Hostile Bids - You Can't Just Say No in BC

Written By Barry J. Reiter and Gary S.A. Solway

Directors contemplating their arsenal of takeover defences in Canada will want to read the attached full reasons of the BC Securities Commission, released yesterday, for cease trading the Lions Gate rights plan in April. That decision was upheld by the BC Court of Appeal a week later as not being “unreasonable”. The attached reasons expand on the summary reasons released in May by the majority of the panel. The written reasons of the third member of the panel have been promised but not yet released.

Lions Gate had adopted a rights plan on March 11 as a defensive measure to a bid made by Carl Icahn on March 1. The Lions Gate Board had stated that it had no intention of seeking alternatives to the bid. Instead, it was “just saying no” to the bid because the Board thought, with the benefit of advice from financial and legal advisors, that it was too low, opportunistic and coercive. As a result of the Board's actions, Icahn made several improvements to the bid prior to the Commission hearing.

As promised in the summary reasons, the full reasons elaborate further on the reservations of the majority of the panel on the Pulse Data and Neo Materials decisions. Those decisions had been viewed by some as supporting a “just say no” defence in circumstances where it was clear the target's shareholders other than the bidder strongly supported the rights plan and the target's directors were acting in the proper exercise of their fiduciary duties. The majority of the Lions Gate panel noted that rights plan decisions are very fact specific and distinguished Pulse and Neo on their facts. However the majority also made comments about the logic and reasoning of those two decisions, including in regard to the significance of shareholder support for a rights plan and the intersection of director fiduciary duties with securities law/ policy. Given the diversity of opinion that is seemingly expressed in the three decisions, the Lions Gate decision is unlikely to be the last word on the “just say no” matter.

In the end, the majority of the Lions Gate panel was of the view that unless Lions Gate was seeking alternatives to the bid, there was no basis for the plan to remain. As it was not seeking any, the bid was not coercive and the shareholders had been fully informed about the bid, the panel decided that time had come for the rights plan to go.

It is worth noting that although the rights plan was eventually cease traded, it had contributed to extending the bid period from the statutory 35 days to more than 60.