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Report on Business magazine: December 2015

Wes Hall's advice to the CEO was direct: "I think you should resign." The chief executive's company was facing a showdown with an activist investor at a shareholders' meeting in just a few days. The activist wanted to replace several company directors; the new board would then certainly fire its top managers. Hall, 44, the polished but blunt CEO of Toronto-based Kingsdale Shareholder Services Inc., had estimated the shareholder votes for and against management's current slate of directors. Management was going to lose.

"If the shareholders vote for the new slate," Hall told the CEO (who, for obvious reasons, wants to remain anonymous), "you will most likely lose your severance, and you could be in a personal legal fight for the vesting of your stock options." Hall's closer: "Negotiate with friends now, or enemies later." The CEO tendered his resignation the next morning.

Welcome to the full-combat world of activist investing. Wall Street agitators such as Bill Ackman, Barry Rosenstein and Carl Icahn, and a small but growing number of Canadians, such as Greg Boland of West Face Capital, want underperforming executives to raise shareholder returns fast, or get out of the way. And they come armed with detailed business makeover plans, lawyers, investment bankers, PR reps and what, over the past decade, has become one of the most powerful weapons in their arsenal: the proxy solicitation and advisory specialist.

In Canada, if you're an activist investor leading a shareholder uprising, or you're the CEO (or board) under siege, you usually either hire Hall or end up staring at him on the other side of the table. Over the past five years, Hall has become one of the most influential power brokers on Bay Street. He's also one of the most unlikely–raised by his maternal grandmother in a tin shack in Golden Grove, Jamaica, one of 15 half-brothers and sisters.

What does a proxy specialist do? A generation ago, the job was little more than an administrative position–arranging annual meetings and monitoring the collection of proxy forms from docile shareholders who didn't have the inclination to attend, and whose shares would then be voted in favour of existing directors and management. Hall began his career in that routine end of the business in the 1990s. He founded Kingsdale in 2003 because he saw a growing and profitable niche: Activists and target regimes needed high-level advice and coaching in shareholder disputes.

Now Hall and a handful of other top Canadian specialists are like the superstar managers who hatch U.S. presidential campaigns. They plot strategy, control written communications to investors, stage cross-country tours, corral shareholder votes and whip their candidates–be it the activist or the target company–into shape, keeping them focused and on-message.

Indeed, although Hall's most stunning victory was the Ackman-led revolt at Canadian Pacific Railway in 2012, he says about nine-tenths of his business is defending companies. His client list includes such domestic and foreign giants as Goldcorp, Scotiabank, Xstrata and CVRD (now Vale). Whether Hall is playing offence or defence, however, he often has to be the bad cop. Target companies are in play because they're seen as laggards, and it's his job to point out their deficiencies–in detail. "People don't like being told they're a bad parent," he says. "But a proxy fight is not a pillow fight."


It used to be that if major shareholders were dissatisfied with a Canadian corporate giant's performance, the matter was resolved by some behind-the-scenes griping among old-boy CEOs and directors at, say, the Toronto Club or its Calgary counterpart, the Petroleum Club. But Canada's remaining public companies now need to attract foreign capital to bolster their share prices, and that has put them in the crosshairs of activists like Ackman.

Stylish and supremely confident, the 47-year-old Ackman is CEO of Pershing Square Capital Management, an $11-billion (U.S.) New York-based hedge fund that has taken aim at more than two dozen high-profile targets since Ackman founded it in 2004. His results have been spectacularly hit and miss. He bought large positions in Procter & Gamble, Kraft and U.S. mall owner General Growth, agitated for changes, and later sold shares for fat profits. He was lionized in the Academy Award-winning 2010 documentary Inside Job for his early bets against subprime mortgages. Last month, he made an estimated $688-million profit on his 20.8 million shares in whisky maker Beam Inc. when the company agreed to be acquired by Japan's Suntory.

But Ackman's assaults on Target and bookseller Borders Group have been far shakier investments, and he has accrued large paper losses in a trench war with nutritional products company Herbalife, after taking a $1-billion short position in December, 2012, only to see its stock soar.

