Securities lawyer Stuart Morrow - Date unknown Ben Nelms.

27 September 2012

Proxy Fights Take on New Meaning

Vancouver British Columbia - The bruising proxy battle earlier this year between shareholder activist Bill Ackman and Canadian Pacific Railway Ltd. for control of the company's board cost a staggering $32-million.
 
While that's a big figure for proxy fights in Canada, it's chump change, compared with what Mr. Ackman and his company Pershing Square Capital Management LP would have paid in a takeover fight for control of Canada's second-largest railway.
 
With a market cap last September of about $8-billion, a takeover would have been a costly venture to finance and shareholders would have expected a sizable premium.
 
Instead, Mr. Ackman, CP's largest investor, spent $15-million to win the proxy battle, which effectively gave him control of the board and the ability to appoint a management team favourable to his position. CP spent $17.5-million defending the fight.
 
It has paid off handsomely for Mr. Ackman. CPs shares are trading at historic highs of more than $81 compared with a low of just over $46 a year ago. Its market cap has risen to almost $14-billion, making CP shareholders wealthier in the long run.
 
"Proxy fights are a cheap way to get control, but you don't own the company," said Stuart Morrow, a securities lawyer in Vancouver at Davis LLP.
 
Is it any wonder, then, that proxy fights are taking on a new meaning in Canada? Why launch a hostile takeover with a premium, when the easier solution might be to ambush a company that is sitting on a pile of cash and take out an unsuspecting board?
 
Author unknown.