On June 27, 2014, the British Columbia Securities Commission
published the reasons for its widely discussed decision
to cease-trade Augusta Resource's shareholder rights plan as of
July 15, 2014 – an unprecedented 156 days after the
commencement of HudBay Minerals' hostile take-over bid.
Prior to the BCSC's May 2, 2014 ruling, most securities lawyers
would have considered it unlikely that a Canadian regulator would
permit a rights plan to endure for even 90 days. Our prior comment
on the hearing and result can be found
In its reasons, the BCSC panel confirmed that it was not
following the approach in proposed NI 62-105 or Quebec's proposed
alternative, but rather following established policy and
precedent in analyzing, not whether Augusta's
rights plan should be terminated, but when.
In setting this background, the panel took the opportunity to
BCSC's prior decision in Icahn – Lion's
Gate with the decisions of the ASC in Pulse Data and the OSC in Neo Materials, stating that none of those cases stood
for the proposition that shareholders could enshrine a rights plan
and "just say no" to a hostile bid as contemplated by the
proposed NI 62-105. Rather, in each of these cases, the
regulator was essentially answering the "when" question,
i.e. whether the time to cease-trade the rights plan had
The panel then identified the key elements of the HudBay –
Augusta situation, and found that three factors – (a) the
length of time the HudBay bid was outstanding; (b) the likelihood
that Augusta could find a superior proposal if given more time; and
(c) whether the HudBay bid was coercive – each suggested that
it was an appropriate time to cease-trade the Augusta rights
plan. However, a fourth key factor – the approval of
the rights plan by the Augusta shareholders in the face of the
HudBay bid, combined with the likelihood that HudBay would extend
its bid – was the basis on which the panel allowed the rights
plan to survive through to July 15.
In discussing the shareholder approval, and the weight to be
given to it, the panel identified five factors in this case that
allowed the shareholder approval to trump the other factors: (a)
the shareholder approval was obtained in the face of HudBay's
bid (as opposed to having been obtained prior to the making of the
hostile bid); (b) it was an informed vote in the sense that
shareholders understood that a vote in favour of continuation of
the rights plan would block their ability to accept the HudBay bid;
(c) the context of the vote - that is, shareholders understood from
the context that a vote for the rights plan could result in the
loss of Hudbay's bid and without a viable alternative
transaction; (d) the high voter turn-out; and (e) the high
shareholder approval level – 94% of the voted shares
(excluding those voted by HudBay).
The heavy weight to be given to the shareholder approval of the
rights plan, taken together with the likelihood that HudBay
would extend its bid, enabled the panel to reach the conclusion
that allowing the rights plan to remain in place until July 15,
2014 appropriately balanced the will of the majority of
Augusta's shareholders as expressed in the vote approving the
rights plan against the individual shareholders' right to
tender shares to HudBay's bid.
Finally, of interest to target company boards, the panel
commented adversely on Augusta's decision not to implement a
special committee, suggesting that Augusta's failure to do so
led the panel to question whether Augusta was serious in its search
for alternative transactions. Therefore, it is always best
practice to implement a special committee (independent of
management), even in situations in which one could argue that a
special committee is not strictly necessary.
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.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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).