This presentation discusses issues related to unsolicited offers and proxy contests.

1. The Art of War: Strategies for Managing
Unsolicited Offers and Proxy Contests
The CCCA National Spring Conference, Toronto
April 3 – 5, 2011
Presented by:
Sander Grieve Fraser Milner Casgrain LLP
Michael Schafler Fraser Milner Casgrain LLP
Brad Allen Laurel Hill Advisory Group
David Wilson General Dynamics Canada
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2. Hot Off The Press…
• “Rising market values to fuel mergers and acquisitions
“Merger and acquisition activity is set to heat up this year. High commodity prices have given
resource companies the cash to expand through acquisitions, and at the same time made them
targets of rivals looking to boost production through deal making. And with corporate
valuations soaring, takeover activities are expected to touch all sectors, industry sources say”.
The Globe and Mail, January 3, 2011, Page B1
• With billions to deploy, cash‐rich firms search for ways to reward investors
“With corporate coffers bulging, companies are also signalling a renewed interest in making
acquisitions. According to a survey by Greenwich Associates, 42 per cent of Canadian
companies expect to seek mergers and acquisitions advice in 2011, up from 28 per cent in
2009. The financial and natural resources industries are expected to be especially busy in 2011,
with 78 per cent and 71 per cent of firms, respectively, planning to seek M&A advice”.
The Globe and Mail, November 25, 2010 Page B14
• Shareholder activism rising
“Proxy battles are increasing as Canadian investors follow the business model of famous U.S.‐
based activist shareholders such as Carl Icahn”.
Financial Post ∙ Feb. 16, 2011
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3. Agenda
• Proxy Contests
• Responding to an Offer
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4. Global Proxy Voting is a complex process with many steps, very
few standards, and many different “owners” of information
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5. CANADA PROXY CONTEST RESULTS
2008‐2010
2008
2009
2010
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6. CANADIAN PROXY CONTEST OBSERVATIONS
• Dissident “concerned shareholders” have done very well in
effecting board change…if well planned!
• Proxy contest activity have a negative corollary with the state
of financial markets – ie. proxy contests increase when market
confidence/performance declines
• Proxy fights can and have been used effectively as a lower cost
takeover alternative (“no change in control premium”)
• Attempted “stealth” campaigns continue but it’s hard to stay
under the radar
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7. CANADIAN PROXY CONTEST OBSERVATIONS
• Ensuring all votes are received even in a friendly process can be challenging
‐ & institutional votes tend to be received close to proxy cut‐off
• Post record date share trading, share lending, record date timing
• Votes can be lost, instructions not received, errors in tabulation, etc.
• Proxy Advisory firms – RiskMetrics, Glass Lewis
• will opine a recommendation for/withhold on your slate that the majority
of institutional shareholders will review – and will be communicated via
press release to influence retail shareholders
• Accurate ongoing shareholder identification & vote forecasting invaluable
• Lockups/voting agreements are ideal but may be difficult to secure (and
remember the not to solicit >15 without a circular rule!)
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8. IR Tactics and Considerations in a Contest
• Regular, targeted one‐on‐one meetings
– Major vehicle for communicating with investors and sell‐side analysts
– No substitute for in‐person meeting with the CEO and/or executive team
– Controlled forum for delivering messages
• Large format or group meetings must be carefully considered
– Limit group meetings (including dinners and lunches)
– Level of control is significantly diminished
– Company can be exposed to a “mob” mentality
– Easy for opposition to cause trouble
• Monitor conference call participants
• Arbs are a special case in change of control situation
– Source of information
– Likely to vote with dissident
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9. Courtesy of ‘The Economist’ January 15, 2011
"You learn in this business: If you want a friend, get a dog." ~ Carl Icahn
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10. Two Recent Proxy Cases of Note
• Polar Star [2009] O.J. No. 1125 57 B.L.R. (4th) 71
– Fight over extent of permissible proxy solicitation
– Very broad scope permitted
• Augen Capital [2010] O.J. No. 4070 2010 ONSC 5319
– Fight over voting system in proxy battles
– Does “withhold vote” = “casting a vote”
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11. Lessons – What Are the Best Strategies?
• Before there is any activity:
– know your shareholder base
– be aware of evolving corporate governance guidelines and trends
– watch for unusual proxy results (beware blank proxies!)
– historic low vote patterns can make you a target
– regular monitoring of blogs and bulletin boards
– ensure board and management responses to challenges are consistent
and co‐ordinated
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12. Best Strategies…
• Once a bid or proxy context is underway:
• move to immediate “war” footing
• retain external advisers promptly (legal, proxy,
communications) [one corporate point person re. instructions]
• research opposition
• consider if there is a basis for settlement
• develop clear corporate message/appoint single spokesperson and
stay on message [co‐ordinate news releases with litigation team]
• develop proper legal strategy, including best forum
[jurisdiction/remedies] and winning message
• document retention and organization
• identify witnesses who will be available to provide written/oral
evidence in timely fashion
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13. Responding to an Offer
• Practical Steps to a Response
• Step #1 ‐ “We will get back to you.”
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14. Step #1: “We will get back to you”
• The appropriate response is: “We • Do not engage in an evaluation of
will get back to you.” the proposal with the unsolicited
• Do not say anything encouraging bidder.
or discouraging. • No duty to discuss, to negotiate or
• Avoid “feel good” words such as to respond immediately.
“interesting” or “intriguing”. • Members of board should be
• Avoid defensive words such as informed.
“timing isn’t right” or “unlikely to • Assemble team to formulate
be acceptable.” response.
• Do not describe board process.
The board’s process is
confidential.
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15. Step #1: Whatever You Do …
• Whatever you do, you must:
– Be accurate in everything you say
– Be prepared for any off‐the‐cuff response to be used against you, even
if you are told the conversation is “off‐the‐record”.
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16. Step #2: Assemble the Team
• Consider whether any board • Consider seeking legal and
members might have conflicts of financial advice.
interest. • Consider what input from
• Inform board members management might be required.
confidentially. • Take steps to ensure
confidentiality and avoid any leaks
to the market.
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17. Step #3: Deliberations
• Consider whether additional information from management is
required.
• Consider appointment of legal and financial advisors.
• Consider what information may be necessary from the
unsolicited bidder to properly evaluate the proposal.
• Document deliberations.
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18. Step #4: Formulate Response
• Guiding Principle:
– Don’t say anything you wouldn’t want in a Proxy Circular or in a
newspaper headline.
• If the Company is “in play” then:
– some form of auction or market canvass may be required to ensure
that shareholder value has been maximized.
– consideration should be given to setting up a Transaction Committee
of non‐management directors to make a recommendation.
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19. Step #4: Formulate Response
• If Positive Response:
– Consider Confidentiality & Standstill Agreement
– Consider whether to agree to exclusivity
– Consider setting up a Transaction Committee
• If Negative Response
– Consider whether defensive steps are appropriate.
– Stay on message. Don’t be drawn into debate.
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20. The preceding presentation contains examples of the kinds of
issues companies dealing with mergers and acquisitions could
face. If you are faced with one of these issues, please retain
professional assistance as each situation is unique.

21. Sander Grieve
sander.grieve@fmc‐law.com
416 863 4732
Michael Schafler
michael.schafler@fmc‐law.com
416 863 4457