Battles move behind closed doors as activists, short-sellers off to quiet start in 2019

Victor Ferreira - thegrowthop.com Posted 5 years ago
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After a year during which activists demanded change in 75 boardrooms and targeted 22 companies with public short positions in Canada, their activity slowed to a crawl in 2019, according to a new report.

In the first four months of 2019, activists have only publicly targeted 28 companies, when by the same time in 2018, they had already set their crosshairs on 47. According to a report by Activist Insight, a researcher that provides clients with information on global shareholder activism, that number is the second-lowest recorded since 2015.

The lack of activity during the first four months of the year, which tend to be the busiest for such campaigns, may be due to the dropoff in proxy fights involving basic materials companies. In 2018, 28 of the 75 proxy fights took place at these companies, with notable inclusions involving Detour Gold Corp. and Crescent Point Energy Corp. In the oil and gas sector alone — a favourite target for activists — there were seven proxy fights in 2018.

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This year, there has been none — and that may simply be a result of exhaustion.

“There’s a lot of fatigue,” Raymond James’ head of M&A in Canada, Craig McDougall, said in the report. “Oil and gas, mining have been in the dumps for four years.”

Short sellers have also sharply reduced their activity in Canada after a whirlwind year that saw them primarily target the cannabis sector. In 2018, activist short sellers, who are mostly based in the U.S., opened major positions against 22 Canadian cannabis companies, with nine of them being announced in the first four months of the year. Citron Research notably focused on Tilray Inc., Cronos Group Inc. and Aurora Cannabis Inc., while Hindenburg Research and Quintessential Capital Management both keyed in on Aphria Inc.

So far in 2019, activist short sellers have launched campaigns against just two companies — a 77 per cent drop from their movement during the same time last year.

Kingsdale Advisors executive vice-president of communication strategy Ian Robertson said the drop could be attributed to more settlements simply being made behind closed doors, which wouldn’t be reflected in the report. More and more boards are realizing that public proxy fights are costly, time-consuming and cause severe reputational damage and are therefore choosing to reach mutually agreeable settlements, he said.

There's a lot of fatigue. Oil and gas, mining have been in the dumps for four years.

Craig McDougall, Canada M&A head, Raymond James

Institutional investors are also beginning to step in, adopting tactics used by activists to engage companies and argue for change. Unlike traditional activists, they prefer not to have those internal conflicts go public and instead choose to settle behind closed doors.

“It used to be that institutional investors like a BlackRock would sit by passively but they’ve ramped up their governance teams … and the reason for that is if you’re long in a company you have only so many options in terms of selling out if you’ve got a large position,” Robertson said.

Still, Robertson expects further activity from activists in the coming months — particularly those in the gold sector, where he said there’s been one proxy fight every eight weeks for the past two years.

“The share price in the gold space has come back and I think that’s bought a stay of execution for a lot of gold companies,” he said. “There are shareholders there … that want change and are prepared to push things forward.”