Quebec takes aim at foreign takeovers with new watchdog group

theglobeandmail.com
By Nicolas Van Praet
Feb. 21, 2017

In the wake of several high-profile takeovers of Quebec companies, such as Rona Inc. and Cirque du Soleil, the provincial government is implementing new measures aimed at promoting the growth of local businesses while maintaining corporate head offices in the province.

Premier Philippe Couillard’s government said Tuesday it would set up a watchdog group to monitor the risks of Quebec-based companies being subject to a sale or hostile takeover offer as well as advise the government on the capital needs of local companies as they grow. It also said Investment Quebec, the government’s investment arm, would step up efforts to educate business owners about the merits of dual-class share structures as a way to fend off unwanted suitors.

“Our objective really is to make sure that we have in place measures that are realistic and that favour the growth of local companies,” provincial Finance Minister Carlos Leitao said in an interview. “It’s not a defensive measure. It’s not to say ‘Thou shall not buy Quebec companies.’ That’s not the point. The point is that local companies have access to financing if they want to grow. And often that’s an obstacle.”

The moves come amid a debate about how far the province should go in taking action to prevent a further hollowing-out of corporate head offices. The purchase of beloved home-grown chicken chain St-Hubert by Ontario-based Cara Operations Ltd. last year was only the latest in a string of deals that fuelled public anxiety about locally built businesses getting taken out by non-Quebec interests.

While some have evoked nightmare scenarios of significant job losses as an ecosystem of Quebec-based lawyers, accounts and suppliers gets thinned out with every takeover deal, the provincial Liberals have cautioned there’s no need to be alarmist. They argue that hostile bids of Quebec companies are rare and successful ones even rarer, with only one such deal since 2001. And they argue that Quebec companies are more often the ones buying than being bought.

Sixteen of the 69 largest Quebec corporations have no protection against a hostile takeover bid, Montreal’s Institute for Governance of Private and Public Organizations said in a 2016 report. They include grocer Metro Inc., T-shirt maker Gildan Activewear Inc. and retailer Dollarama Inc. A proposal by some observers that the government should push financial institutions to create a fund to purchase blocking stock positions before any hostile bid has materialized is not particularly appealing, the institute said.

Quebec rejected the idea of a new, special-purpose government fund in its initiatives Tuesday. It also dismissed as unworkable a separate idea, advocated by an independent committee that studied the question of head-office protection in 2014, to amend the Corporations Act to allow Quebec companies to adopt variable voting rights that would give long-term investors more voting power.

“We did not and do not want to create a system in Quebec that is materially different from that in place in the rest of Canada,” Mr. Leitao said, adding any measures such as reinforcing the power of directors has to be done in a Canadian context. “We have highly integrated capital markets within Canada and it would be extremely difficult to have a system that is Quebec-specific. There can always be some specific elements, but to be very different from the rest of Canada would immediately put some sort of discount sign on publicly traded Quebec companies.”

Led by officials with Investment Quebec, the watchdog group will have the power to make recommendations on whether to mount a locally built offer for a company in danger of falling into non-Quebec hands, Mr. Leitao said. Other members of the group would include officials from labour-sponsored funds and Quebec financial institutions.

“It might be possible in some cases and, in other cases, it might not be possible” to make an offer, Mr. Leitao said. Under current rules, Investment Quebec has the power to invest a maximum of $4-billion. The Liberals dropped plans in 2014 to tap up to 20 per cent of the provincial Generations Fund - a fund dedicated to debt repayment - to take equity stakes in companies targetted by unsolicited bids.

Jean-Francois Lisee, the Parti Quebecois leader, denounced as “timid” the steps taken by the Liberals Tuesday. He said nothing the government announced would have prevented any of the recent takeovers.

“The Liberal government is basically saying ‘We’re for sale,’” Mr. Lisee said, noting that Quebec lacks the conviction other governments have shown in introducing tougher takeover rules. “I think people must be looking at us and saying ‘Well, you’re the dumbest in the class. You know, you’re not doing the minimal amount of work to keep your strategic enterprises at home.’”

The measures unveiled also include bringing the tax treatment of stock options in line with other provinces. Mr. Couillard said Quebec’s previous rules were resulting in an unspecified number of company executives moving outside Quebec to make income tax declarations in Ontario. The change brings those people back as Quebec taxpayers, he said.