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	<title>IGOPPHostile takeovers &#8211; IGOPP</title>
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		<title>At Cogeco there are no coattails</title>
		<link>https://igopp.org/en/at-cogeco-there-are-no-coattails/</link>
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		<pubDate>Wed, 30 Sep 2020 16:03:28 +0000</pubDate>
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		<description><![CDATA[We take you back to early September and a brief review of the 24-hour Quebec Inc. torpedo of a proposed takeover of the Montreal-based Cogeco telecom companies — 24 hours that highlight investor, governance and competition issues. In the early evening of Tuesday, Sept. 1, Dexter Goei, CEO of the New York-based broadband company Altice [&#8230;]]]></description>
		<content><![CDATA[We take you back to early September and a brief review of the 24-hour Quebec Inc. torpedo of a proposed takeover of the Montreal-based Cogeco telecom companies — 24 hours that highlight investor, governance and competition issues.

In the early evening of Tuesday, Sept. 1, Dexter Goei, CEO of the New York-based broadband company Altice USA Inc., called Louis Audet, the executive chairman of Cogeco Communications, to inform Audet that Altice in association with Rogers Communications of Toronto would be offering to acquire 100 per cent of the Cogeco companies in a deal worth $10.3 billion.

At 9:15 a.m. [1] the next day, Altice issued a release from New York publicly announcing the proposed takeover and its terms, including the payment of $800 million to the Audet family for the multiple-voting shares through which the Audets control the Cogeco enterprises.

At 9:20 a.m. [2], Rogers issued a release confirming its agreement with Altice and outlining that it would in turn purchase all of Cogeco’s Canadian assets for $4.9 billion, noting that “significant value” was being released and that Rogers was “excited” about the opportunity to expand through its acquisition of 1.8 million Cogeco customers.

At 9:43 a.m. [3], the time on a Reuters news report, a statement [4] issued by Louis Audet said that members of his family, which through multiple-voting shares control Cogeco, “unanimously reiterated that they are not interested in selling their shares.” The statement said the family holds 69 per cent of all voting rights of Cogeco Inc., which in turn controls 82.9 per cent of all voting rights of Cogeco Communications Inc. The release did not say that the family’s economic interest in the two companies is estimated at 10 per cent and three per cent respectively.

At 11:24 a.m. [5], Cogeco issued a statement saying it had received the Altice/Rogers takeover proposals and would submit them to the boards of the two Cogeco companies for review later in the day. It noted that the Audet family had already rejected the deal.

At 6:38 p.m. [6], Cogeco announced that the independent members of the two corporate boards, after meetings and discussion with the Audet family, voted to reject the takeover offer.

That sequence of events may or may not have been the swiftest corporate takeover shoot-down in history, but it certainly marked 24 hours in which several important public policy issues were at play.

On board governance, Rogers and Cogeco engaged in a vicious — by corporate standards — war of words over the Cogeco boards’ decision-making. Rogers and Altice USA wrote [7] to Audet alleging their offer was rejected without the directors “undertaking any appropriate process.” The two Cogeco boards “did not establish independent committees that were properly advised.” The boards, they added, failed to fulfill their most basic duties in representing the shareholders. “We do not understand how you … could have behaved in this unacceptable manner.”

Cogeco responded [8] by accusing Rogers et al of making “untrue statements” and engaging in “bad faith tactics.”

A key element in this corporate battle is Quebec Inc., the decades-old political crusade to preserve the province’s corporate interests.

On the day the takeover was announced, Quebec Premier François Legault said, [9]“There’s no way [we will let] this Quebec company move its headquarters to Ontario.” Later, Quebec’s pension giant, the Caisse de dépôt et placement du Québec, said it was ready to back Cogeco. Pierre Karl Péladeau — whose family controls the Quebec media giant Vidéotron and who once described Bell Canada as a “public danger” — tweeted out his concern about Cogeco’s head office falling into the hands of Rogers.

Péladeau is right to be concerned. A Rogers takeover of Cogeco would promise a new wave of competition in the Quebec market that would directly impact Vidéotron. It would also put Rogers deep into Bell territory. But thanks to the governance miracle of multiple-voting shares, the Audet family appears to be making the decisions that will kill the competitive opportunity.

Competition regulators tend to move in when takeovers are alleged to lead to reduced competition. In the Cogeco case, the argument can certainly be made that allowing Rogers into the Quebec market increases competition. But there is no competition policy precedent for a regulator intervening because a competition-enhancing takeover failed due to dual-class shareholder obstruction.

At the root of the Cogeco problem is the multiple-voting shares — or dual-class shares — that are favoured by Canadian nationalists, family control advocates, and assorted theorists who argue that the benefits are many. In a report [10] last year, the Institute for Governance in Private and Public Organization outlined the benefits, including a tentative but far from conclusive claim that corporations with dual-class share structures may produce superior investment returns. “We find much merit to dual-class companies and family firms, providing holders of shares with inferior voting rights are well protected” with mandatory “coattail” provisions.

But what good are coattail provisions in the Cogeco case? Under coattail rules imposed by securities regulators, in any takeover the financial value paid to the multiple-voting shares held by a controlling family or group must also be paid to the voting shareholders. But what if the multiple-voting family shareholders make the decision that kills the takeover? In the Cogeco case, the coattail provision is meaningless. There is no coattail. It was killed in the first 24 hours of the takeover offer.

