For the executives of Southam Inc., the Toronto-based national communications giant, the day’s events were both trying and tragic. Last Thursday, at a meeting in Toronto’s plush Four Seasons Hotel, shareholders overwhelmingly approved several antitakeover changes in Southam’s bylaws. The agreement took place only after a month-long campaign led by a champion of shareholders’ rights, Stephen Jarislowsky, had forced Southam to dilute its original so-called “shark repellent” proposals. But the shareholders were not told until after the meeting that Gordon Fisher, 56, Southam’s president and chief executive since 1975, had died the night before of liver cancer. The untimely death of Fisher, who approved the anti-takeover strategy, intensified rumors that an unfriendly suitor may soon make a bid for the 15-newspaper chain, Canada’s largest in circulation with assets of $716 million. And until the company names a strong successor to Fisher, said Michael Waring, a media analyst with Toronto-based stockbrokers Wood Gundy Inc., “the speculation about Southam’s fate will continue.” Investment experts declared that Southam’s watered-down bylaw changes were a significant victory for shareholders who want to maintain their traditional voting rights. Southam’s directors had drawn up the proposals because stock market activity convinced them that someone was
launching a “creeping takeover” by gradually buying up shares. Their bylaw amendments were similar to the sharkrepellent tactics that hundreds of U.S. companies have adopted to protect themselves against hostile takeovers. But they are new to Canada, and Southam encountered strong resistance from influential institutional investors
—mainly pension funds, insurance companies and investment counsellors. Such investors, citing responsibilities to their clients, objected that strong shark-repellent tactics would lessen their chances of making large profits from a takeover.
Southam’s retreat was the third time this year that a Canadian company has bowed to pressure from shareholders and abandoned or altered measures designed to prevent takeovers. In July, Toronto-based Lac Minerals Ltd., a gold-mining company, revised a plan to raise the quorum needed to call a meeting to change the company’s directors. Two months earlier, after complaints from large investors, Montreal-based Seagram Co. Ltd. also backed down. Seagram, a liquor producer controlled by Edgar and Charles Bronfman, withdrew a plan to create a new type of share that would have increased the brothers’ voting control of the company without increasing their actual shareholding. To many investment analysts the three instances represent a resurgence of shareholder democracy. Said John Ing, president of Montreal-based investment dealer Maison Placements Canada Inc.: “Investors are finally starting to exercise their rights.”
Indeed, the anti-takeover measures that Southam passed last week still may face a legal challenge. Toronto securities lawyer Henry Knowles, a former chairman of the Ontario Securities Commission, told Maclean’s that the measures, along with compromises which the management reached secretly with key shareholders, may contravene the Canadian Business Corporations Act. Knowles, who represents a group holding 300,000 of Southam’s 12.7 million shares, said his clients will decide within a week if they will take the matter to court.
The controversy began in early July when, amid rumors of a possible takeover bid, hundreds of thousands of Southam’s shares changed hands. Their market value soared to a high of $66 by July 17, up from an average price of $57 in June, before a four-for-one share split last week that brought the price down to about $16. On July 10, believing that a bid might be imminent, Southam’s management released its anti-takeover amendments and called for shareholders’ approval in a vote on Aug. 2. But it encountered strong opposition to several key proposals. Among them was an amendment that would require any interest that held more than 10 per cent of Southam’s stock and sought a merger or takeover to win the approval of 80 per
cent of the remaining shareholders. Investors also objected to “heightened quorum” provisions which would make it harder for someone who wanted to gain control of Southam to conduct a shareholders’ meeting.
The single most powerful dissenter was the Caisse de dépôt et placement du Québec, a huge pension fund which holds eight per cent of Southam’s stock. But the key figure in the battle was 59year-old Jarislowsky, a Montreal investment counsellor representing other institutional investors who together owned 985,000 shares. Southam’s management quickly realized that Jarislowsky might have had enough votes to swing the result in favor of the dissenting shareholders. Fearing an embarrassing defeat, Southam reached a behind-the-scenes compromise on the anti-takeover proposals with Jarislowsky. But only a day before the Aug. 2 meeting the compromise fell through because of renewed objections from some investors. Rather than risk a vote, the company stunned shareholders just 30 minutes into the meeting by adjourning it for six days. Then, Southam officials met privately with Jarislowsky throughout the next week to work out a second compromise.
Last week shareholders finally approved the weakened anti-takeover proposals and learned of Jarislowsky’s deal-making. The quorum requirement was set at 50 per cent, down from 75 per cent. For a takeover offer to succeed, the acquisitor must win approval from more than 50 per cent of the other shareholders—down from 80 per cent. And the percentage of shares that could be acquired before that provision took effect went up to 40 per cent from 10 per cent. Jarislowsky told Maclean's that he was pleased with the compromise, but he added that he expected “more assaults on shareholders’ rights until securities commissions remember who they are supposed to protect.” And Southam vice-president for finance and secretary John Craig, an architect of the proposals, acknowledged that he had been surprised by the extent of investors’ opposition.
At week’s end, with Southam only slightly less vulnerable to a takeover than it had been before, most media analysts said they had no idea who—if anyone—was in fact planning a takeover bid. But despite its setback, Southam’s management remained determined to fight off any unwelcome suitors. Said executive vice-president St. Clair Balfour, who retired as Southam’s chairman in April after 54 years with the firm: “I do not want to see this company gobbled up and dismembered.”
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