The Toronto Stock Exchange has requested comments on its securityholder approval requirements for acquisitions by listed issuers.
TSX rules currently require shareholder approval where securities of a listed issuer will be issued as consideration for an acquisition and the number of securities to be issued exceeds 25% of the outstanding securities of the issuer. However, this requirement does not apply where the listed issuer is acquiring a public company, except in certain cases where securities are being issued to insiders, or where the issuance would result in a change of control of the listed issuer.
The TSX is now considering whether securityholder approval should be required more generally for the issue of securities as consideration for the acquisition of a public company; if so, what the appropriate level of dilution should be in order to trigger that approval; and what the required securityholder approval level should be.
A requirement for securityholder approval for the issue of securities in this context would have a significant effect on public company mergers and acquisitions in Canada and how they are structured and negotiated. It would affect questions of cash versus share transactions (and the ability of strategic purchasers to compete with private equity purchasers, who typically offer all-cash); the ability to launch hostile takeover bids where shares may be offered as consideration; and whether an acquiror should be required to pay a termination fee or expense fee if it cannot obtain the approval of its securityholders for a transaction.
Comments must be delivered by December 12, 2007. Following the comment period, the TSX will determine whether to propose an amendment to its current securityholder approval requirements for acquisitions. Any proposed amendment will also be published for comments.
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