Read more [11]

[1] https://www.businesswire.com/news/home/20200902005626/en/Altice-USA-Inc.-Presents-Offer-to-Acquire-Cogeco-in-Order-to-Own-Atlantic-Broadband
[2] https://www.globenewswire.com/news-release/2020/09/02/2087795/0/en/Rogers-Communications-confirms-agreement-with-Altice-USA-to-purchase-Canadian-assets-of-Cogeco.html
[3] https://www.reuters.com/article/us-cogeco-m-a-altice-usa/canadian-cable-firm-cogecos-top-investor-rejects-8-billion-bid-from-altice-usa-idUSKBN25T24A
[4] http://corpo.cogeco.com/cgo/en/press-room/press-releases/gestion-audem-rejects-unsolicited-non-binding-proposal-altice-and-rogers/
[5] https://www.newswire.ca/news-releases/cogeco-and-cogeco-communications-announce-receipt-of-unsolicited-non-binding-proposal-from-altice-and-rogers-837861081.html
[6] https://www.newswire.ca/news-releases/cogeco-and-cogeco-communications-boards-of-directors-reject-unsolicited-non-binding-takeover-proposal-from-altice-and-rogers-813028998.html
[7] http://corpo.cogeco.com/cgo/application/files/9116/0027/8075/LETTER_TO_BOARD_MEMBER_Louis_Audet-15_SEPT_20.pdf
[8] https://www.newswire.ca/news-releases/cogeco-and-cogeco-communications-send-letter-to-rogers-communications-inc-and-altice-usa-inc--841173585.html
[9] https://www.tvanouvelles.ca/2020/09/02/pas-question-de-demenager-le-siege-social-de-cogeco-en-ontario-dit-legault-1
[10] https://igopp.org/en/the-case-for-dual-class-of-shares-2/
[11] https://igopp.org/wp-content/uploads/2020/10/Financial-Post_At-Cogeco-there-are-no-coattails_September-2020.pdf]]></content>
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		<title>Couche-Tard founders to lose special voting rights</title>
		<link>https://igopp.org/en/couche-tard-founders-to-lose-special-voting-rights/</link>
		<comments>https://igopp.org/en/couche-tard-founders-to-lose-special-voting-rights/#respond</comments>
		<pubDate>Wed, 16 Sep 2020 13:55:28 +0000</pubDate>
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		<description><![CDATA[Alimentation Couche-Tard Inc. will let the sun set on the special voting rights held by its four founders. Executive chairman Alain Bouchard says that he and the three other men who built the Canadian convenience-store empire will let their 25-year-old special stock rights, which give them control over the company, expire next year as scheduled [&#8230;]]]></description>
		<content><![CDATA[Alimentation Couche-Tard Inc. will let the sun set on the special voting rights held by its four founders.
Executive chairman Alain Bouchard says that he and the three other men who built the Canadian convenience-store empire will let their 25-year-old special stock rights, which give them control over the company, expire next year as scheduled without asking shareholders for an extension.
“It’s over,” Mr. Bouchard said in an interview Wednesday following the company’s annual shareholders meeting. “We won’t do anything on this front. I feel better today about this with the evolution of the company in the last years.”
In theory, the decision will leave Laval, Que.-based Couche-Tard exposed to a takeover attempt as soon as next year when the voting rights end. In practice, Couche-Tard’s $48.5-billion stock market capitalization makes it a massive morsel to swallow for any potential acquirer.
The founders together hold about 23 per cent of Couche-Tard’s equity, Mr. Bouchard said. After their rights expire, that stake, along with the support of friendly shareholders, will still give them “almost a blockage type of group if there’s something we don’t like,” he said.
While that might be true, Couche-Tard is “not totally immune” from outside pressure, said François Dauphin, chief executive of Montreal’s Institute for Governance of Private and Public Organizations. Even if its size limits the number of companies that could raise the amount of money that would be needed to acquire the company, it’s still a possibility, he said.
The fate of the special stock rights has been a big unknown looming over Alimentation Couche-Tard for years. The rights give the four men a separate class of 10-for-one multiple voting shares that have allowed them to exercise majority control of the company despite owning less than a quarter of the equity.
A so-called sunset clause – put in place in 1995 when the founders were in their 30s and 40s – stipulates that their voting rights end when the youngest of them turns 65 or dies. That will happen in December, 2021, when the youngest founder, Jacques D’Amours, celebrates his birthday.
In 2016, the founders proposed extending the voting rights, but the company cancelled a shareholder vote on the proposal at the last minute after concluding that it did not have the two-thirds support needed from Class B subordinate shareholders. Behind the scenes, investors expressed uneasiness about the founders' children inheriting control of Couche-Tard. Two proxy advisory firms, Institutional Shareholder Services and Glass Lewis &#38; Co., issued recommendations to vote against the plan.
Mr. Bouchard took the rejection personally. But time – and the company’s growth since then – appears to have healed what was once a raw wound for the billionaire chairman.
“I’m in a better place” on this issue today, Mr. Bouchard said. He said the concern at the time was an unwanted bid for Couche-Tard or the involvement of investor activists. Since then, the company’s market value has ballooned along with its profits.
Read more [1]