Like other activists, Ackman views himself as a crusader against the bad old model of North American corporate capitalism. At too many companies, solidly entrenched boards and CEOs still use what Ackman calls "Stalinesque voting rules" to run unopposed at annual shareholders' meetings. Canada's corporate establishment, he adds, is particularly "clubby" and defensive. But barriers don't scare activists. "It's a new game of social arbitrage, where we don't care about offending people," says Roy Katzovicz, Ackman's partner and the firm's chief legal officer. "As long as we are holding people accountable, the awkwardness is not a discomfort we feel."

Calgary-based CP looked like a particularly fat target in the fall of 2011. It had been lagging rival Canadian National Railway by just about every measure for years. Its 15-member board was chaired by former Royal Bank chairman and CEO John Cleghorn and included six Order of Canada recipients. Ackman began buying shares in September. As Pershing Square's ownership interest approached the 10 per cent threshold–at which it would have to formally disclose its holdings publicly–he had some preliminary phone conversations with Cleghorn. (Cleghorn declined to be interviewed for this story.)

Then as now, Pershing Square's official line was that it prefers to work with a company's existing management to improve performance, rather than go to war. In an SEC filing in mid-October, Pershing Square said it held 12.2 per cent of CP's shares, and that it planned to talk with executives about "the business, management, operations, assets, capitalization, financial condition, governance, strategy and future plans of the issuer."

Privately, however, Ackman was ratcheting up the pressure on CP's directors and preparing for battle. In November, he flew to Montreal to meet with them and, as he has done with other targets in the past, gave them a thick book detailing changes he would like to see at the company. He also consulted Wes Hall on the recommendation of his respected and tough-minded Canadian securities lawyer, Patricia Olasker of Davies Ward Phillips & Vineberg, who had acted for Ackman in disputes with Canadian Tire in 2006 and Sears Canada in 2010.

Hall says he told Ackman to be careful, because CP was a historic Canadian company with a well-connected board. Hall says he almost always advises activists to take it slow. "You can't expect to recommend 100 changes and have all of them accepted," he says.

At first, keeping discussions behind closed doors appeared to yield results. In December, CP announced that it would add two new directors who were clearly sympathetic to Ackman. CP's share price climbed (along with the value of Ackman's stake) to $65 within days of the announcement, up substantially from $50 in early October. But Ackman says that CP didn't follow through with other changes it had promised.

Later that month, news stories reported that Ackman wanted to replace CP CEO Fred Green with hard-driving former CN CEO Hunter Harrison after a non-compete clause in Harrison's contract with CN expired at the end of the year.

The following month, the dispute blew wide open, after Globe and Mail reporters got hold of a Jan. 4 e-mail from Ackman to Cleghorn titled "War and Peace." In it, Ackman threatened to go public unless CP's board moved faster on his requests and replaced Green with Harrison. Any shareholder with more than 5 per cent of a company's shares can call for a special meeting. The proxy battle was on for a vote scheduled in May, and Ackman and Hall quickly shifted into campaign mode–one of the most hard-fought activist campaigns corporate Canada has ever seen.

The broad strategy for both sides is to meet with the biggest pension funds and institutional investors one-on-one to pitch your case – the CPP Investment Board, Ontario Teachers, the Caisse de dépôt – and the biggest private-sector firms, such as BlackRock and Fidelity. Hall says that he set up more than 50 of those meetings over the next four months. "We went down to as little as 100,000 shares," he says.

For "the moms and pops" with smaller shareholdings, says Hall, the circulars that the company and any challengers post online and put in the mail to investors are key. Kingsdale designed a punchy brochure for Ackman, with a slick cover photo of a train travelling through the Rockies, titled "CP Rising." It stated that Green and at least six directors had to be replaced with Ackman's nominees.

Kingsdale has more than 60 employees, and a big campaign like CP requires help from almost all of them. The firm's staff is split among account managers for specific companies, legal and communications specialists to prepare documents and presentations for investors, and call centre employees who phone shareholders. The most important thing is to ensure that investors have received the documents and forms they are legally required to have before they can vote. In the case of Ackman or other large clients, that service includes having Hall attend meetings with the big-fish shareholders, and taking part in candid, off-the-record conversations with the other side.

