Written by J. Paul D. Barbeau, James T. McClary, Eric Chernin
On September 11, 2014, the Canadian Securities Administrators (CSA) announced the publication of CSA Staff Notice 62-306, which contemplates a new harmonized regulatory approach to the Canadian take-over bid regime.
In March 2013, the CSA and the Authorité des marchés financiers (AMF) published separate consultation papers advocating competing approaches to the regulation of defensive tactics and reform of the existing take-over bid regime. Both proposals sought to address concerns that the existing regulatory regime had become too friendly to hostile bidders.
In general, the original CSA proposal would have permitted shareholder rights plans if approved by a majority of target shareholders within a mandated period of time. The AMF advocated replacing National Policy 62-202 Takeover Bids – Defensive Tactics with a policy of deference to decisions of target boards made in compliance with their fiduciary duties. The AMF also recommended amending the current take-over bid regime to include a minimum 50-percent tender condition and a mandatory 10-day extension after the minimum tender condition is satisfied.
A New Harmonized Approach
After an 18-month consultation period by Canadian securities regulators, the CSA and the AMF abandoned their competing proposals and intend to proceed with a harmonized approach to the take-over bid regime for all Canadian jurisdictions.
The proposed changes to the Canadian take-over bid regime would require all formal take-over bids for Canadian public targets to have the following mandatory features:
- Irrevocable Minimum Tender Condition – A minimum of more than 50 percent of all outstanding target securities owned or held by persons other than the bidder and its joint actors must be tendered and not withdrawn before the bidder can take up any securities under the bid.
- 10-Day Bid Extension – All non-exempt take-over bids must be extended by the bidder for an additional 10 days after the bidder achieves the minimum tender condition and the bidder announces its intention to immediately take up and pay for the securities deposited under the bid.
- 120-Day Bid Period – All non-exempt take-over bids must remain open for a minimum of 120 days, subject to the ability of the target board to waive, in a non-discriminatory manner when there are multiple bids, the minimum period to a period of no less than 35 days. This is a significant increase from the 60-day period typically permitted before a shareholder rights plan or poison pill is cease-traded.
According to the CSA, the proposed amendments are designed to "[rebalance] the current dynamics between hostile bidders and target boards" and "provide target boards with additional time to respond to hostile bids while reserving for shareholders the ability to make voluntary, informed and coordinated tender decisions."
The proposed amendments will allow target boards more time to find alternatives to hostile bids and to communicate with shareholders and may lead to more unsolicited competing bids. The proposed amendments will also impose additional challenges for hostile bidders, for example by impeding the ability of a bidder to acquire a t-hold position through partial bids.
However, given that current CSA policy on defensive tactics will not change, it remains to be seen how significantly these amendments will change the take-over bid landscape for target boards. Shareholder rights plans may continue to be an effective tool against "creeping" takeovers, but may continue to be successfully challenged by hostile bidders if used to delay a bid beyond the 120-day bid period. Given that the changes are intended to rebalance the dynamics between bidders and target boards, the CSA may be more likely to agree when hostile bidders argue that "the pill must go."
The CSA intends to publish the proposed amendments to the take-over bid rules in the first quarter of 2015, at which time the CSA will solicit comments.