[1] https://igopp.org/wp-content/uploads/2020/09/Couche-Tard-founders-to-lose-special-voting-rights_The-Globe-and-Mail_September-2020.pdf]]></content>
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		<title>‘It’s never only about the money’: Past deals hint at tactics for Cogeco’s suitors</title>
		<link>https://igopp.org/en/its-never-only-about-the-money-past-deals-hint-at-tactics-for-cogecos-suitors/</link>
		<comments>https://igopp.org/en/its-never-only-about-the-money-past-deals-hint-at-tactics-for-cogecos-suitors/#respond</comments>
		<pubDate>Fri, 11 Sep 2020 18:01:27 +0000</pubDate>
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		<description><![CDATA[The move by Rogers Communications Inc. and Altice USA to launch a hostile takeover bid for Cogeco Communications Inc. and parent Cogeco Inc. without the support of the Quebec companies&#8217; controlling shareholder looks like a long-shot gamble to many experts. But they say similar past deals for family-controlled companies show there can be a path to victory [&#8230;]]]></description>
		<content><![CDATA[The move by Rogers Communications Inc. and Altice USA to launch a hostile takeover bid for Cogeco Communications Inc. and parent Cogeco Inc. without the support of the Quebec companies' controlling shareholder looks like a long-shot gamble to many experts. But they say similar past deals for family-controlled companies show there can be a path to victory for the would-be buyers.
The Audet family, who control both companies through their ownership of multiple-voting shares, quickly rejected the $10.3-billion offer, which would see Rogers take over Cogeco’s Canadian cable business and Altice acquire its U.S. operations. Executive chairman Louis Audet was adamant on Monday: The family’s shares are not for sale and that’s not a negotiating ploy.
The Audets' control over the dual-class share structure does give them final say, but merger and acquisition lawyers and principals who have sold family-controlled companies in the past say this is just the beginning. The buyers are now likely to deploy a range of strategies that could include discreet overtures to family members and appealing to Mr. Audet’s ego through the promise of future influence in the company or through tributes to his family’s legacy.
Going public with the offer was a “shot over the bow,” one expert says – it let the world know a deal is available, spiked Cogeco’s share price and gave minority shareholders something to think about.
“Often the only way to ensure that you have the support of other shareholders, or to raise the temperature on shareholders who may be blocking a transaction, is to raise the public profile,” says Walied Soliman, the Canadian chair of law firm Norton Rose Fulbright, who recently advised NordStar Capital LP on its winning bid for media company Torstar Corp.
“Even holders of dual-class shares have to be concerned about their reputations and bare-knuckle economics,” he says, pointing to the optics of shutting other shareholders out of a return on investment that might not come around again soon. “I think the approach [for a buyer] is to be patient, advance a thesis, get other shareholders on board and eventually it becomes very uncomfortable and difficult for a blocking shareholder not to proceed.”
Meanwhile, “soft issues” can be just as crucial as cash, Mr. Soliman says, noting that adherence to Torstar’s traditional progressive editorial values was of central importance to the five controlling families who sold to NordStar.
“It’s never only about money,” says Stephen Greenberg, a Montreal media executive whose family sold broadcaster Astral to Bell Canada in a $3.4-billion deal approved by regulators in 2013. “The Audets are looking at legacy. They’re looking at longevity. They’re looking at this as something that was started by their father and has grown exponentially over the years. Everything is wrapped up in these decisions: It’s personal, it’s business, it’s inter-family discussions. … It’s never one-dimensional.”
[...]
Poonam Puri, a law professor at York University’s Osgoode Hall Law School, says dual-class share structures present unique governance challenges for boards of directors: “The founding family typically controls the majority of the voting rights, but owns only a sliver of the total equity.”
The board must consider a formal bid “in good faith,” Ms. Puri says, which usually entails striking a special committee of independent directors to consider the offer. Ultimately though, the board may find its options are constrained. “The Audet family has the legal right to vote their shares according to their own interests, and as controlling shareholder, they have an effective veto over any proposed acquisition.”
Before Mr. Audet’s statement, Cogeco said the independent directors of both Cogeco and Cogeco Communications rejected the Rogers-Altice bid after board meetings and discussions with the family.
The courts and the “business judgment rule” have long protected the right of controlling shareholders to call the shots on a change of control. In a landmark 1998 ruling that helped establish the principle of deference to reasonable decisions by controlling shareholders, the Ontario Court of Appeal upheld a decision by the Schneider family to veto the sale of their meat-production company to Maple Leaf Foods in favour of a lower bid from a U.S. suitor (Maple Leaf eventually acquired Schneider Corp. from the U.S. buyer a few years later).
Pivoting toward a friendly deal that satisfies the Audet family is the only obvious way for Altice and Rogers to win Cogeco, says François Dauphin, CEO of the Montreal Institute for Governance of Private and Public Organizations. Winning the support of minority shareholders could also put pressure on the Audet family but they would still need to agree to sell, he said.
Institute staff recently dug through archival material and found a statement by the late Ted Rogers affirming that Rogers Communications would never make an offer for a company that was not for sale, Mr. Dauphin says. “That was 20 years ago. And he’s not there any more to explain to us what’s behind this whole tactic."
Read more [1]

[1] https://igopp.org/wp-content/uploads/2020/09/Nicolas-Van-Praet_Past-deals-hint-at-tactics-for-Cogeco’s-suitors_The-Globe-and-Mail_September-2020.pdf]]></content>
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		<title>Audet family was right to reject Rogers&#8217; attempted takeover of Cogeco</title>
		<link>https://igopp.org/en/audet-family-was-right-to-reject-rogers-attempted-takeover-of-cogeco/</link>
		<comments>https://igopp.org/en/audet-family-was-right-to-reject-rogers-attempted-takeover-of-cogeco/#respond</comments>
		<pubDate>Fri, 11 Sep 2020 14:35:55 +0000</pubDate>
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		<description><![CDATA[In a surprising move, Rogers and Altice USA made an offer to buy Cogeco and Cogeco Communications and split their assets between them. If Cogeco were a typical Canadian corporation with a one-share, one-vote capital structure, the would-be buyers could disregard any reticence or opposition by the board of directors and transmit their offer directly [&#8230;]]]></description>
		<content><![CDATA[In a surprising move, Rogers and Altice USA made an offer to buy Cogeco and Cogeco Communications and split their assets between them. If Cogeco were a typical Canadian corporation with a one-share, one-vote capital structure, the would-be buyers could disregard any reticence or opposition by the board of directors and transmit their offer directly to shareholders. Given that Rogers already holds a stake of 41 per cent in the subordinate shares of Cogeco and 33 per cent for Cogeco Communications, the outcome is fairly predictable. If shareholders representing two-thirds or more of the shares vote for their offer, the deal is done (leaving aside any possible wobbling by the CRTC or the Competition Bureau).

But because of multiple voting shares, the Audet family, which has effective control of these entities, can and did bluntly reject the attempted takeover. And for good reason. Under the family’s leadership, Cogeco shareholders enjoyed a compound return of 9.8 per cent over the last five years and 11.8 per cent over the last ten. Shareholders of Cogeco Communications were rewarded with a compound return of 10.8 per cent over five years and 13.2 per cent over ten years.