Hall's decision to also have Harrison accompany Ackman to meetings was deft in several ways. Hall says it was actually an attempt to make performance, not personality, the issue. CP's operating ratio–an industry benchmark that measures the percentage of a railroad's revenues that go toward operating expenses – was more than 80 per cent, the highest among the six biggest North American rail carriers, compared with about 63 per cent for CN. "We had Hunter say, 'I can get the operating ratio down to 65 per cent in three years,'" notes Hall. Cleghorn argued that Green was working on a multiyear turnaround strategy, and that Ackman really had no plan. But the contrast between CP and CN, and between Green and the direct, folksy Harrison – who had many fans among Canadian and U.S. money managers – was just too glaring.

In what turned out to be a PR masterstroke, Hall organized a campaign-style presentation for more than 450 shareholders, analysts and other Bay Streeters in a ballroom at the Toronto Hilton in February, 2012. Reporters compared it to an evangelical revival meeting. Harrison declared that if he didn't deliver the results Ackman had promised, "you can hang me in Times Square and you don't have to pay me."

The night before the CP shareholders' meeting on May 17 in Calgary, Cleghorn finally capitulated. He, Green, lead director Michael Phelps and three others agreed not to stand for re-election, and the company itself endorsed Ackman's 16 nominees. The actual meeting was somewhat of an anticlimax: Ackman's slate was elected with 90 per cent of shareholder votes.

Cleghorn and the board had clearly misjudged the new realities of investing. Institutional shareholders of any nationality are now hungry for higher returns, and they are both interested and obligated to listen to any serious activist who can deliver them. Meanwhile, CP's board "imagined a feedback loop" of fellow Canadians that didn't exist, says Katzovicz. "They didn't realize they had so many U.S. shareholders who have no clue what the Order of Canada is."

Wes Hall is certainly a departure from the traditional Upper Canada College-bred Bay Street executive. Yet, if you sit down with him for an hour or so in his office, it's easy to see why he's become a catalyst for shareholder activism. He's an intriguing mix of dapper corporate formality and street smarts, and he knows how to seize an opportunity.

Hall says he hails from a "typical Jamaican family, where you have many brothers and sisters with different fathers, and your own father moves on." He was raised by his maternal grandmother with four of his half-siblings and three cousins. On one wall of his office is a "Hall of Fame," with nine framed congratulatory letters from big clients. But on a counter behind his desk is a snapshot of the tin shack in Golden Grove where he grew up.

In 1985, at age 16, Hall moved to Toronto to live with his father, a factory worker. After bristling at his father's authoritarian style, Hall moved out to a rooming house and worked as a dishwasher in a tough part of suburban Scarborough while he finished high school.

After graduating in 1988, Hall found a job as a junior mailroom clerk at Stikeman Elliott, one of Toronto's blue-blood legal firms. Using the firm's generous education allowance for employees, he took night courses at community colleges – finance at Seneca and law at George Brown – and earned a law clerk's certificate.

Hall also sponsored his mother and four of his siblings as immigrants, and paid their way to Canada. Two younger half-brothers didn't adapt as well as he had, however. Michael Gordon was deported to Jamaica some time in the early 1990s, after several drug-related arrests. In August, 1995, Hall received a call from police in Buffalo to come and identify a corpse. It was his other half-brother, Ian Scottberth, who had been found in a dumpster, wrapped in plastic. Hall's phone number was found in his pocket. The Buffalo News reported that Scottberth was the victim of a gangland-style slaying. Police suspected drug ties.

A year later, Hall got a big career break. He applied for a law clerk's job at a rival law firm, which passed on his application to Glenn O'Farrell, vice-president of legal and regulatory affairs at CanWest Global. O'Farrell hired him as a law clerk and assistant corporate secretary. Hall attributes much of his success to managers who mentored him at Global Television for the next four years.

Hall also maintained focus and discipline in his personal life. In 1992, he married his wife, Christine. The couple have five children, aged 3 to 18. He is a Jehovah's Witness who shuns the traditional Bay Street salesman's fare of drinks and smokes, but he's also an elegant dresser – expensive tailor-made suits and shirts with cufflinks.

