Canada: OSC Rejects Deference to Target Boards in Poison Pill Decisions

The Ontario Securities Commission's reasons in Baffinland Iron Mines Corporation clearly rejected the proposition that securities commissions should defer to the business judgment of a target board of directors in deciding whether to cease trade a shareholder rights plan (also known as a poison pill). This decision should clarify some of the confusion arising from the OSC's earlier decision in Neo Material Technologies Inc. and the British Columbia Securities Commission's decision in Lions Gate Entertainment Corp.

The Baffinland Contest

Nunavut Iron Ore Acquistion Inc. made an unsolicited offer to acquire the shares of Baffinland on September 22, 2010, which resulted in a contest for control of Baffinland. On November 8, 2010, Baffinland entered into a support agreement in connection with a competing offer from ArcelorMittal S.A. The ArcelorMittal offer also had the support of Baffinland shareholders holding approximately 26% of the outstanding shares. Both offers have been subject to variations and extensions and were recently superseded by a joint offer of the two companies.

The Baffinland Poison Pill

The Baffinland shareholder rights plan, or poison pill, was originally put in place in January 2006 and amended in January 2009. It was approved by Baffinland shareholders in March 2009.

In accordance with the ArcelorMittal support agreement, Baffinland agreed to keep its poison pill in place until immediately prior to the expiry of the ArcelorMittal bid, or any earlier time requested by ArcelorMittal. The support agreement also precluded Baffinland from soliciting any competing offers. Effectively, Baffinland and ArcelorMittal were seeking to use the Baffinland poison pill to eliminate Nunavut's timing advantage due to the fact that its offer was launched much earlier than ArcelorMittal's and had, at the time of the agreement with ArcelorMittal, been outstanding for more than the minimum statutory period of 35 days.

The Application to the Ontario Securities Commission

Nunavut brought an application to the OSC to cease trade the Baffinland poison pill, which would effectively nullify the pill and allow Nunavut to acquire any shares tendered to its offer. The application was heard on November 18, 2010 and the OSC issued an order cease trading the Baffinland poison pill on November 19, 2010, with reasons issued on December 3, 2010.

The OSC's decision was consistent with its traditional view, expressed in decisions before Neo, confirming that it is generally time for a shareholder rights plan to go when it has served its purpose by facilitating an auction.

At the time of the hearing, the Nunavut offer had been outstanding for 57 days. The Baffinland board had conducted an auction, succeeded in procuring a competitive offer and had agreed not to solicit further offers. Accordingly, the OSC was able to conclude that there was no real and substantial possibility that leaving the poison pill in place would increase shareholder choice.

The OSC confirmed its prior view that it is not appropriate to use a poison pill to eliminate the timing advantage of the first bidder, concluding that Nunavut is entitled as the first bidder to the timing advantage its offer had under the Canadian take-over bid regime.

The OSC rejected the argument that the Nunavut offer was coercive because Nunavut had the unilateral right to waive the minimum tender condition, noting that the vast majority of take-over bids are made on this basis.

Deference to the Business Judgment of the Target Board

While the OSC's decision on the merits of the application in Baffinland is not novel, its reasons also addressed the scope of its 2009 decision in Neo. Given the debate triggered by that decision and subsequent conflicting decision by the BCSC in Lions Gate, the OSC's comments provide valuable guidance.

In the Neo decision, the OSC declined to cease trade a poison pill notwithstanding that the hostile offer had been outstanding for a long time and the target board was not seeking alternatives. The primary rationale for the decision was that the target shareholders had approved the adoption of the poison pill after the hostile bid was launched with full disclosure of the fact that the poison pill could prevent the offeror from taking up securities under the bid.

The OSC in Neo had adopted the reasoning from the Alberta Securities Commission's 2007 decision in Pulse Data Inc., made in similar circumstances. However, in Neo the OSC also suggested that a poison pill could serve legitimate purposes other than allowing time for an auction, such as protecting the long-term interests of shareholders, where, in the directors' reasonable business judgment, the implementation of a poison pill would be in the best interests of the corporation and shareholders as a whole. The discussion in Neo regarding the target board's fiduciary duty and the references to the Supreme Court of Canada's discussion of the business judgment rule in the BCE decision prompted speculation that the OSC had adopted a more deferential approach to target boards and their use of defensive tactics in the wake of BCE.

The BCSC's 2010 decision in Lions Gate specifically rejected this approach and held that whether a target board complies with its duty to act in the best interests of the corporation is at best a "neutral factor" in the analysis.

In Baffinland, the OSC was unequivocal in its rejection of the broad interpretation of Neo, stating:

. . . Neo does not stand for the proposition that the Commission will defer to the business judgment of a board of directors in considering whether to cease trade a rights plan, or that a board of directors in the exercise of its fiduciary duties may "just say no" to a take-over bid.

Instead, the OSC held that Neo stands for the principle that the OSC will, in appropriate circumstances, defer to the wishes of a target's shareholders where they have expressed overwhelming support for a rights plan in the face of a specific bid. Moreover, whether the target board of directors was complying with its fiduciary duties was characterized as a relevant, although secondary, consideration in determining whether to cease trade a rights plan.


The Baffinland decision narrows the gap between the position expressed by the BCSC in Lions Gate and the OSC in Neo. While there is still a divergence on the importance of recent, informed shareholder consent of a rights plan by target shareholders in the face of a specific bid, this is a much narrower point of distinction than the prospect of applying the business judgment rule in the context of defensive tactics. In effect, with Baffinland the OSC appears to be confining the scope of Neo to a narrow exception to the general proposition that it is a question of when, not if, the pill should go in much the same manner as Pulse Data had been interpreted before Neo.

The OSC's reasons are available on its website.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.