Rogers/Altice offered a “generous” premium of some 30 per cent over the average share price of August 2020. But, compared to the share price of Cogeco entities at the beginning of 2020, the bid price represented a measly 2.3 per cent premium for Cogeco and just 18.6 per cent for Cogeco Communications.

On their face, those facts would justify a rejection of the Rogers/Altice offer and perhaps lead to further negotiations. That would prove a point often made in favor of multiple-voting shares: the controlling shareholders are in a great position to extract the best price from would-be buyers for the benefit of all shareholders.

That is not the denouement here, however, as the Audet family has made it clear their rejection of the “hostile” bid is not tactical but is firm and unconditional. Rogers should not be surprised by such a decision nor continue to pursue this acquisition: its own shareholder structure gives total control to the Rogers family (and now to a “control trust,”).

In an era of exotic funds and of “activist” hedge funds seeking to bully companies into taking actions of only short-term benefit, a dual class of shares becomes very attractive and beneficial for the whole industrial system of a country. It is the ultimate defense mechanism, particularly in Canada, where staggered boards do not exist and poison pills are of very short duration. Even in the U.S., however, from 2017 to 2019 some 16.5 per cent of companies going public did so with a dual class of shares, a share structure that is especially popular among tech companies.

Some will argue, as they always do, that all shareholders should have a voice in a takeover decision, as they would with a one-share, one-vote model, and that multiple voting shares represent a breach of shareholder “democracy.” That’s balderdash. The equivalent of “one person-one vote” democracy in the domain of shareholding would be “one shareholder-one vote,” irrespective of the number of shares held. In political democracies, citizens do not acquire more voting rights because they pay more taxes to the government.

Short-term “tourist” shareholders should no more get to vote than tourists who happen to be in a country on voting day should be able to claim voting rights. Like immigrants, newcomers to the shareholding of a company should have to wait a significant time before acquiring “citizenship” and the right to vote. Clearly, one share-one vote can’t be taken seriously.

We live in an age when all institutional investors call on corporations to pursue ESG (Environment, Social, Governance) objectives and in a country where the legal framework as interpreted by the Supreme Court calls on boards of directors to take into account the interests of all stakeholders, without giving preference to any particular group, not even shareholders. Many dual-class companies become family businesses, which have a longer life, are better integrated in their communities and are more likely to plan and manage with a long-term perspective and careful consideration of all stakeholders. The controlling shareholders of the Cogeco companies are exemplars of these benefits associated with family control. May these family-controlled companies, including Rogers, remain impervious to unwanted takeovers and other financial shenanigans.
]]></content>
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		<title>RONA: a tragedy in three acts</title>
		<link>https://igopp.org/en/rona-a-tragedy-in-three-acts/</link>
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		<pubDate>Fri, 22 Nov 2019 16:29:04 +0000</pubDate>
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		<description><![CDATA[Act I: In July 2012, the American corporation, Lowe’s, makes some noise about acquiring RONA, the Quebec-based chain of hardware stores. Coming on the eve of an election campaign in Quebec, the prospect of a foreign acquisition of a “strategic” Quebec company generates strong reactions and a sort of political consensus: “The Quebec government must [&#8230;]]]></description>
		<content><![CDATA[Act I: In July 2012, the American corporation, Lowe’s, makes some noise about acquiring RONA, the Quebec-based chain of hardware stores. Coming on the eve of an election campaign in Quebec, the prospect of a foreign acquisition of a “strategic” Quebec company generates strong reactions and a sort of political consensus: “The Quebec government must give itself the means to block such ‘hostile’ actions.” Shaken by this political agitation and likely social fallout, Lowe’s pulls back without making an offer. The Quebec government then examines various options to protect local control of corporations against foreign takeovers. The best seems to be that government-controlled or government-friendly financial institutions collectively but independently acquire a blocking position in the shareholders’ equity of “strategic” companies. That actually is implemented in the case of RONA.

Act II: Three and a half years later, Lowe’s comes back with a “generous” bid for all RONA shares. It will turn out to be a bad deal for Lowe’s, as was Rio-Tinto’s acquisition of Alcan. The price was too high and the integration issues more formidable than anticipated. However, at the price offered the deal received the enthusiastic support of the executive officers, members of the board and shareholders, including government-friendly institutions. All were substantially enriched by this transaction. Lowe’s became the owner of the Quebec corporation but had to make some vague commitments about how many jobs would be preserved and where RONA’s headquarters would be located.

Act III: A third troubling act is now unfolding—though it lacks suspense as the outcome is already a foregone conclusion. Lowe’s is under pressure in the markets for lackluster performance and its Canadian operations (i.e., RONA) have become a drag on earnings.

In spite of the solemn, albeit vague, commitments to permanent jobs and other things that it delivered at the end of the second act, Lowe’s is listed on the New York Stock Exchange and thus must deliver on the only commitment that really counts: doing everything to maintain and drive up the price of its stock. At stake in that very real day-to-day drama are the jobs of its senior executives and the quantum of their compensation. Any hesitation or delay in taking all necessary measures to meet the shareholders’ expectations will be severely and swiftly punished.

That is the inexorable law of financial markets, and it also applies to Canadian companies when they are acquiring companies abroad.

One may regret the turn of events at RONA, but it does no good and benefits no one to raise the specter of boycotts and other forms of reprisals against RONA/Lowe’s, as some voices are currently doing. So what should be done?

In the Canadian legal and regulatory context, the only obstacle to hostile takeovers comes from the form of a corporation’s ownership and control. Mechanisms such as dual-class multiple-voting shares, controlling shareholders, and legal impediments to foreign control (such as exist for banks, insurance companies, air transporters, telecommunications companies)—all these shield companies, not only from any kind of short-term pressures from shareholders, but also from unwanted takeovers.