After leaving CanWest in 1998, Hall did a brief stint as a relationship manager at CIBC Mellon, which handles the mechanics and record-keeping for share transfers, before being recruited to work for the shareholder communications consulting firm Georgeson Canada. Hall was put in charge of business development and sales. He now admits he knew little about what he was asked to do, but the new job allowed him to see the big potential in advising on proxy battles, not just running and monitoring shareholder votes. And shareholder activism was heating up in Canada, particularly in the mining sector.

In 2003, Hall left Georgeson to launch Kingsdale. Almost all of his early clients were small mining companies, but his work on the complicated dispute between Toronto-based Goldcorp and Nevada-based Glamis Gold, from 2004 to 2006, kicked him into a higher league. Goldcorp was close to finalizing a deal to take over Wheaton River Minerals when Glamis launched a shareholder challenge and a hostile bid for Goldcorp. Hall was hired to defend Goldcorp. He got the Wheaton deal approved by shareholders, then helped engineer a merger between Goldcorp and Glamis.

Much bigger assignments followed, including work on Xstrata PLC's hard-fought takeover of Falconbridge in 2006, and the $19-billion merger between Suncor and Petro-Canada in 2009.

Hall is still 100 per cent owner of Kingsdale, and he won't give out a revenue figure. But he offers some examples of fees. To handle a two-month proxy battle for a small company, he might charge $300,000. But for advising corporate giants, he'll often charge $40,000 a day. Hall also says that roughly a dozen companies have paid him to simply sit on the sidelines during disputes.

Having been the point man in so many big deals and uprisings, Hall is now respected on Bay Street, but certainly not universally liked. A partner at one of the Street's largest law firms grumbles: "Wes Hall promotes himself really, really well. He charges three times what everybody else charges on his reputation." But the lawyer acknowledges that Hall and his team are the "safe option," because Kingsdale is the biggest and best-known proxy advisory specialist. Hall nods at the assessment, and doesn't disagree.

Dexter John, Kingsdale's former executive vice-president, now works at rival CST Phoenix Advisors, and he picks his words carefully. He admits that Hall fired him over "differences," and adds that turnover at Kingsdale has helped populate decent competition like Phoenix.

Hall shrugs off potshots. "Our goal is to be number one," he says. Like who? Does he have a role model? "Usain Bolt," he says with a smile.

Unlike the superstar Jamaican sprinter, whose personal website bills him as "the most naturally gifted athlete the world has ever seen," Hall has lost recently – in a battle almost as defining as the CP uprising. Last April, frustrated New York activist Barry Rosenstein, founder and managing partner of Jana Partners LLC, erupted at the annual meeting of Calgary-based agriculture and fertilizer giant Agrium Inc. after narrowly losing a shareholder vote. "I congratulate you," he said sarcastically to Agrium's directors. "You are a board that proved that if you play dirty enough, violate all precepts of good corporate governance, fair play, ethical behaviour and democracy, you can still lose the campaign but then barely manufacture a victory after the voting is supposed to be over."

Rosenstein's outburst capped a 10-month push for reform at Agrium. Jana had approached the company the same way Pershing Square had started with CP: with a detailed plan for the board to increase shareholder returns, including increasing its dividend, splitting Agrium's retail and wholesale businesses, cutting costs and replacing five directors.

As Hall did with Ackman in the CP uprising, he accompanied Rosenstein to meetings with the large Canadian institutional shareholders. Hall says that Rosenstein and other U.S. activists find Canadians frustratingly polite and hard to read. "Its all in the body language. Nobody ever says, 'We don't want to see you or hear about what you are planning to do with the company,'" says Hall. "These guys have done hundreds of shareholder meetings, and if they have the feeling that the meeting is a waste of time, they have signals between them to end the meeting faster, like closing a pitch book or knocking on the table."

At Agrium's shareholder voting deadline on Friday, April 5, Rosenstein thought he had enough votes to replace at least two directors at the meeting the following Tuesday. On Monday, Jana issued a release complaining that Agrium had contacted shareholders after the deadline, urging them to change their vote–which the company was legally entitled to do. At the meeting, the management's entire slate won by a narrow margin, triggering Rosenstein's outburst.

