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Atlantic Power protects itself from activist ambush

SNC-Lavalin interim CEO Ian Bourne speaks to shareholders Thursday, May 3, 2012, at the company's annual general meeting in Toronto.

Fred Thornhill/Reuters/Fred Thornhill/Reuters

Atlantic Power Corp. is moving to protect itself from any activist shareholders who have dreams of shaking up the company's board of directors.

The new tactic, known as an advance notice policy, prevents shareholders from surprising management during an annual general meeting with board nominations by requiring them to notify management of their plan ahead of time.

Under Canadian law, activists can secretly collect proxies from other shareholders and then suddenly put forward a surprise slate of directors to be voted on during the meeting.

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For Atlantic, preventing such an ambush is critical because the company's stock is under siege, plummeting roughly 60 per cent since the start of the year. Not only has management announced a deteriorating earnings outlook, the company also slashed its precious dividend by about 65 per cent after raising it just a year and a half prior.

Atlantic Power's decision to implement this policy comes a month after management installed a shareholder rights plan to protect itself from any potential takeover suitors.

Advance notice policies are not something Atlantic Power cooked up on its own. Common in the United States, such policies are increasingly being adopted by Canadian companies, with some estimates suggesting that more than 50 companies now have them in place.

The vast majority of these adoptions have come in the past few months, just in time for proxy season ahead of all the annual general meetings in the spring. As lawyers Kevin Thomson and Melanie Shishler at Davies Ward Phillips & Vineberg LLP noted, the floodgates opened late in 2012 after the Supreme Court of British Columbia upheld an advance notice policy put in place by a small company named Mundoro Capital Inc., the first in Canada to install one.

After the ruling, MAG Silver became the second company in Canada to implement this policy, and by year-end Davies counted at least 35 companies that had adopted them.

Typically, activists who want shake up a board of directors will go public with their intentions – the way Pershing Square and Jana Partners did when taking on the boards of Canadian Pacific Railway and Agrium, respectively. Under this model, they put forward their slate of director nominees well ahead of the annual general meeting, the same way a company's management team will also put forward its own list between 35 to 60 days before the AGM.

But covert activists are allowed to solicit proxies from up to 15 shareholders, excluding themselves, behind the scenes, giving the proxy holders the right to vote on any matter that comes before the meeting. In other words, it's a very vague proxy, so when they're submitted just 48 hours before the meeting, management has no idea what's coming.

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Then, during the meeting itself, when the chairman stands and asks if there are any further nominations to the board, the secret activist can stand up and offer who they would like to nominate.

(Tim Kiladze is a Globe and Mail Reporter.)

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More


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