These days, however, takeovers, foreign or domestic, are rarely “hostile” but instead are usually abetted by willing boards of directors, as in the second act of RONA. When that’s true, the only way the Quebec government could block a takeover of a “strategic “ company would be through the creation of some informal consortium of institutional funds, such as Investissement Québec, the Caisse de dépôt, the Fonds de solidarité, the Mouvement Desjardins, which would collectively hold a third of all voting shares in "strategic" companies, whatever those may be. But that would be very controversial and would raise many thorny issues.

Let’s beware: what starts as tragedy often ends up as farce!

The opinions expressed here are his alone.
]]></content>
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		<title>Transat shareholders approve Air Canada takeover, deal now in regulators&#8217; hands</title>
		<link>https://igopp.org/en/transat-shareholders-approve-air-canada-takeover-deal-now-in-regulators-hands/</link>
		<comments>https://igopp.org/en/transat-shareholders-approve-air-canada-takeover-deal-now-in-regulators-hands/#respond</comments>
		<pubDate>Fri, 23 Aug 2019 18:25:38 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
		<category><![CDATA[IGOPP in the medias]]></category>
		<category><![CDATA[Hostile takeovers]]></category>
		<category><![CDATA[Shareholders]]></category>

		<guid isPermaLink="false">https://igopp.org/transat-shareholders-approve-air-canada-takeover-deal-now-in-regulators-hands/</guid>
		<description><![CDATA[The fate of Air Canada&#8217;s $720-million takeover bid for Transat A.T. Inc. rests with regulators after shareholders overwhelmingly approved the acquisition offer Friday. In a special meeting, shareholders of the Quebec-based tour operator voted 94.77 per cent in favour of accepting the $18-per-share transaction from the country&#8217;s largest airline. The deal will narrow the field [&#8230;]]]></description>
		<content><![CDATA[The fate of Air Canada's $720-million takeover bid for Transat A.T. Inc. rests with regulators after shareholders overwhelmingly approved the acquisition offer Friday.

In a special meeting, shareholders of the Quebec-based tour operator voted 94.77 per cent in favour of accepting the $18-per-share transaction from the country's largest airline.

The deal will narrow the field of airline competition, securing for Air Canada about 60 per cent of the Canadian transatlantic market and helping the company maintain a firm hold on Montreal air travel.

The takeover is expected to face intense scrutiny from the Competition Bureau and other regulatory authorities, including in Europe. Transat said it expects the deal to close early next year.

"Today, we are very confident that we will get the approval of these different regulatory authorities," Transat board member Jean-Yves Leblanc said at a news conference, citing "the best advisers that we can have on this planet."

Chairman and chief executive Jean-Marc Eustache, who co-founded Transat's predecessor in the early 1980s, tamped down fears of higher fares on flights to Europe.

"I have 42 years' experience in that field. I never saw the price going up," he told reporters, pointing to competitors on the Montreal-Paris route such Air France, Level Airline and Corsair International.

"Plenty of competition, there's no problem with that."

While the price of Caribbean flights remains relatively low among ample competition from budget airlines such as Sunwing Airlines Inc. and WestJet Airlines Ltd. subsidiary Swoop, the consumer cost of transatlantic travel threatens to slide upward.

"If you are interested in travelling to Rome, London or Paris, the price is going up, because Air Canada and Transat really control this market," said Michel Nadeau, executive director at the Institute for Governance of Private and Public Organizations.

"The temptation will be to boost the price.… Up to now it's possible to buy a ticket to Paris or London for less than $1,000, but there's a danger that after the transaction the price will go above $1,000," Nadeau said.

Both Air Canada and Transat are headquartered in Montreal, and worries persist around Transat's head office over potential job losses.

"While imperfect, this transaction could allow Transat to be included in a larger group, thus allowing it to better deal with growing international competition. It is now up to Air Canada to seize the opportunity to increase jobs and economic spinoffs in Quebec," the Quebec Labour Federation Solidarity Fund — the investment arm of the province's largest labour group — said in a statement.

Read more [1]

[1] https://igopp.org/wp-content/uploads/2019/08/CBC_Transat-shareholders-approve-Air-Canada-takeover-deal-now-in-regulators-hands-_-August-2019.pdf]]></content>
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		<title>Transat v. Group Mach: what’s the score?</title>
		<link>https://igopp.org/en/transat-v-group-mach-whats-the-score/</link>
		<comments>https://igopp.org/en/transat-v-group-mach-whats-the-score/#respond</comments>
		<pubDate>Thu, 08 Aug 2019 18:46:27 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[News Articles]]></category>
		<category><![CDATA[Hostile takeovers]]></category>
		<category><![CDATA[Independence of Board members]]></category>
		<category><![CDATA[Shareholders]]></category>

		<guid isPermaLink="false">https://igopp.org/transat-contre-groupe-mach-qui-a-raison/</guid>
		<description><![CDATA[Mergers and acquisitions are well-choreographed ballets. Both companies call on financial and legal advisers. The board of the target company sets up an independent committee, which promptly retains its own independent legal and financial advisers. Financial advisers produce an opinion letter assuring all and sundry that the price offered is a fair one for the [&#8230;]]]></description>
		<content><![CDATA[Mergers and acquisitions are well-choreographed ballets. Both companies call on financial and legal advisers. The board of the target company sets up an independent committee, which promptly retains its own independent legal and financial advisers. Financial advisers produce an opinion letter assuring all and sundry that the price offered is a fair one for the target company’s shareholders. Both boards approve the transaction, which is then submitted to a vote of the target company’s shareholders.

The Air Canada acquisition of Transat followed the guidebook to the letter. The only step remaining is set to occur on August 23rd when, at a special meeting, shareholders holding at least two-thirds of Transat’s class B shares are expected to vote in favour of the transaction as per the recommendation of Transat’s board of directors.

