On November 1, I had the opportunity to participate in a panel
discussion on M&A Trends and Outlooks during OSC Dialogue 2011
(which we've discussed previously on this blog).
The panel also included James Turner (Vice-Chair of the OSC) and
Naizam Kanji (Deputy Director of Corporate Finance at the OSC). Of
particular interest was the discussion of poison pills.
Mr. Kanji reported that the OSC is currently considering
adopting a standalone rule on shareholder rights plans that would
allow poison pills to remain unchallenged if approved by
shareholders. While the content of pills would be minimally
regulated, shareholders would have to be able to remove the pill on
a "majority of the minority" vote (requiring a bidder to
launch a proxy battle or proceed with a permitted bid).
The purpose of the rule would be to provide more consistency and
certainty in the context of defensive tactics and decrease the need
for regulatory intervention. In this respect, both Mr. Kanji and
Mr. Turner expressed that, in their view, securities regulators are
better situated to consider shareholder rights plan challenges than
the courts. Courts, Mr. Kanji stated, are restricted by the way an
application is presented and then must undertake a process oriented
analysis applying the business judgment rule. A substantive
analysis, which can be undertaken by securities regulators, would
be more appropriate. Mr. Turner added his view that Ontario courts
are not the right venue for defensive tactics. They are not
Delaware courts, he noted, and the Commission is more apt at
dealing with the policy issues involved.
Mr. Kanji noted that there is a need for a more transparent and
predictable regime and that many things have changed since the
defensive tactics policy (NP 62-202) was first adopted.
According to the OSC panel members, a better framework would be to
remove the regulation of pills from the defensive tactics policy
and create a separate rule for pills that would allow pills to
remain unchallenged if they are approved by shareholders. The
shareholders would be able to remove the pill on a vote, which
essentially means the bidder would have to launch a proxy battle
(as opposed to coming before the Commission to have the pill cease
traded). There would otherwise be very minimal regulation of the
content of the pill itself, with the Commission leaving it up to
shareholders and the board to determine the scope and latitude.
Mr. Kanji continued that this approach may in fact represent
"walking away" from Jorex. In his view, it is
time to set aside the framework that was put in place by
Jorex and start the process from first principles. These
proposals (to re-visit defensive tactics and create a standalone
shareholder rights plan policy) are currently before the CSA at a
very preliminary level.
At a preliminary level (without having more details), it is fair
to say that people would like to see the Commission get out of the
regulation of pills and this approach seems to achieve that. While
I find it difficult to comment on this approach without knowing the
details, assuming institutional shareholders keep their current
positions on what they want to see in a shareholder rights plan, we
would likely see more "permitted bids" under this
approach. Since an unsolicited bidder would not be able to mount a
challenge before the Commission its only option would be to come in
as a permitted bid. In this situation you would have a traditional
pill that gets approved on an annual basis and could layer a
tactical pill on top of it.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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).