CHAPTER 04 Shareholder Activism Abates, but Not for Long: Significant Activity and Developments in 2020
One such example was the push by a shareholder group of Australis Capital Inc., an issuer listed on the Canadian Securities Exchange (CSE), which was spun out from Aurora Cannabis Inc. in September 2018 as its U.S. investment vehicle. The shareholder group, which owns a combined 8% of Australis’ common shares, is being led by Duke Fu and Roger Sykes, and includes Terry Booth, the former CEO of Aurora Cannabis. The shareholder group launched a campaign to have its candidates stand for election at Australis’ September 22, 2020 annual shareholders’ meeting, which has been postponed by Australis. We expect that the trend toward a larger number of one-off activist events against Canadian-listed issuers will continue, with the pandemic and the ensuing recovery acting as accelerants.
SHAREHOLDER RIGHTS PLANS AND THE U.S. “ANTI-CORONAVIRUS PILL”
One notable development in response to the uncertainty brought on by COVID-19 was the prevalence of U.S. public companies adopting “anti-coronavirus” shareholder rights plans. These poison pills were generally adopted in the absence of a threat of a hostile takeover; instead, they were directed at a perceived threat that opportunistic investors would take advantage of depressed share prices and accumulate a sizable equity stake. According to data collected by Activist Insight , as of April 21, 2020, just over one month after the global pandemic was declared, 40 such anti-coronavirus pills were announced by Russell 3000 index issuers in the United States, with 17 of those introduced in March 2020 alone. This is in contrast to the total of 18 poison pills introduced there during the whole of 2019; with 20 pills adopted in 2017 constituting the highest number in the previous five years. 86 By early September 2020, a total of 52 poison pills had been adopted by Russell 3000 index issuers in 2020. Similar plans were adopted in the midst of the 2008 financial crisis, but the anti-coronavirus pills differ from their 2008 counterparts in a number of ways. First, the anti-coronavirus pills are shorter in duration – most were adopted for a period of less than one year, compared
with 10 years for most plans enacted in response to the 2008 financial crisis. Second, these pills were adopted by the most vulnerable issuers, with consumer cyclicals accounting for one quarter of such plans and most issuers’ market capitalizations falling under US$1 billion. Lastly, these plans also have lower triggering thresholds, with about half having a 10% trigger (instead of the more traditional 20% trigger). And some plans have different triggering thresholds for activists (13D filers) and for passive investors (13G filers). We have not seen the emergence of anti-coronavirus- styled pills in Canada, largely due to differences in Canada’s takeover bid regime and the style of rights plans that have developed here. Instead, most Canadian rights plans continue to be “new generation plans” with fairly consistent and relatively non-controversial features, including a 20% triggering threshold and no distinction between the types of acquirers that can trigger the plan. In fact, there has been no notable increase in the number of shareholder rights plans filed in Canada since the start of the COVID-19 pandemic compared with the same period in 2019.
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Davies | dwpv.com
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