But Group Mach, a Quebec-based real-estate investor and operator, is trying to throw a monkey-wrench in this well-oiled mechanics (or, not to mix metaphors, to trip the ballerina). The group has come up with an unusual maneuver in an attempt to block the transaction. They are proposing that shareholders (representing at least 19.5% of class B shares) transfer their voting rights to Mach in exchange for a promise of $14 a share (as compared to the $13 offered by Air Canada).

That promise is highly contingent. If Mach does not receive at least 19.5% of the shares, it will simply return the shares to their owners. If Mach does receive the requisite number of shares but somehow the transaction still gets more than 66.6% of votes supporting it, then again Mach’s offer is moot and the shares tended to them will simply be returned to their owners.

If this stratagem seems too clever by half, well it is. Shareholders are asked to transfer their voting rights in exchange for an iffy promise of a $1 gain above the Air Canada offer. Yet, it creates a “prisoner’s dilemma situation” for shareholders of Transat: if one believes that other large shareholders may also reject the transaction, thus blocking it, better get in the $14 safety boat as the Transat’s stock price will drop precipitously on August 24th. (But if the number of shares tended exceed the 19.5%, only a proportional number of shares will be bought by Mach).

Indeed if the move is successful in blocking the transaction Transat’s share price will quickly drop to what it was before the prospective acquisition became public and perhaps even lower as Transat has been announcing bad news ever since. It is unclear how Group Mach would turn around the situation and bring back the stock price. They state rather vaguely: “Mach intends to work with other stakeholders and shareholders to advocate for improved corporate governance, management accountability and financial performance at Transat, with a view to maximizing returns for Transat shareholders.”

Of course one may wish that Transat had continued as an independent operator providing some needed competition to Air Canada. Mach pushes the argument that with their offer one gets cash right away while the Air Canada transaction will not close until 2020 and hints at competition hurdles with regulatory authorities.

So shareholders may favour the transaction with Air Canada but fear that it will be blocked thus motivating them to accept the Mach offer. If a large number of shares, much more than 19.5%, were tended, the $14 offer would apply only to a fraction of their shareholding, the balance would suffer from the ensuing drop in Transat’s share price. Mach’s offer is valid until August 13th. It would be useful if large shareholders of Transat were to announce their voting intentions before that date.

All in all, the Mach proposal is unusual and does put shareholders, particularly small shareholders, in a sort of double-bind; it deserves scrutiny by the securities commissions.

&#160;

Opinions expressed are strictly those of the author.
]]></content>
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		<title>Damages of the short-term mindset</title>
		<link>https://igopp.org/en/damages-of-the-short-term-mindset/</link>
		<comments>https://igopp.org/en/damages-of-the-short-term-mindset/#respond</comments>
		<pubDate>Tue, 06 Aug 2019 19:24:00 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
		<category><![CDATA[IGOPP in the medias]]></category>
		<category><![CDATA[Executive compensation]]></category>
		<category><![CDATA[Gouvernance créatrice de valeurs]]></category>
		<category><![CDATA[Hostile takeovers]]></category>
		<category><![CDATA[Value-creating governance]]></category>

		<guid isPermaLink="false">https://igopp.org/damages-of-the-short-term-mindset/</guid>
		<description><![CDATA[In March 2014, CEOs of many Fortune 500 corporations received a letter that started with these words: “We are preoccupied&#8230; that too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks. We certainly believe that returning cash to shareholders should be part of a balanced capital strategy; however, when [&#8230;]]]></description>
		<content><![CDATA[In March 2014, CEOs of many Fortune 500 corporations received a letter that started with these words:

“We are preoccupied... that too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks. We certainly believe that returning cash to shareholders should be part of a balanced capital strategy; however, when done for the wrong reasons and at the expense of capital investment, it can jeopardize a company’s ability to generate sustainable long-term returns.

This was not written by a socialist economist, but by Larry Fink [1], president and CEO of BlackRock, arguably the largest investment firm in the world.

Fink is a powerful voice in the ongoing concern with the “tyranny of the short-term mindset” that, according to many commentators, plagues both Wall Street and Main Street. Another was Vanguard founder John Bogle, who said that “we have ceased to be investors and have become speculators”, and even devoted his last book to the subject (The Clash of the Cultures: Investment vs. Speculation, John Wiley &#38; Sons, 2012).

Yvan Allaire, president of the Institute for Governance of Private and Public Organizations, in Montreal, defines "short-termism" as “the conscious decision on the part of management to take measures that will have a positive effect on share price in a near future, even while knowing very well that such measures can eventually harm the long-term well-being of the corporation.”

In financial markets, the most visible form of short-termism hinges on the average time investors hold on to shares, which has shrunk from 97 months, in 1950, to 7 months in 2010. However, that shortened holding period can be overly influenced by computer trading volumes, acknowledges Allaire.

[ ... ]

“Corporations should get their capital from an IPO and then concentrate on their core business of product, market and human resources development,” says Samuelson adding that linking executive pay to the stock price causes the separation line between two very distinct markets to blur. ”Another unfortunate outcome of linking pay structure to shares is that “it tempts CEOs to sell their company, and profit from it,” Allaire notes.

Apart from severing links between executive pay and share price evolution, Samuelson and Allaire put forward two measures that could help correct short-termism. a) Before having the right to vote, an investor should hold on to his shares for at least one year. The present state of things is the equivalent of allowing tourists and temporary visitors to vote for a country’s government, highlights Allaire. b) The longer an investor holds onto his shares, the lower should the capital gains tax be.

