Canada: Augusta’s Rights Plan – BCSC Releases Reasons For Decision

On June 27, 2014, the British Columbia Securities Commission (BCSC) released the reasons for its May 2, 2014 decision declining to immediately cease trade the shareholder rights plan (also known as a "poison pill") of Augusta Resource Corporation (Augusta) in the face of a hostile take-over bid for Augusta made by HudBay Minerals Inc. (Hudbay). In its decision, the BCSC allowed the rights plan to remain in place until July 15, 2014, an unusually long 156 days from the announcement of the bid.

Notwithstanding marketplace speculation that Augusta marked a potential change in approach by the BCSC due to the extended period of time that the plan was allowed to remain in place, the BCSC's reasons reaffirm the traditional approach of Canadian securities regulators to the regulation of shareholders rights plans (that it is "when, not if" the plan should go), but do provide new guidance on how a shareholder vote affirming a rights plan in the face of a hostile bid can impact the timing of a cease-trade order.

BACKGROUND

Augusta is a mining company whose only material property is the Rosemont copper project (Rosemont Project) located in Arizona. In April 2013, Augusta implemented a rights plan in response to Hudbay's announcement that it had acquired an ownership position in Augusta of approximately 15%. The rights plan was subsequently approved by Augusta shareholders at a special meeting in October 2013.

On February 9, 2014, well after shareholder approval of the plan, Hudbay announced a take-over bid for all of the Augusta common shares. After being extended, the bid was scheduled to expire on May 5, 2014.

In the face of this bid, Augusta held a shareholder meeting on May 2, 2014 at which the shareholder rights plan was reaffirmed, with approximately 94% of the shares voted (excluding those held by Hudbay) voting in favour (78% of the outstanding shares, including those held by Hudbay, were voted).

Later that day, the BCSC issued a decision that it would cease trade the Augusta rights plan on July 15, 2014, provided that the Hudbay bid was still outstanding and Hudbay agreed to extend its offer for 10 days after any initial take-up of shares. Augusta had provided evidence that it believed that all necessary material permits and approvals for the Rosemont Project would be obtained by the end of June. At the time of the BCSC's decision on May 2, 2014, Hudbay's bid had already been outstanding for 82 days.

For more details on the May 2, 2014 decision and the background to the transaction, please see our May 2014 Blakes Bulletin: Augusta's Rights Plan – A Hard Pill for Hudbay to Swallow.

BCSC ANALYSIS

In its written reasons, the BCSC explained that it followed the principles set out in its 2010 Icahn decision that (1) it is in the public interest that each shareholder be allowed to decide whether or not to accept a bid; (2) regulators will be reluctant to interfere with defensive measures taken by board in discharging their fiduciary duties; (3) shareholder rights plans are not contrary to the public interest when used to buy time for the target company to respond appropriately to the bid (i.e., rights plans are a temporary defence and the issue is "when, not if" a rights plan should go); and (4) take-over bids are fact-specific, so the relevance of the factors to be considered when determining whether to cease trade a rights plan will vary.

In doing so, the BCSC affirmed its stated view in Icahn, and agreed with the reasoning of the Ontario Securities Commission (OSC) in its 2010 Baffinland Iron Mines decision, that the 2007 decision of the Alberta Securities Commission in Pulse Data and the subsequent 2009 decision of the OSC in Neo Material Technologies, where the regulators declined an unsolicited bidder's request to cease trade a rights plan after the usual time-period and allowed the rights plans to remain in place indefinitely following shareholder approval in the face of bids, did not create a "just say no" defence in Canada if shareholders have approved a rights plan in the face of a bid.

Although the BCSC indicated that it was "mindful" of the issues raised in the separate March 2013 proposals by the Canadian Securities Administrators (CSA) and Quebec's Autorité des marchés financiers (AMF) regarding defensive tactics by target companies, which have not yet been approved, it specifically elected not to follow the proposed changes in policy with respect to the treatment of shareholder rights plans reflected in either proposal. For more details on the CSA and AMF proposals, please see our March 2013 Blakes Bulletin: Securities Regulators Propose Alternative Approaches to Defensive Tactics.

