The Quebec government’s proposal to give local companies more power to reject hostile takeover bids is a blueprint for protecting underperforming companies and diluting shareholder rights, critics say.
The recommendations, which emerged from a provincial task force on the protection of Quebec businesses, reverse shareholder rights that have been gained over the past half-century, said prominent Toronto securities lawyer Philip Anisman.
“It is a [proposed] regime, which permits the board to override or ignore the wishes of the shareholders,” he said in an interview Friday.
The Parti Québécois government unveiled a plan on Thursday that would make it virtually impossible for a corporate predator to acquire a publicly held company against the will of its board. Finance Minister Nicolas Marceau said the goal is to help fend off deals that undervalue companies, or take advantage of them when they are temporarily weak.
The announcement underscores concern in Quebec that hostile acquisitions could hollow out the province’s head offices. The proposals will allow companies to give extra voting rights to investors who have owned their shares for two or more years, and would limit the ability of an acquirer to fire the existing board of directors or sell off a company’s assets after a deal is completed.
Leo de Bever, chief executive of the Alberta Investment Management Corp., which manages $70-billion in investments for Alberta government pension funds, said he understands the Quebec government wants to protect local ownership of its companies, but warned that such policies won’t work if firms have to be artificially sheltered from takeovers and shareholders cannot vote on offers.
“I would focus more on making local companies so competitive that there is no reason to sell out,” he said.
The Canadian Coalition for Good Governance, an advocacy group for most of Canada’s largest institutional investors, came out against the Quebec rules on Thursday, saying it was “not a good day” for shareholders. The Ontario Teachers’ Pension Plan said the proposals “appear to represent a major circumvention of shareholder rights,” according to spokeswoman Deborah Allan.
The legislation will raise the cost of capital for Quebec companies, said Claude Garcia, the former president of Montreal-based Standard Life Canada and a former director of the Caisse de dépôt et placement du Québec.
“The aim of an economy is to promote prosperity, not ensure that one or two head offices are maintained,” said Mr. Garcia. The rules will “entrench boards” at the expense of shareholders, he said.
Wes Hall, chief executive officer of shareholder advisory firm Kingsdale Shareholder Services, said the anti-takeover policies could change the way investors view Quebec investments.
“As a shareholder I would want to effect change or support whatever I believe is best for my investment. If the government can take that decision away from me, why would I invest in that company?”
Many prominent business leaders in Quebec have spoken out on what they say is the need to protect head offices in the province. The issue came to a head in 2012 when U.S. hardware giant Lowe’s Cos. Inc. made an unsolicited takeover offer for locally based Rona Inc.
Former Liberal provincial finance minister Raymond Bachand says there is an uneven playing field between Canada and the U.S. on the takeover front. Canada doesn’t enjoy the kind of “just say no” rules in the United States that permit corporate directors to reject a hostile bid without having to put the offer to a shareholder vote, he said.
“We’re vulnerable. I think there is a consensus [in Quebec] on the need to take action,” he said.
Stan Magidson, chief executive officer of the Institute of Corporate Directors, an association representing 7,500 board members in Canada, said directors want more power to fend off bad deals.
He said Canada has won an international reputation as a “promised land for activist investors” who have discovered that an unsolicited takeover bid is “virtually certain to result in a takeover of a company.”
“It’s been our view that the pendulum has swung too far in that direction and there’s really a need to look at this holistically and recalibrate it,” he said.
With a file from Jacqueline Nelson