Read more [2]

[1] https://www.reuters.com/article/us-blackrock-dividends/blackrock-ceo-to-us-companies-dont-overdo-divs-buybacks-idUSBREA2P1C820140326
[2] https://igopp.org/wp-content/uploads/2019/08/YBarcelo_Damages-of-the-short-term-mindset_Morningstar_August-2019.pdf]]></content>
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		<title>It Stays in the Family – Dual Voting Share Structures for Family Businesses</title>
		<link>https://igopp.org/en/it-stays-in-the-family-dual-voting-share-structures-for-family-businesses/</link>
		<comments>https://igopp.org/en/it-stays-in-the-family-dual-voting-share-structures-for-family-businesses/#respond</comments>
		<pubDate>Fri, 26 Apr 2019 19:24:15 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
		<category><![CDATA[IGOPP in the medias]]></category>
		<category><![CDATA[Dual-class shares]]></category>
		<category><![CDATA[Head offices]]></category>
		<category><![CDATA[Hostile takeovers]]></category>

		<guid isPermaLink="false">https://igopp.org/it-stays-in-the-family-dual-voting-share-structures-for-family-businesses/</guid>
		<description><![CDATA[For many family businesses, control of long-term direction and management of the family corporation are key issues, particularly during times of growth or periods of succession. The Institute for Governance of Private and Public Organizations (“IGOPP”) recently published a new policy paper that should be of interest to family businesses and their advisors in planning the capital [&#8230;]]]></description>
		<content><![CDATA[For many family businesses, control of long-term direction and management of the family corporation are key issues, particularly during times of growth or periods of succession. The Institute for Governance of Private and Public Organizations (“IGOPP”) recently published a new policy paper that should be of interest to family businesses and their advisors in planning the capital structure for their enterprises: The Case for Dual-Class of Shares [1], Policy Paper No. 11 (2019). The paper revisits[1] [2] the state of dual-class public corporations in Canada, emphasizes their value to entrepreneurs, family businesses and Canadian society as a whole and makes a number of structuring recommendations, which are outlined below.

What is a Dual-Class Share Structure?

Canadian corporate statutes generally permit companies to adopt capital structures with multiple classes of shares with different rights or attributes (for example voting and non-voting shares or shares with preferential dividend, conversion or redemption rights). While the default approach is one vote per share, the flexibility of corporate laws permits the creation of several share classes with multiples votes, no voting rights or differential voting rights on certain matters (such as the election of the board of directors).[2] [3] In this context, IGOPP’s paper focuses on share structures with two classes, one of which is given multiple votes per share. Among publicly traded Canadian corporations with dual class structures, voting ratios can range from 1:0 (a class of voting shares and a class of non-voting shares) to 100:1 (a class of superior voting shares with 100 votes per share and a class of subordinate shares with one vote each). The central feature of a dual-class share structure is that ownership and control over the corporation can be decoupled. Or, to put it differently, a minority ownership position in the corporation’s equity may still hold the majority of the votes.

Benefits of a Dual Class Share Structure for Family Businesses

Dual-class share structures for public companies are controversial and the debate has been raging for a considerable time.[3] [4] The principal arguments against such structures are based on notions of shareholder democracy and protection of minority rights. Perhaps as a result, the number of publicly traded companies in Canada with a dual-class share structure has dropped from 100 in 2005 to 69 in 2018.[4] [5]

Nevertheless, the benefits of such structures identified by IGOPP and other commentators may be of particular interest to family-run businesses. Superior voting rights permit families to plan and manage their businesses in the long term and facilitate generational change, while, at the same time, being able to access outside investor capital to support the growth of the business. The dual-class structure affords protection against hostile take-overs and what IGOPP perceives as shareholder activism driven by short-term (and perhaps short-sighted) profit maximization. Or, as put by IGOPP: “… the coupling of dual-class and family ownership brings about longer survivorship, better integration the social fabric of host societies, less vulnerability to transient shareholders and more resistance to strategic and financial fashions.”[5] [6]

Recommended Features for a Dual Class Share Structure

In order to balance the advantages of a family controlled business, access to outside capital and the interests of minority shareholders, IGOPP recommends a number of features, including the following:

 	A voting ratio of 4:1 – This ratio retains a voting majority for family business at an ownership level above 20% and a blocking minority with respect to fundamental changes with an ownership interest of 11.1%. Reflecting research indicating that increasing variances between voting power and ownership level tends to negatively affect the quality of overall governance and favour self-interested, rather than business focused decision-making, this recommendation aims to balance legitimate family and overall business interests.
 	Minority Board Representation – One third of board members should be elected by the single-vote share class. This measure would give non-family investors a substantial indirect say in the management or supervision of the family business. To ensure continuity and compatibility with the family vision and values, IGOPP further proposes that minority directors be elected from a candidate pool nominated by the existing board.
 	“Coat Tail” Provisions – A major point of criticism of dual share structures has been price premium placed on multiple voting shares in case of a sale. The “uniquely Canadian” response to this issue is to treat all share classes equally on a sale.[6] [7] IGOPP’s recommendation that family corporations adopt such “coat tail” provisions in their articles or bylaws to guarantee that all shareholders can participate in a sale of the family business on the same terms and conditions at the same price, would thus overcome the “private benefit” concerns.
 	Dilution Sunset Clauses – In the context of dual share structures, a sunset clause would trigger the abolition of superior voting rights if the justification for their existence has fallen away. For family businesses, this would typically be the case when the business loses its essential character as a family enterprise. There is a wide range of possible triggers. Examples are time-based (e.g. 20 years after an IPO) or event-based (e.g. on the exit, retirement or death of the founder). However, these approaches typically do not meet the needs of a multi-generational family business. On the other hand, as family involvement the business may diminish over the years, a sunset clause could be tied to a level of family ownership interest. This notion is connected to the proposed voting ratio and its rationale. For example, at a 4:1 voting ratio, the dilution sunset could be triggered if and when the controlling shareholders’ equity dropped below the blocking minority of 11.1% – the point when self-interest may typically outweigh the overall business interests.

There are, of course, many possible variations and combinations on how these basic recommendations could be implemented to meet the specific goals and needs of each family business.

