Use Of Derivatives By Shareholder Activists

In recent years, hedge funds and other activist investors have relied on equity derivatives strategies to accumulate economic interests in potential takeover or proxy contest targets. So-called stealth accumulations have seemingly increased in both Europe and North America. In Europe, LMVH amassed more than a 20% holding in Hermes, largely through the use of equity derivatives, and in the United States, hedge funds acquired significant economic positions in this manner in Fortune Brands and J.C. Penney, allegedly with a view to exerting control or influence. Such transactions have brought these strategies to the forefront of attention of both activist investors and securities regulators in 2011. In the United States, the Securities and Exchange Commission is actively studying modernizing its reporting requirements to take into account the use of equity derivatives strategies in connection with takeover bids; we understand that the Canadian securities regulators are