Last November, in an interview in New York, Rosenstein was still bitter, even though he'd realized big profits by selling off a majority of his 7.6 per cent stake in Agrium in October. Visiting Jana's floor in the Mad Men-era General Motors Building is somewhat surreal, with what appeared to be just two-dozen staff spread over about a half-acre of some of the most expensive office space in Manhattan. Rosenstein and Jana chief legal officer Charles Penner outlined their two major frustrations with Agrium: legal and procedural tactics that they felt were questionable, and the insular attitude that Canadians have to foreign investors who just want to help them get better returns.

One of the tactics that bothered Rosenstein and Penner the most was what they call out-and-out "vote buying." Agrium's board paid commissions to brokers who rounded up shareholder proxy votes in favour of management. Agrium paid up to $1,500 for each proxy form collected from individual shareholders.

Under Canadian securities law, those commissions are legal (although more common in M&A transactions), but Jana did not pay them. When asked about them, Hall is noncommittal. "Either side could have done it," he says. "My client decided not to do so."

The insularity is a basic frustration that almost all U.S. shareholder activists seem to share. Even in the United States, they often complain that they do the real dirty work for pension funds, mutual funds and other institutional investors that won't criticize companies publicly. But many Canadian money managers are particularly timid–they are so non-committal in presentations by activists or target companies that neither side can tell which way they will vote. There is also still a palpable suspicion of Americans. Rosenstein says one big reason he lost with Agrium is that "Canadians didn't like an American company making suggestions about how things could happen."

When asked if he will return to invest in Canada after losing one of the few times in his 25-year career, Rosenstein thinks for a few seconds, then responds: "To be honest, I would think long and hard about coming back to Canada, because of the experience we had. You know, life is too short."


So far, activist investors on both sides of the border still appear to be more inspired by Ackman's CP victory than Rosenstein's Agrium defeat. Over the past two years, Rona Inc., Telus Corp., BlackBerry and Ceres Global Ag Corp. (See "The miser's guide to activist investing," at right) have all come under fire.

The activist surge and the proxy brawls may already be getting too rough for Canadian securities regulators. They now want to rein in some of the tactics. But how do they do that without tilting the rules in favour of either the barbarians at the gate or the old guard holed up inside?

Ontario Securities Commission chairman Howard Wetston realizes that the activists are getting more popular. "I think we're going through an inflection point in Canada," he says. "Our job as regulators is to be as neutral as possible between boards and shareholders."

The commission is considering a proposal to lower the threshold – from 10 per cent to 5 per cent – at which an investor would have to disclose a company holding and declare intent. The activists don't like it – it would force them out in the open too early, and make it much more expensive to raise their stake beyond 5 per cent. Ackman complains that the lower threshold would also limit the number of Canadian companies he and other U.S. activists would approach. "We like to invest $1-billion in a company. Lowering the threshold to 5 per cent doesn't leave too many firms in Canada to invest in," he says.

Regulating proxy monitoring services is another possibility. Hall says that he has talked to the OSC about it. "I don't think our business is going to be regulated," he says. But, he adds, "They are looking at whether there should at least be a code of conduct that the services would adhere to when advising clients."

Regardless of what the regulators decide, as long as at least some Canadian corporate giants continue to underperform, business will still be good, no matter which side Hall is on.



Dundee vs. Formation Metals (June, 2013)
Acting for Formation
"The dissident had 17 per cent, and the company started with zero. We won by 250,000 votes. Lesson: Every vote counts, and that extra phone call to a shareholder can make a difference."

Jana Partners vs. Agrium (April, 2013)
Acting for Jana

"A fight that was dubbed unwinnable came down to the wire in the end."

Pershing Square vs. CP (May, 2012)
Acting for Pershing Square

"The largest fight in Canadian history and the largest margin of victory–though, initially, people thought we would not be able to unseat a board of that calibre."

Octavian vs. EnerCare (April, 2012)
Acting for EnerCare

"The company was behind the vote by 25 per cent. The rest was a heavily retail campaign, and the materials we designed and sent to shareholders sealed the victory."

Mason Capital vs. Telus (2012)
Acting for Mason

"One of the toughest battles I have been involved in. We won round one and lost round two."

