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Newly formed activist firm Smoothwater intends to file a dissident proxy circular with the aim of electing a new slate of directors at Calgary-based Genesis Land Development.

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In a rare Canadian decision, Alberta's superior court has ruled that an activist investor failed to disclose that it collaborated with others to launch a proxy battle against a Calgary-based real estate development company.

In July, Smoothwater Capital Corp., a new activist firm founded by Stephen Griggs, the former head of the Ontario government's employee pension fund, filed for a proxy battle against Genesis Land Development Corp., hoping to take control of the board of directors.

From the get-go, Genesis argued that Smoothwater wasn't acting alone because one of its board nominees was not independent from the fund. Mark Mitchell is the brother of Garfield Mitchell, Smoothwater's chairman, and he owns 9.5 per cent of the company's shares. (Two other nominees were co-investors in another business venture.) Yet Smoothwater said they were true independents.

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While disclosing such connections may not seem like that big of a deal, Canadian rules dictate that activists must say if they are working in concert with other parties. That's because, theoretically, two different groups could each quietly build 19.99 per cent stakes in a company that would not trigger disclosure rules, and then launch a takeover proxy battle without having ever paid a premium to shareholders.

What's interesting about this case is that while companies being attacked by activists typically argue that the connections between the activists and its directors weren't disclosed, such arguments normally fall on deaf ears. This time the Alberta court listened and ruled in favour of the company.

Now Smoothwater must restart the process with proper disclosure, possibly delaying things by over a month.

(Tim Kiladze is a Globe and Mail Capital Markets Reporter.)

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