blockbuster previews! Following the panel, the cocktails carefully prepared by our host, TMX, had everyone leaving with a feeling of completeness about the evening: good food and good insights! 

After the holidays, the Quebec Chapter offered its members the ability to attend CFA Montreal’s Outlook 2018 luncheon, held in late January. CIRI Quebec members were able to enjoy the presentations of three prestigious economists: Clément Gignac, Senior Vice-President and Chief Economist, Industrial Alliance; Stéfane Marion, Chief Economist and Strategist National Bank of Canada; and Martin Roberge, Managing Director, Canaccord Genuity. With the room filled to capacity, the economists revealed their visions for the months to come, giving insights into the future and helping our members better prepare for what might be ahead.