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A song and dance on investor activism

INSIDE THE CHASE: Shareholder activism can literally be a song and dance routine at times. BNN Chase Producer Zena Olijnyk explains.

Well, I had heard about it - many times in fact. But I had to really see - and hear - for myself. And this week it finally happened. I was in a room watching activist investor Eric Rosenfeld - known for his interest in taking stakes in Canadian companies ranging from Spar Aerospace, GEAC Computer Corp., and Cott Corp. - belt out his repertoire of show tunes, with lyrics changed to give his spin on shareholder rights.

There was his version of the tune "Mr. Cellophane" from the musical Chicago which he turned into a ditty about the invisibility of institutional investors when it comes to making their views known to the boards of undervalued companies - "You can walk right by me and never know I'm there."

That was followed up by a soaring rendition of "Get Me to the Vote on Time," sung to the tune of "Get me to the Church on Time" from My Fair Lady and emphasizing the importance of investors not missing the vote during a proxy fight.

He then belted out "Don't Mess With My Charade" sung to Funny Girl's "Don't Rain on my Parade," lampooning the delusions some CEOs have about their company's numbers and what lengths they'll go to in order to hide the truth.

And to cap it off, Rosenfeld brought it to a close with "My, My Director," sung to the tune of Welsh crooner Tom Jones' "Delilah" - turned into a lament on why so many directors on boards don't live up to the standards they should in keeping the companies they are custodians of on the right track.

All this song and dance came after he gave a presentation to a third-year Osgoode Law School shareholder protection seminar I have been taking these past weeks, led by Stikeman Elliot lawyer Ed Waitzer, a former head of the Ontario Securities Commission, and Jacquie McNish, Globe and Mail reporter and frequent Headline guest.

I often book Rosenfeld on our show, and after the last appearance, I invited the founder and CEO of New York based Crescendo Partners, to talk to the class about his views on investor activism. He was happy to oblige, and as it turned out, I also managed to book him for Headline this week while he was in town.

Certainly the 15 or so law students (and a few financial journalists who audit the course along with me) were not expecting this. And, as one of the students said after his performance: "When he said he was going to give his song and dance on investor protection, I didn't expect him to literally give us a song and dance." Even I, who had heard about his routine, hadn't expected he'd give a full-scale performance.

But the Broadway-inspired show tunes speaks to the intensity of a man who puts so much of his energies - and fine singing voice gained through the help of a voice coach he hired for his 40th birthday - into the practice of shareholder rights.

I can't go into all the war stories that he shared with the law class this week - the rules are that what's said in the class stays in the class - an important point to make when there's a bunch of journalists in the room. But when it came right down to it, it wasn't all that much different than when I spoke with him earlier in the day, before Headline's on-air interview with Howard Green.

He told the story of getting involved in broadcaster WIC Western International Communications - a public company with dual-class (voting/non-voting) share structure and owned by a family "that treated it as if it were a private company and personal fiefdom," says Rosenfeld, who was instrumental in the process of seeing the company eventually auctioned off for $45 a share to CanWest Global, now part of Shaw Communications.

He also told the story of getting involved in Spar Aerospace. Crescendo and two other firms gained control of the Spar board through owning 58 percent of the shares. It eventually had most of the company's $150 million in cash paid out in dividends, forsaking acquisition plans. Spar CEO Colin Watson became vice-chairman of the board, while Rosenfeld was chairman.

Eventually the various parts of Spar were sold off, and Watson, who became an ally of Rosenfeld from that experience, is often now a nominee to boards of companies that Rosenfeld targets. In fact, just this month, Watson was one of three Crescendo-nominated people to be put on the board of Cambridge, Ont.-based Com Dev, a leading provider of space hardware and services that Rosenfeld felt was undervalued.

Indeed, Rosenfeld takes pride that he has managed to get Crescendo nominees on the boards of 20 out of 22 companies he has targeted, more often than not through negotiations rather than a proxy battle. Another recent example is Absolute Software, based in Vancouver, which provides security technology services.

And Rosenfeld wholeheartedly admits that he loves doing business in Canada. Why? Well, his first experience, going back to the 1990s, gave him a good taste of how laws in Canada can help a savvy activist investor. It was a systems integration company where the CEO, who had super voting rights, had locked up his shares in a sale at a price that Rosenberg felt was far too cheap, at $8 a share. So he started buying the company, eventually getting a 17-percent stake. Eventually, through a couple of court battles, the company was sold for more than $12 a share. "And that got me hooked on Canada"

Not only are there a lot of undervalued companies in Canada, he says, there are provisions here that allow any shareholder who has a five-percent stake to ask for a vote to change a company's board of directors and ask to have their own nominees put on the board.

And, unless some recently announced proposed changes take effect, shareholders here don't have to declare themselves until they have a 10-percent stake, unlike the five-percent in the U.S. (Though the proposed changes would reconcile the two systems).

Then there are poison pill laws in Canada that are far better than those in the U.S.

"Companies can hide behind a poison pill in the U.S.," he says, with a board being able to veto shareholders' votes and prolong the process of investors getting their way.

In Canada, the poison pill process "serves the purpose of the company's board of directors looking for an alternative, and if one isn't found, a cease-trade order can be implemented after three months."

Rosenfeld even sees proposed changes to the poison pill process, announced last week, as a further improvement, saying it would take regulators out of the picture and allow shareholders to decide if the poison pill stays in place.

And while investor activism often gets a bad rap, with the activists accused of only being in the game for the short run, Rosenfeld defends his way of finding undervalued companies and helping unlock the value that all shareholders should be getting. Often the problem, he says, is one of "disengaged boards of directors" with "no skin in the game," who are either beholden to, or willing to be led by the nose by the company's CEO and executives.

Other times, it's institutional investors, who often stay on the sidelines of proxy battles, or "vote with their feet" if they don't like where a company is going. But that's a situation that's fast changing says Rosenfeld, "with more large investors willing to take a stand behind an activist investor."

And if that continues to be the case, Rosenfeld will have to change the lyrics to that song he sings about the invisible institutional investor.

Inside The Chase offers a behind-the-scenes look into the fast-paced world of chasing and booking guests for live television. The new blog features the writing of veteran journalist and Headline chase producer Zena Olijnyk.   

 

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