Takeover ruling gives ‘reasonable guidance’

of Saskatchewan and the Ontario Securities Commission.

The reasons detail “a reasonable amount of guidance” for future M&A battles. “In the main they got it right,” Olasker said.

She was also supportive of the decision not to interfere (as Aurora wanted) with the relatively new takeover bid rules that, among other matters, allow for a minimum 50-per-cent tender requirement, a 10-day extension and 105-day time period. The regulators decided that “we have just rebalanced the rules to shift more power to the boardroom," she said. "It’s going to take a really compelling case to tinker with the rules on a piecemeal basis. And this is not that case.”

The third positive theme, Olasker said, was the determination that lock-up agreements “are important as a planning tool to facilitate bids.”

Four Cannimed shareholders holding almost 36 per cent of the shares outstanding backed Aurora’s bid. Cannimed, which had signed a deal to merge with Newstrike Resources, filed an objection arguing the four were “joint actors.”

In their reasons, the two regulators “did not find the lock-up agreements objectionable in this case,” in large part because the voting rights “are tailored to be consistent with and to support otherwise permissible commitments to tender securities to a bid.”

Olasker noted that one of the surprises about last December’s hearing was that none of the four investors who signed lock-up agreements was called to testify. “Without their evidence, it would have been very hard to delve into the joint-actor issue,” she said, adding the four shareholders would have been called had her firm been advising Cannimed.

As for matters that weren’t addressed, Olasker mentioned the “preclusive effects of lock-up agreements,” a situation in which so much of the stock is locked up that an alternative bid is not possible.

“That is a possibility on the facts as they arose here,” noted Olasker, noting that after Cannimed’s shareholders rights plan was struck down, Aurora was allowed to purchase another five per cent and to enter into other lock-ups, further strengthening its hold on Cannimed.

Since the regulators didn’t comment on that matter, Olasker’s interpretation was that they opted not to intervene given that an armslength bidder is locking up with arms-length shareholders. The same result may not apply, she opined, if an insider is launching a takeover.

Olasker also mentioned the scant attention devoted to the topic of information sharing, noting that some Cannimed shareholders had contacted Aurora as a potential buyer after voicing their disapproval of the Newstrike transaction. Through these communications, said the regulators, Aurora learned “two facts material to its potential bid: that Cannimed was pursuing an acquisition” and that such an action “was imminent.”

The takeover also affected Canaccord Genuity. Originally it was acting for Newstrike, but changed when Aurora entered the frame “because it had a contractual first right of refusal on any Aurora engagement.”

More on this tomorrow.