Pershing Square’s successful campaign to elect its nominees to the board of Canadian Pacific Railway serves as a good example of the utility of the broadcast exemption to activists and the flexibility it affords to engage in a robust solicitation campaign, particularly in the early stages, without incurring the additional costs and burdens of mailing a dissident information circular. In the case of Pershing Square, reliance on the exemption, combined with the filing of an initial “pre-emptive” proxy circular, enabled Pershing Square to mount a multi- faceted solicitation campaign involving public town hall meetings, press releases, speeches, media interviews, shareholder one-on-one meetings and a customized website, over the course of months and long before Canadian Pacific Railway’s management had filed its proxy circular. Since then, other activists proposing governance and board changes have relied on the public broadcast exemption to build shareholder support for their proposals before filing, or in the absence of, a dissident proxy circular. As the Smoothwater decision (discussed above) illustrates, issuers are not completely handcuffed from responding to an activist that relies on the broadcast exemption to get its narrative out ahead of management’s proxy circular. Issuers have some scope to issue press releases in defence without crossing the line into illegal proxy solicitation. Accordingly, an activist relying on the broadcast exemption cannot expect to go unchallenged by the issuer in the lead-up to filing the management proxy circular. 18. Soliciting Dealer Fees The high-profile proxy contest in which JANA Partners sought to have five nominees elected to the board of Agrium Inc. brought under scrutiny the practice of companies compensating brokers through the payment of so-called soliciting dealer fees for soliciting shareholders’ votes in favour of management. The use of soliciting dealer fees was originally seen only in connection with takeover bids. In these transactions, bidders seeking to ensure that they meet their minimum tender condition would retain a dealer to form a soliciting dealers’ group that would compensate brokers (at the bidders’ cost) for getting their retail clients to tender to the bid. The fees served as a form of commission to brokers for shares tendered by their clients. This practice became fairly common despite some objection from shareholder advocates who maintained that the fees compromised the brokers’ ability to provide unbiased advice to shareholders on whether to tender to a bid. The use of soliciting dealer fees then migrated to Canadian M&A transactions conducted by way of a shareholder vote. In these situations, brokers are compensated for soliciting their clients’ votes in favour of the transaction. In some cases, rival bidders have offered fees to encourage brokers to get their clients to vote against a competing transaction. Despite the variety of situations in which soliciting dealer fees have been seen, until 2012, the use of these fees had been limited to corporate transactions and the fees had never been used in proxy fights for the election of a board of directors.
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Davies | dwpv.com
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