Stephen Joffe vs. TLC Vision (June, 2008)
Acting for TLC

"We prepared a very strong campaign and, when the other side saw it, they withdrew and ended the fight."

Goodwood vs. Pet Valu (May, 2008)
Acting for Goodwood

"Won the fight even though management had over 30 per cent of the stock."

Scion Capital vs. Bolivar Gold (January, 2006)
Acting for Bolivar Gold

"The hedge fund tried to kill a plan of arrangement requiring 62.6 per cent of the vote. We won the vote with some great strategy."

Wheaton River/Iamgold/Coeur d'Alene/ Goldcorp/Glamis (January, 2005)
Acting for Wheaton River and Goldcorp

"This kept me busy for months. Eventually, Glamis and Goldcorp did a friendly merger."

Fred Godard vs. Leitch Technology (2003)
Acting for Leitch

"This was our first proxy fight at Kingsdale.

We got Leitch's largest shareholder to switch support to the company, thanks to a meeting I arranged after the shareholder initially refused to meet with Leitch. Kingsdale's first victory was sweet!"


You could spend millions of dollars putting together a takeover dream team—or you could bootstrap it, like VN Capital did with its 2013 run at Ceres Global Ag

VN Capital Management is a cheapskate investor's dream. The entire operation, headed by MBA schoolmates James Vanasek (top left) and Donnell Noone, is run out of a 450-square-foot, one-room corner office in what was once the St. James Hotel, near Chelsea in Manhattan. Vanasek and Noone sit at Ikea desks and answer their own phones. Filing cabinets jammed with papers provide the only decor. Their overhead costs consist of rent and a Bloomberg terminal– in total, about $70,000 a year. As of 2013, they were managing $93-million, probably half what Jana's Barry Rosenstein paid himself in 2013.

So in the spring of 2013, when VN took a run at Ceres Global Ag Corp., which invests in grain elevators and rail lines, the Toronto-based company could be excused for never having heard of Vanasek and Noone. The pair got their start in 2002, with backing from Joseph Rich, one of the progenitors of the original money market fund, who took a 20 per cent stake in the firm. VN's mission: to make up to 12 investments in small-cap companies that, in Vanasek's words, "don't need a PhD level of knowledge" – in other words, only businesses they understand.

Vanasek and Noone never considered themselves activists. Then they invested in Ceres Global. Ceres started life as a closed–end mutual fund specializing in agricultural investments, run by ex-Maple Leaf Food executives Tom Muir and Michael Detlefsen. Backed and managed by the private boutique investment firm Front Street Capital, Ceres had what VN considered to be an overly aggressive two-and-20 management compensation structure typical of a private equity partnership (that is, 2 per cent of total assets, plus 20 per cent of profits earned) – except that it was a publicly traded company and owner of hard assets.

It took Vanasek and Noone almost 18 months to buy more than 5 per cent of Ceres's outstanding shares – a critical amount to be able to call a special shareholders' meeting. Meanwhile, letters to Ceres management asking for it to change the rich compensation were met with polite, though long-delayed, responses. In VN's words, Front Street (whose management contract with Ceres was worth almost $3-million a year) was "extracting capital out of [Ceres], doing nothing at best, maybe destroying value at worst."

VN started agitating for change. After repeated attempts to confront the board through letters, calls and even an in-person visit to company executives, Vanasek and Noone figured they had no choice but to fight: The fact that VN, one of Ceres's largest shareholders, was being completely ignored–when all they were asking were perfectly legitimate shareholder questions–flew in the face of good corporate governance for a public company.

In the end, VN formally requested a shareholders' meeting to end the management contract. It lost the vote, but only because Front Street voted its shares in favour of its own management agreement. If not for that, however, the vote would have gone in VN's favour. So, once the meeting was over, the two groups reached a negotiated solution–a fixed management payment with some performance-based upside for Front Street. Vanasek and Noone were frustrated by the time and effort it took, but satisfied with the outcome. "We will do whatever it takes to make a return for our investors," says Vanasek. Their bill for the whole activist affair? Around $95,000. The bill for Bill Ackman and Pershing Square's run at CP: v $15-million.

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