Guide to Shareholder Activism and Proxy Contests in Canada

securities. In addition, where a person is required to file an early warning report, the report must include disclosure of the material terms of all securities lending arrangements to which such person is a party, even if such arrangements are exempt from the ownership calculation. These disclosure requirements were intended to address transparency concerns involved in empty voting by requiring more comprehensive disclosure about a shareholder’s economic and voting interests. 25. Mini-Tenders An activist seeking to build or increase its stake in a public company and, at the same time, obtain proxies on the tendered shares may elect to do so in a public manner by pursuing a so-called mini-tender. A shareholder making a mini-tender seeks to build a stake of up to 19.9%, therefore, staying below the 20% threshold at which Canada’s takeover bid regime and associated requirements would be triggered. The shareholder offers to acquire shares from other shareholders within a very short time frame at a small premium to the trading price or, if made in response to a change of control transaction in which shareholder approval is required, the applicable transaction price. While used infrequently in Canada, the mini-tender may be an effective means for a minority shareholder to build its equity stake while also securing proxies to vote the tendered shares; this, in turn, can help a minority shareholder block (or influence changes in the terms of) a deal or influence a campaign for board change. A mini-tender was recently successfully deployed by an activist challenging an insider bid in which the activist made a mini-tender for shares at a premium to the bid price and was able to accumulate a meaningful minority stake. The strategy ultimately gave leverage to the activist, resulting in the bidder increasing the consideration under the bid. In another recent case, a mini-tender made by an activist challenging a transaction was cease- traded by securities regulators on the basis that it was structured in a manner that was abusive and contrary to the public interest. The regulators took issue with, among other things, the fact that the mini-tender gave the activist the right to vote shares tendered even if the activist did not ultimately take up and pay for any of the tendered shares and was made on a very tight timeline. Mini-tenders in Canada remain relatively unregulated with the exception of historical CSA Staff Notice 61-301 – Staff Guidance on the Practice of Mini-Tenders, which contains guidance by the CSA concerning mini-tenders made at a discount to the market price. Recent mini-tenders in Canada led to some renewed regulatory interest in mini-tenders; however, Canadian securities regulators have not stepped into the arena with more concrete guidance, including as to the acceptable timelines, terms and required disclosure associated with mini-tenders.