With a view to the non-exhaustive list of factors to consider when reviewing an application to cease trade a rights plan set out in the BCSC's 1999 decision in Royal Host, the BCSC identified the five most relevant factors it considered in making its decision in Augusta:

1. The length of time that the Augusta board had already had to run a process aimed at identifying a superior transaction.

According to the BCSC, the significant time the bid had already been outstanding (85 days by the planned expiry of the bid on May 5, 2014) was already at the outer limit for historical decisions cease-trading rights plans. The BCSC indicated that this was a clear factor suggesting that it was time for the rights plan "to go".

2. The likelihood of the Augusta board being able to find a superior transaction.

The BCSC questioned how seriously Augusta was pursuing an auction. The evidence suggested to the BCSC that Augusta was more focused on obtaining the outstanding permits and approvals for the Rosemont Project, rather than seeking another serious bidder.

3. Hudbay's waiver of the minimum tender condition in its bid and whether the bid was coercive to Augusta shareholders.

The BCSC found that the waiver of the minimum tender condition was not coercive to Augusta shareholders because, among other things: (1) there is no prohibition in securities laws against making a partial bid; (2) there were other large shareholders of the company, so significant shareholder synergy would be required to effect a change of control transaction of Augusta, which would not be significantly more difficult if Hudbay increased its ownership percentage; and (3) a requirement for a minimum tender condition in a bid notwithstanding a significant minority shareholder "blocking position" (as was the case in Augusta, where a group holding approximately 33% of the Augusta shares, including the Augusta directors and officers, had committed not to tender to the bid) could produce a restricted auction and could result in bids not being made at all or in shareholders being deprived of the ability to respond to a bid.

The BCSC was, however, concerned that shareholders might feel some coercion due to the uncertainty of the ultimate outcome of the bid without a minimum tender condition. It asked for submissions on whether it would be appropriate to require a 10-day extension after the first take-up of shares under the Hudbay bid. Arguments were not heard on this point though, as Hudbay voluntarily agreed to provide such an extension. Nevertheless, the BCSC stated its position that in circumstances where the minimum tender condition is waived and the outcome is uncertain due to shareholder dynamics resulting from multiple "blocking positions", such a 10-day extension would be appropriate.

4. The vote by Augusta shareholders to approve the continuation of the rights plan in the face of the Hudbay bid.

As discussed further below, the BCSC was of the view that, while not determinative, shareholder approval of the rights plan in the face of the bid was persuasive evidence that should be considered.

5. The likelihood that if the rights plan was cease traded immediately or at a specified date in the future, Hudbay would extend its bid.

Evidence from Hudbay and its financial advisor led the BCSC to believe that there was a reasonable possibility that Hudbay's bid would be extended if the BCSC granted an order that the rights plan would be cease traded at some future date.

In the absence of the shareholder vote approving the rights plan in the face of the bid, it appears that the above factors would have resulted in the BCSC cease trading the Augusta rights plan immediately.

SHAREHOLDER VOTE

The BCSC identified five factors to consider in determining how much weight to afford shareholder approval of a rights plan:

1. Is the approval obtained in the face of a specific bid versus prior approval unrelated to a specific bid?

The BCSC emphasized that approval of a plan in the face of a bid is much more persuasive than one prior to a bid, as the former is an economic decision while the latter is largely theoretical. In Augusta's case, the plan had been approved both before and after the launch of Hudbay's bid, with a generally consistent level of shareholder approval. The BCSC found that this consistency lent further weight to the vote.

2. Is the approval an informed one (i.e., was all relevant information available to shareholders)?

The BSCC applied the common law test of "does a shareholder have sufficient information to make an informed decision on the matter at hand" and suggested that it is not necessary to parse every word of disclosure to confirm all nuances and subtleties have been described, provided the key concept (i.e., the continuation of the rights plan means blocking the bid) is conveyed.

