Quebec's new anti-takeover have drawn a high-pitched reaction from Bay Street, but the measures introduced by the Parti Québécois government will have little impact on business and deal making in the province. There simply aren't very many companies that could avail themselves of the PQ's proposed weapons – nor many that would want to.
The controversy is revealing, however. It exposes the divide that persists between Quebec and the rest of the country on this issue. Where hostile bids are concerned, the two solitudes stand miles apart.
The measures would give new defences to companies trying ward off unwanted takeover bids. Long-term shareholders would get special voting rights (to dilute the power of hedge funds). If successful, the acquiring company could be prohibited from selling or spinning off major assets for five years after the deal.
These are powerful tools – but only a subset of Quebec businesses could deploy them: publicly-traded companies that are incorporated under the province's Business Corporations Act. More importantly, few of those companies would be crazy enough to use them. Forbidding a corporate predator from selling off assets for five years, for instance, could deter even the most zealous acquirer. That would not sit well with investors, who would likely shy away from such stocks.
In a report on the impact of anti-takeover measures, Laval University professor Jean-Marc Suret concluded such defences lead to a 10- to 20-per-cent drop in market capitalization, on average. Good luck convincing a majority of shareholders to go along with that.
Many Quebec corporations already have dual-class voting shares to make themselves takeover-proof. Eighteen of the 50 largest publicly traded companies in the province, such as CGI Group Inc. and Power Corp. of Canada, are thus shielded from unwanted bids.
In fact, hostile bids have been very rare in Quebec since 2001. There have been only 14 cases – 2 per cent of the 671 transactions recorded in that period – and half of those were initiated by Quebec firms. So why is it, then, that Quebec's political and business elite is so hung up on protecting the province's publicly-traded companies against hostile bids? After all, Quebec multinationals are among the most voracious acquirers: CGI, Alimentation Couche-Tard and Saputo, to name just three, have been gobbling up companies all over the world.
But for Quebeckers, two striking transactions have shown that the corporate playing field is not always level or fair.
The hollowing out of Canada became a reality in Quebec in 2007, when Alcoa Inc. unveiled its plans to acquire Alcan Inc. – whether the Montreal aluminum producer liked it or not. While Alcan threw itself into the arms of Rio Tinto (to the Anglo-Australian company's great regret, it turned out), the battle showed how daunting it would have been for Alcan to reciprocate in kind.
Incorporated in Pennsylvania, Alcoa is protected by the strongest anti-takeover statutes in the United States. Those were adopted in 1990 following a wave of hostile takeovers that led to massive layoffs. Among other provisions, those statutes allow a board to consider the interests of all corporate stakeholders, and not only shareholders.
In 2010, Couche-Tard failed when it tried to acquire Casey's, an Iowa-based convenience store chain. Couche-Tard didn't play its cards perfectly. But Casey's borrowed close to $570-million to buy back its shares through a financing with a dubious defensive clause that penalized Casey shareholders in the event an investor acquired a stake of 35 per cent or more. The manoeuvre was legal under Iowa law.
Those two transactions left a mark on Quebec Inc. If Americans play rough, there is no reason why Quebeckers should be more Catholic than the pope, as the French saying goes. Hence the consensus that shareholders alone should not determine the fate of a company when an unsolicited takeover bid emerges. Boards, under well-defined conditions, should have the authority to simply say no.
This does not mean that Quebeckers all agree on what those defensive measures should be. Granting additional voting rights only to investors that have held their shares for two years or more, as the PQ has proposed, seems like an inordinately long period. Preventing an unwanted acquirer from selling or spinning off sizable assets for five years is akin to a nuclear deterrent.
But between having their public companies hidden in a bunker or as sitting ducks in an open field, Quebeckers are searching for a middle ground.
Editor's note: This column has been changed to correct the home state of Casey's.