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How an activist investor shook up a Canadian brand Add to ...

By the mid-2000s, Boland was ready to put down deeper stakes. He married and committed to a new, more absorbing business. In 2006, he founded a hedge fund that would agitate for change at underperforming companies. West Face Capital is named for the hostile side of a mountain—an apt metaphor for anyone tilting against Canada’s business edifice.

Located off the Bay Street grid in a bland Bloor Street office tower, West Face’s utilitarian space could be confused for a call centre. The small reception area doubles as a kitchen. A solitary bookshelf stores a worn copy of the Yellow Pages. Behind a glass partition, casually dressed men wearing headsets study computer screens. Of West Face’s 30 employees, some trade securities, some monitor investments and others hunt for new opportunities.

Boland declines to identify his backers, other than to say it is a small group of international sovereign wealth funds and Canadian pension funds and endowments. He started the fund in 2006 with $500 million; today, new investors and strong annual returns have increased West Face’s assets under administration to $2.5 billion. That gives Boland the means to buy big stakes in corporate weaklings. In little more than five years, he has successfully agitated for change at more than a dozen Canadian companies, including Stelco, ACE Aviation and UTS Energy, pocketing gains by pushing for new strategies, asset sales or lucrative takeovers.

This activism would not have been possible until recently, Boland says, because directors were too clubby. “Things are changing slowly in Canada. Now board members have a greater understanding of what their duties are to stakeholders.”

But Canada still has its distinct issues, as American activist investors have discovered. Bill Ackman’s quest for strategic change at Canadian Tire in 2006 was foiled by the Canadian capital-market oddity of multiple voting shares, which ensured that controlling owner Martha Billes could not be pushed around. David Einhorn at Greenlight Capital got lots of attention in 2005 when he compared auto parts czar Frank Stronach to Fidel Castro for damaging shareholder value at a Magna International subsidiary. But Greenlight’s complaint that Stronach’s self-enriching practices were oppressing shareholders only earned it legal bills after an Ontario court dismissed its lawsuit.

Paul Steep, a McCarthy Tétrault lawyer who represented Greenlight, says it has been difficult for shareholders to challenge companies in Canada because judges have been “far more deferential to corporate officers and directors” than their U.S. counterparts. With the arrival of more business-savvy judges and legally sophisticated shareholders, “our judges are becoming more attuned to the deficits of governance in Canadian business and less inclined to defer to directors,” Steep says. Thus directors need to pay more attention when activists call.



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Michael McCain was wrapping up a vacation at his Georgian Bay cottage in August, 2010, when he learned that West Face had just purchased 10% of Maple Leaf Foods. The news could not have come at a worse time. The company had just finished what McCain calls a “fight for survival,” after a 2008 listeria outbreak at its Toronto meat-processing plant killed 23 people. Then came the global financial crisis and the resurgence of the loonie, which meant Maple Leaf’s collection of aging plants could no longer count on a cheap currency to compete against larger and more efficient U.S. rivals. And there was more. The company was going through an ugly divorce with its biggest shareholder, Ontario Teachers’ Pension Plan, and, toughest of all, Michael’s father and mentor, company chairman Wallace McCain, was fighting a losing battle with pancreatic cancer.

“The coalescing of challenges,” as Michael McCain calls it, meant the family was losing its grip on a company that he now concedes “had not delivered” to shareholders for years. Maple Leaf’s stock price had been sinking since 2005, badly lagging such U.S. peers as ConAgra Foods Inc. and Sara Lee Corp .

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