Read more [8]

[1] https://igopp.org/en/the-case-for-dual-class-of-shares-2/
[2] https://www.timelydisclosure.com/2019/04/26/it-stays-in-the-family-dual-voting-share-structures-for-family-businesses/?utm_medium=email&#38;utm_content=dIqiknd9G80BQLYX77DtrKCQ9wA-dsrRTlPg6KGsT1sySmo4nmY2bpsm8BZd3MdO#_ftn1
[3] https://www.timelydisclosure.com/2019/04/26/it-stays-in-the-family-dual-voting-share-structures-for-family-businesses/?utm_medium=email&#38;utm_content=dIqiknd9G80BQLYX77DtrKCQ9wA-dsrRTlPg6KGsT1sySmo4nmY2bpsm8BZd3MdO#_ftn2
[4] https://www.timelydisclosure.com/2019/04/26/it-stays-in-the-family-dual-voting-share-structures-for-family-businesses/?utm_medium=email&#38;utm_content=dIqiknd9G80BQLYX77DtrKCQ9wA-dsrRTlPg6KGsT1sySmo4nmY2bpsm8BZd3MdO#_ftn3
[5] https://www.timelydisclosure.com/2019/04/26/it-stays-in-the-family-dual-voting-share-structures-for-family-businesses/?utm_medium=email&#38;utm_content=dIqiknd9G80BQLYX77DtrKCQ9wA-dsrRTlPg6KGsT1sySmo4nmY2bpsm8BZd3MdO#_ftn4
[6] https://www.timelydisclosure.com/2019/04/26/it-stays-in-the-family-dual-voting-share-structures-for-family-businesses/?utm_medium=email&#38;utm_content=dIqiknd9G80BQLYX77DtrKCQ9wA-dsrRTlPg6KGsT1sySmo4nmY2bpsm8BZd3MdO#_ftn5
[7] https://www.timelydisclosure.com/2019/04/26/it-stays-in-the-family-dual-voting-share-structures-for-family-businesses/?utm_medium=email&#38;utm_content=dIqiknd9G80BQLYX77DtrKCQ9wA-dsrRTlPg6KGsT1sySmo4nmY2bpsm8BZd3MdO#_ftn6
[8] https://igopp.org/wp-content/uploads/2019/04/Fasken_Dual-Voting-Share-Structures-for-Family-Businesses_D.Ullrich_Avril-2019.pdf]]></content>
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		<item>
		<title>Quebec budget includes $1-billion to keep head offices, like SNC-Lavalin’s, in the province</title>
		<link>https://igopp.org/en/quebec-budget-includes-1-billion-to-keep-head-offices-like-snc-lavalins-in-the-province/</link>
		<comments>https://igopp.org/en/quebec-budget-includes-1-billion-to-keep-head-offices-like-snc-lavalins-in-the-province/#respond</comments>
		<pubDate>Thu, 21 Mar 2019 22:57:26 +0000</pubDate>
		<dc:creator><![CDATA[IGOPP Site web]]></dc:creator>
				<category><![CDATA[IGOPP in the Medias]]></category>
		<category><![CDATA[IGOPP in the medias]]></category>
		<category><![CDATA[Actions multivotantes]]></category>
		<category><![CDATA[Dual-class shares]]></category>
		<category><![CDATA[Head offices]]></category>
		<category><![CDATA[Hostile takeovers]]></category>
		<category><![CDATA[Offres d’achat hostiles]]></category>
		<category><![CDATA[Sièges sociaux]]></category>

		<guid isPermaLink="false">https://igopp.org/quebec-budget-includes-1-billion-to-keep-head-offices-like-snc-lavalins-in-the-province/</guid>
		<description><![CDATA[[ &#8230; ] The Quebec government has set aside $1-billion to encourage strategically important businesses to keep their head offices in the province, a measure Finance Minister Eric Girard says he could use to protect the Montreal executive suites of SNC-Lavalin Group Inc. Mr. Girard announced the measure Thursday in his Coalition Avenir Québec government’s [&#8230;]]]></description>
		<content><![CDATA[[ ... ]
The Quebec government has set aside $1-billion to encourage strategically important businesses to keep their head offices in the province, a measure Finance Minister Eric Girard says he could use to protect the Montreal executive suites of SNC-Lavalin Group Inc.
Mr. Girard announced the measure Thursday in his Coalition Avenir Québec government’s first budget, which hikes spending 4.7 per cent and relies heavily on increased federal transfers to keep a clean balance sheet.
The budget is light on details of how the government would execute the head-office plan. Budget documents say the government will strike a team “whose mandate will be to develop business intelligence in the field of head office protection.” Mr. Girard said details will be announced later by Economy Minister Pierre Fitzgibbon.
The retention of head offices has been a sensitive issue in Quebec since the 1970s, when companies fled the province amid a separatist movement and lagging economic prospects. Quebec independence is on the back burner, but the head-office issue reared up again after U.S. hardware giant Lowe’s Companies Inc. made a surprise bid for Quebec-based Rona Inc. and troubles mounted for SNC-Lavalin, the engineering giant facing corporate fraud and bribery charges after years of international scandal.
If convicted, Ottawa could ban the company from bidding on federal projects for 10 years. A ban in Canada would force the company to seek more work outside the country and throw into question its commitment to maintaining its headquarters in Montreal.

[ ... ]

Montreal’s Institute for Governance published a list in 2016 of 16 Quebec-based companies with more than $1-billion in revenue having no protection against hostile takeovers. Some of the companies on that list are almost certainly on Quebec’s current list of strategic firms, including grocer Metro Inc., aerospace training firm CAE Inc. and engineering company WSP Global Inc., said Yvan Allaire, executive chairman of the institute. Other companies that are integral to the economy likely include Alimentation Couche-Tard Inc., Bombardier Inc. and CGI Inc., which all have dual class shares as defences.

 Read more [1]

[1] https://igopp.org/wp-content/uploads/2019/03/Quebec-budget-includes-1-billion-to-keep-head-offices-like-SNC-Lavalin’s-in-the-province-The-Globe-and-Mail_March-2019.pdf]]></content>
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