3. What is the context of the vote in relation to the bid?

In the view of the BCSC, the vote by Augusta shareholders to approve the rights plan took place at a time where the Hudbay bid had been in the market for long enough without a competing bid emerging that Augusta shareholders had to have significant concern that another offer would not materialize, yet the shareholders approved maintaining the rights plan anyway.

4. What level of shareholder turnout is reflected in the approval?

According to the BCSC, the weight to be accorded to a shareholder vote should vary depending on the proportion of the total shares voted. Almost 80% of the Augusta shares (and a majority of the public float) were voted at the May 2, 2014 Augusta meeting to approve the rights plan, which the BCSC noted was high for a Canadian public company, even for a contested vote.

5. What level of approval has been obtained (taking into consideration and excluding "interested" voters (i.e., insiders, bidders, related parties, etc.))?

The BCSC, while not wanting to parse voting results too finely, recognized that there are clear differences in levels of shareholder approval. The BCSC found it significant that the continuance of the Augusta rights plan was approved by a sufficiently large number of shareholders that it represented an absolute majority of the shares, even if it was assumed that every share that did not vote was voted against the proposal.

Applying the above factors, the BCSC determined that the shareholder approval of the rights plan should be given significant weight and supported the notion that the rights plan should not be immediately cease traded.

CONCLUSION

While, after analyzing the factors from Royal Host, many factors suggested that it was "time for the plan to go", the BCSC decided that the shareholder approval of the rights plan in the face of the bid (combined with the likelihood that Hudbay would extend its bid) outweighed such factors and elected to set a future date for the rights plan to be cease traded. The BCSC concluded that this approach allowed it to strike a balance between deferring to the majority of Augusta shareholders who had voted for the plan to continue and respecting an individual shareholder's right to decide whether or not to tender to a bid.

The selection of the July 15, 2014 date was based on Augusta's expectation that material permits and approvals for the Rosemont Project would be obtained by the end of June. Although Hudbay argued that it did not expect the permits and approvals to be obtained by such date, it conceded that, if the rights plan was to be cease traded at some date in the future (as opposed to immediately), a date based on such expected permitting and approval timeline would be logical.

IMPLICATIONS

Until such time as one of the 2013 proposals by the CSA and the AMF changing the Canadian regulatory approach to shareholder rights plan, in whatever form, are implemented, Augusta has reaffirmed that Canadian regulators will continue to analyze applications to cease trade shareholder rights plans from the perspective of "when, not if" a plan should go. In any such analysis, informed approval of a rights plan by target shareholders in the face of a hostile bid will be an important factor that will support a plan remaining in place, but will not allow a target board to "just say no" indefinitely. Instead, such shareholder approval will be one of a number of factors taken into account in determining the date at which a plan will be cease traded.

The outer limits of the cease-trade date remain to be determined, but it would appear that in the appropriate circumstances, such a date could be extended beyond what was determined in Augusta. For example, in the Augusta reasons, the BCSC questioned how seriously Augusta was pursuing the search for alternative transactions but nevertheless allowed its rights plan to remain in place for an unusually long 156 days due to the impending permitting and approval decisions. It is possible that the BCSC would have selected an even later date if it had a different view of Augusta's efforts to undertake an alternative transaction.

EPILOGUE

On June 23, 2014, with the cease-trade date approaching and with no other offers made, Hudbay and Augusta entered into a support agreement providing for the friendly acquisition of Augusta and the waiver of Augusta's rights plan.

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
Events from this Firm
23 Nov 2018, Other, Toronto, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

28 Nov 2018, Speaking Engagement, Toronto, Canada

Arbitration has a number of advantages and some disadvantages for the resolution of domestic and international commercial disputes.

 
In association with
Related Topics
 
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