Canada: BCSC Upholds Augusta Rights Plan For An Additional 75 Days

The British Columbia Securities Commission (BCSC) has issued an order allowing Augusta Resource Corporation (Augusta) to leave its shareholder rights plan in place until July 15, 2014 in the face of the HudBay Minerals Inc. (HudBay) hostile bid.

On May 2, 2014, the BCSC issued an oral decision declining to immediately cease trade the shareholder rights plan (also known as a "poison pill") of Augusta in the face of a hostile bid by HudBay. Instead, under the terms of the BCSC order, if HudBay extends its take-over bid to July 16, 2014 and provides a ten day extension of the take-over bid if it takes up any shares, then the BCSC will issue an order cease trading Augusta's shareholder rights plan, effective 5:00 p.m., Vancouver time, on July 15, 2014, unless Augusta confirms in advance that it has terminated its shareholder rights plan. Effectively, this allows the Augusta pill to remain in place for 156 days from the date of the announcement of the HudBay bid, marking a sea change in the BCSC's approach to the treatment of shareholder rights plans.

Augusta adopted its shareholder rights plan in the spring of 2013. As of the date of the BCSC's decision the Augusta shareholder rights plan had been in place for 82 days since the date HudBay first announced its intention to launch its bid for Augusta. Canadian regulators have typically granted target boards between 55 and 65 days to find a white knight offer before cease trading a target's rights plan. The prevailing view of Canadian regulators has historically been that at some point a target company's shareholder rights plan has "to go" in order to allow target shareholders the opportunity to exercise their right to decide whether or not they wish to tender to a hostile bid.

Against this background, the BCSC's decision to allow Augusta to leave its shareholder rights plan in place for a total of 156 days is certainly uncharacteristic. However, there are a number of unique factors at play in the Augusta-HudBay contest.

Reasons supporting the BCSC's decision have not been released and are not due until July 31, 2014. We will not have the opportunity to consider the BCSC's rationale supporting its decision until reasons are released, and we will issue a more detailed bulletin at that time, however, we expect the following factors will have influenced the BCSC's decision.

Overwhelming Shareholder Support

The Augusta board received an unprecedented level of support in favour of the company's rights plan. Augusta held a meeting on May 2, 2014, to consider, among other things, a resolution confirming the continuance of its shareholder rights plan in the face of the HudBay offer. The result was that 94% of shareholders (excluding HudBay) had voted in favour of the shareholder rights plan.

In the past, Canadian regulators have wrestled with the tension between the rights of shareholders to make collective decisions in the face of a hostile bid, and the rights of individual shareholders to tender their shares to an offer if they wish to do so. More so than any other Canadian regulator, the BCSC has historically sided in favour of the rights of individual shareholders. In particular, in the 2010 Lions Gate decision the BCSC took the position that the only appropriate purpose of a rights plan is to enable the target board to seek an improved offer for shareholders, regardless of whether shareholders have approved the rights plan. However, the enthusiastic level of shareholder support Augusta was able to obtain would have been difficult for any regulator to ignore.

As a result, the BCSC's approach to shareholder support for a rights plan now appears to be more in line with the 2007 decision of the Alberta Securities Commission in Pulse Data, as well as the 2009 decision of the Ontario Securities Commission (OSC) in Neo Material Technologies, where those regulators declined to cease trade a rights plan after the target's shareholders had approved the plan in the face of an unsolicited bid.

The BCSC's decision is also in line with recent regulatory proposals by the Canadian Securities Administrators (CSA) that, if adopted, would provide shareholders with the ability to collectively ratify a target company's rights plan in the face of a hostile bid.

Concern Regarding HudBay's Decision To Drop Its Minimum Tender Condition

In past decisions, particularly the OSC's 2006 Falconbridgeruling, Canadian regulators have been willing to uphold a target board's rights plan where there was a concern that the bidder would seek to obtain a blocking position, which in turn could limit a target board's ability to seek superior proposals in the future.

In addition, in the CSA proposal discussed above, securities regulators expressed concern that insider bids without a minimum tender condition could be seen to unduly pressure minority shareholders to tender due to concerns regarding reduced liquidity and increased control by the bidder post-bid.

Both of these concerns may have worked against HudBay. HudBay held approximately 16% of the outstanding Augusta shares at the outset of its bid. On March 14, 2014, after shareholders holding over 33% of Augusta's shares announced that they would not tender to the HudBay offer, HudBay formally amended its takeover bid to drop its minimum tender condition giving them the potential ability to obtain a blocking position. It will be interesting to see to what extent the BCSC was influenced by Augusta's claims that this move was an inappropriate coercive tactic.

Permitting Matters And The Status Of Third Party Discussions

Historically Canadian regulators have deferred to the rights of hostile bidders after a target board has had sufficient time to attempt to solicit competing white knight offers. It will also be interesting to see to what extent the BCSC was influenced by Augusta's claims that it was actively engaged in discussions with several third parties in connection with potential alternative transactions, and its claim that it was in the final stages of obtaining key regulatory approvals.

Regardless of the BCSC's rationale, the order was clearly a victory for Augusta and will be welcomed in those circles where concerns have long been expressed that takeover bid regulation in Canada has unduly favoured hostile bidders and contributed to the "hollowing out" of corporate Canada.

We look forward to reviewing the panel's reasons when they are released. The BCSC's order was published on May 5, 2014, and is available here1.

Footnote

1 http://www.bcsc.bc.ca/eservices/Inc/ViewDoc.asp?DocNum=J7E7Z6L1C7M7W7LCJ6C4V7T9H7B3&s=False

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 Mondaq.com.

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

Authors
Similar Articles
Relevancy Powered by MondaqAI
Davies Ward Phillips & Vineberg
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Davies Ward Phillips & Vineberg
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions