ANTIDOTE TO ‘POISON PILL’ EXPECTED THIS WEEK.
Change expected this week to takeover period
Canadian regulators are this week expected to announce they will boost to 105 days the amount of time a hostile bid must remain open for acceptance by a target company’s shareholders, the Financial Post has learned.
Canadian Securities Administrators, an umbrella group that co-ordinates policy among Canada’s patchwork of provincial and territorial securities commissions, is expected to unveil the new takeover rules to the staff of its 13 member regulators this week. A formal, public announcement is expected in the spring.
The new 105-day timeline emerges after a policy process that has taken nearly three years. Bids must currently remain open for only 35 days, and this encourages the boards of targeted companies to buy more time through the use of shareholders’ rights plans or “poison pills.”
In September 2014, the CSA released a draft policy that would have hiked the minimum tender period on an unsolicited bid to 120 days. Since then, some M&A lawyers and practitioners have argued this four-month period might be too long. Several comment l etters filed with regulators suggested a 90- day limit would be more appropriate.
The 105- day period expected to be unveiled by the CSA this week attempts to balance the views of those who advocated a threemonth period with the fourmonth period announced in the original draft.
An early warning sign that the originally proposed 120- day period might not hold emerged after Suncor Energy Inc. challenged the shareholders’ rights plan unleashed by Canadian Oil Sands Ltd. In December 2015, the Alberta Securities Commission ordered Canadian Oil Sands to cease trade its pill on a date that was shorter than the 120 days the pill was to remain in place.
Canadian Oil Sands and Suncor have since reached a friendly merger deal.
One problem with the proposed 120-day time frame is that it would conflict with some existing Canadian corporate law statutes.
Mike Devereux, a lawyer with Stikeman Elliott LLP in Toronto, wrote the CSA to point out the proposed 120day limit could make it impossible for bidders to use the “compulsory acquisition” provisions of various corporate statutes. For example, the Canada Business Corporations Act allows a bidder who acquires 90 per cent of a target company’s shares to force the remaining shareholders to sell. Yet that power is only available if the 90 per cent of shares are acquired within 120 days of the launch of the takeover bid.
On the other hand, the 120-day period was a key part of a proposal advanced by Quebec’s regulator, the Autorité des marchés financiers. Back in March 2013, Quebec’s AMF proposed a policy that would have given the boards of target companies the right to refuse an unwanted offer without putting it to shareholders. Meanwhile, the other members of the CSA proposed a framework in which target company boards would be able to buy time by enacting poison pills, then having investors ratify those shareholders’ rights plans at regular intervals.
The CSA therefore needed to balance the 120 days sought by the AMF, with the 90 days suggested by several commenters. At the same time, the policy needed to work with the compulsory takeout provisions for statutes such as the CBCA. The answer was to split the 30day difference between the original 120- day proposal and the 90 days recommended by some commenters.
Canadian securities regulators have been searching for a new takeover policy so they can reduce the amount of time their hearing panels spend adjudicating disputes over poison pills.
A poison pill threatens to flood the market with a company’s shares to make it practically impossible for a hostile bidder to buy enough of those shares to complete a takeover. While the pill might thwart a hostile bid, it would also dilute the value of existing shares. It also gives a target company’s board the power to reject a deal without letting shareholders decide.
In reality, the only practical use for a poison pill is to buy a target company some time to hunt for an alternative to a hostile offer. Hostile bidders almost always convince security commission hearing panels to “cease trade” or shut down their poison pills.