Caisse CEO says efforts to block hostile takeovers must be used selectively

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MONTREAL – The head of Caisse de depot, one of Canada’s largest institutional investors, says he sympathizes with efforts that would empower Quebec companies to reject hostile takeovers.

Chief executive Michael Sabia said Wednesday that investors have to stop treating companies like commodities than can be bought and sold in the quest of short-term gain.

He described a Quebec task force’s recommendations on protecting Quebec companies as “part of a tool box” of measures that need to be considered.

“It’s a good idea, but inevitably you have to be selective,” Sabia told reporters after releasing the pension fund manager’s 2013 results.

Ultimately, markets will pressure companies that don’t adequately perform, but Sabia said measures could be taken to avoid situations where quality companies are sold just to maximize short-term prices.

“There is always the risk of going too far,” he said.

The Parti Quebecois government promised last week to implement recommendations that would give boards of companies registered in the province new tools to fend off unwanted takeovers. The idea has also been supported by the two opposition parties.

The task force headed by CGI executive Claude Seguin was created last spring in the wake of the failed attempt by U.S. retailer Lowe’s to acquire hardware chain Rona Inc. (TSX:RON). A former Rona chief executive and former board member were among the task force’s eight members.

Sabia said some elements of the report issued on the same day as the provincial budget “have the potential to be part of a good response to that very large question.”

But he said the larger question is to develop a winning strategy that encourages the growth of companies and reinforces the economy in Quebec, Canada and elsewhere.

The proposed changes could have an impact on companies with widely traded shares such as SNC-Lavalin (TSX:SNC), Dollarama (TSX:DOL) and Metro (TSX:MRU), but would not affect many large Quebec companies controlled by shareholders through dual-class voting shares.

Quebec wouldn’t be the first in North America to give boards more power to reject hostile bids. Iowa law helped Casey’s General Stores successfully thwart Alimentation Couche-Tard’s (TSX:ATD.B) hostile bid a few years ago.

But the efforts have been criticized by large investor groups and investment guru Stephen Jarislowsky.

He has said that while some key businesses such as Potash Corp., Inco and Alcan might need government protection from hostile takeovers to preserve Canadian head offices, it shouldn’t apply to all companies.

Ultimately, boards shouldn’t be able to stymie the will of shareholders, Jarislowsky said.

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