Regulators propose takeover bid extension
The umbrella group representing Canada’s top securities regulators is recommending a package of changes to provincial and territorial securities laws that would give companies more time to fend off hostile takeover bids.
The draft proposals, published for comment on Tuesday by The Canadian Securities Administrators, confirm the ideas first floated by the CSA last September.
The CSA, which harmonizes policy across Canada’s 13 provincial and territorial regulators, is proposing that takeover bids remain open for 120 days unless a target company’s board agrees to shorten the period to 35 days. Bids would also require minimum acceptance of more than 50% of the target company’s outstanding shares, and the deadline for acceptance must be extended 10 days if the minimum take up is met and other conditions are met or waived.
The proposal, which is open for comment until June 29, represents a dramatic shift in the practice of Canadian M&A law. Canadian bids are currently required to be open for only 35 days, and there is currently no minimum take-up requirement for the bid to succeed. Target companies hoping to line up an alternative to an unwanted bid will threaten to use a shareholders’ rights plan or “poison pill.” Theoretically, a poison pill would flood the market with the target company’s shares. Practically, it’s just a tool the target company uses to buy time.
Bidders frequently challenge pills before securities commissions — almost always with success. By extending the required time period for bids, the CSA aims to reduce the number of pill challenges securities commissions must hear.
“Our goal is to provide target boards with sufficient time to respond to hostile bids, while facilitating the ability of target shareholders to make voluntary, informed and co-ordinated tender decisions,” said Louis Morisset, chair of the CSA, and chief executive of Quebec’s regulator, the Autorité des marchés financiers.
The CSA has chosen to remain silent on whether to regulate the defensive tactics a target company can use in the face of an unsolicited bid. This is a notable omission. While the CSA policy would likely reduce the use of poison pills, it will not put them out of business entirely. M&A lawyers say they’ll still use poison pills to defend against creeping bids, in which a suitor tries to accumulate a large amount of a company’s equity without obtaining voting control. Nor does the proposal address whether boards can introduce a short-term or “tactical” poison pill in the face of an unwanted bid.
Robert Yalden, co-head of the M&A practice at Osler, Hoskin & Harcourt LLP, said the proposed amendments address concerns that the current rules did not give target companies enough time to respond to bids. “But they stayed silent on what that means for defensive tactics, like rights plans.”