On May 2, the British Columbia Securities
Commission (BCSC) ruled on an application by HudBay
Minerals Inc. to cease-trade Augusta Resource Corporation's
shareholder rights plan (the Pill). While the BCSC panel granted an
order cease-trading the Pill as at 5:00pm Vancouver time on July
15, 2014, the decision is a clear victory for Augusta, providing
Augusta with nearly 160 days (from the date on which HudBay
commenced its hostile bid) to find a competing offer. Prior to this
decision, you would have been hard-pressed to find a securities
lawyer that would have bet that a poison pill could survive for
more than 90 days in the face of a hostile bid.
By way of background, Augusta adopted the Pill in the spring of
2013, and sought shareholder approval for the Pill in the fall of
2013 (within the 6 month time limit required under TSX rules). The
Pill had many unusual features, including that it prohibited any
acquisition of more than 15% of Augusta's shares, except by
"permitted bid". The adoption of the Pill prevented
HudBay, which held 16% of Augusta's shares, from acquiring any
further shares except by way of permitted bid.
Hudbay sought to privatize Augusta and commenced a hostile
take-over bid on February 9, 2014 (the Bid) . Augusta's board
determined that the Bid was inadequate and opportunistically
attempted to acquire Augusta just before completion of permitting
and financing of Augusta's only material asset – the
Rosemont copper project. In addition, a group of Augusta
shareholders who held approximately 33% of Augusta's shares
announced that they would not tender to the Bid, with the result
that HudBay's minimum tender condition could not be met.
However, as a result of the bid, Augusta's board implemented a
value maximizing process, putting the company in play.
In response to these actions, HudBay extended its Bid to May 5,
but waived the minimum tender condition, resulting in its Bid no
longer being a "permitted bid" under the Pill. Augusta
scheduled a shareholder meeting for May 2 to re-affirm the Pill.
The showdown between the two finally arrived on April 29: the date
on which the BCSC heard HudBay's application to cease-trade the
Pill to enable HudBay to take-up any shares tendered before expiry
of its offer on May 5.
Hudbay's principal arguments followed established precedent:
a Canadian securities regulator will always balance the ability of
a target board to generate competing bids against the possibility
of losing the existing bid, and will cease-trade a rights plan when
a target board has had a reasonable opportunity to generate
competing bids and the existing bid has been outstanding for a
reasonable period of time. In this case, consistent with precedent,
a sufficient period of time had passed (85 days) without a
competing bid, so the balance had shifted and the rights plan
should be cease-traded to limit the possibility of losing the
Augusta needed novel arguments to prevail in the face of
established precedent. It presented the following: (a) the Bid was
opportunistic in its timing, attempting to complete the
privatization before Augusta had unlocked the value in the Rosemont
project through permitting and financing – therefore the Pill
should not be cease-traded before Augusta had a chance to unlock
that value and present it to competing bidders; (b) the Bid was
coercive in that, without a minimum tender condition, HudBay could
acquire a smaller number of shares that, when added to its existing
16% holding, would give HudBay a veto over any other transaction;
and (c) most importantly, advance proxy results in respect of the
shareholder meeting indicated that Augusta shareholders, who had
been presented with all the relevant information by Augusta, HudBay
and others, overwhelmingly (approximately 95%) supported
continuation of the Pill.
The BCSC adjourned the April 29 hearing to Friday May 2 in order
to obtain the actual voting results from the Augusta shareholder
meeting. After convening on May 2 and receiving evidence that the
actual voting results closely paralleled the advance proxy results,
the BCSC concluded that the Pill should not be cease-traded before
the May 5 expiry of the Bid. However, the BCSC provided HudBay with
some certainty, ordering that if HudBay extended the Bid to July
16, 2014, the Pill would expire on July 15, 2014 to enable Hudbay
to take-up any shares tendered to the Bid.
The BCSC decision is not remarkable, except for the length of
time it permitted the Pill to survive. However, the length of time
the BCSC provided the Augusta board is supported by the unique
facts and circumstances of the case. The full reasons for the
decision will be released in due course and at that time we expect
to be able to ascertain which facts weighed most heavily in
allowing the BCSC panel to reach the conclusion that it did.
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.
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