Canada: Shareholder Support Of Poison Pill Allows Target Board To "Just Say Slow" To Hostile Bid

The British Columbia Securities Commission (BCSC) recently released reasons for its May 5, 2014 order allowing Augusta Resource Corporation to keep its shareholder rights plan (also known as a poison pill) in place for an extended period—155 days after HudBay Minerals Inc. commenced its hostile bid. The Augusta decision confirms the importance of a shareholder vote on the continuation of a poison pill in the face of an unsolicited takeover bid. Shareholder support for a pill in the face of a hostile bid allows a target board to "just say slow".

The Augusta decision is the first significant poison pill case since the Canadian Securities Administrators (CSA) and Québec's securities regulator (AMF) announced competing proposals on changing how poison pills are regulated (see our bulletin, Canadian Companies Will Be Harder to Acquire Under New Poison Pill Proposals). Although the BCSC said that it did not apply the policy changes included in these proposals, the Augusta decision is consistent, in part, with the proposed CSA rules that place an increased emphasis on shareholder voting.

The status of the CSA and AMF proposals remains unknown, leaving provincial securities commissions to continue to regulate poison pills on a case-by-case basis. However, the Augusta decision indicates progress toward a more harmonized approach to the treatment of poison pills by provincial securities commissions; the decision is consistent with earlier poison pill cases in which securities commissions in Ontario and Alberta, in determining how long a poison pill should be allowed to stand, attached significant weight to shareholder approval of a poison pill.

Background: The Bid for Augusta

HudBay had initially attempted a negotiated transaction with Augusta and failed. HudBay announced in April 2013 that it had accumulated a 15% position in Augusta shares, prompting Augusta's board to adopt a poison pill. The pill was approved by Augusta shareholders in October 2013.

On February 10, 2014, HudBay commenced its bid, and then later sought to have Augusta's poison pill cease-traded by the BCSC. Augusta called a meeting of shareholders at which the poison pill was again put to shareholders for approval. Both the second shareholders meeting and the conclusion of the BCSC's poison pill hearing occurred on May 2, 2014. By that time, it had been 81 days since HudBay had commenced its takeover bid—significantly longer than the average time that securities commissions had previously allowed poison pills to remain in place. The evidence at the pill hearing showed that despite the time that Augusta's board had to use the pill, there was no real and substantial possibility that Augusta would find a superior transaction to HudBay's bid.

At the shareholders meeting, of the shares voted (78%), and excluding the shares held by HudBay and directors and officers of Augusta, over 90% were voted in favour of the continuation of the pill.

On May 5, 2014, the BCSC made its order allowing the pill to remain in place until July 15, 2014. On June 23, 2014, HudBay and Augusta announced a friendly transaction. The BCSC subsequently released its reasons.

The BCSC Decision

The BCSC ordered that Augusta's poison pill could stay in place until July 15, 2014, provided that HudBay extended its bid to July 16, 2014 and agreed to a further 10-day extension if HudBay took up any shares on that date. As a result of the order, the pill was allowed to remain in place for 155 days from the commencement of HudBay's bid, more than double the 60-day permitted bid period and well in excess of the average time of 45 - 60 days that securities commissions had previously allowed pills to remain in place. The time that Augusta's board was given to use the pill is particularly surprising in light of the fact that the BCSC concluded that it was unlikely that the board would be able to identify a better transaction. Under the earlier jurisprudence of the BCSC, and applying the well-known test for cease-trading poison pills, HudBay could reasonably have expected that the BCSC would have found that it was "time for the pill to go" (see Canadian Securities Regulators' Decisions on Poison Pills Diverge).

The BCSC stated in its reasons for allowing the continuation of Augusta's pill that it was mindful of, but did not apply, the CSA and AMF proposals. Under the CSA proposal, a poison pill can be adopted by a target board and remain effective as a defensive measure as long as it has been approved by disinterested shareholders. In the Augusta decision, the BCSC stated that it was not prepared to conclude that shareholder approval should be definitive with respect to the continuation of a poison pill. Making a shareholder vote definitive in the regulation of poison pills would not, according to the BCSC, strike the right balance between the interests of the majority of shareholders, who vote to continue a pill, and the rights of all shareholders to have the opportunity to tender to a bid. While a shareholder vote will be a very significant factor in favour of continuing a poison pill, the BCSC stated it would be contrary to the current national policy governing defensive measures to make that factor determinative.

The BCSC raised additional concerns about an approach to regulating pills that would make a shareholder vote determinative, including concerns about the shareholder voting system in Canada generally, which is currently under review (see our bulletin, Review of Canada's Proxy Voting System). In this case, the vote on Augusta's pill occurred in the face of HudBay's offer. The vote was informed and was overwhelmingly in favour of the pill, even taking into account trading that occurred before the shareholders meeting. The strength of the shareholder vote was the factor that ultimately drove the BCSC to allow Augusta's poison pill to remain in place for additional time. Of particular significance to the BCSC was that the numbers were so high that the votes by disinterested shareholders in favour of continuation of the pill represented an absolute majority of the Augusta shares, even assuming that every share that was not voted at the meeting would have been voted against the pill's continuation. The importance of this finding is consistent with the AMF proposal which requires a bid to include an irrevocable minimum tender condition that more than 50% of the target's shares held by independent shareholders must be tendered to the bid.

Implications

The Augusta decision shows an alignment by the BCSC with the earlier decisions in Neo Materials and Pulse Data, where the Ontario and Alberta securities commissions placed significant weight on shareholder ratification of a target board's adoption of a poison pill. It also reflects an extension of the OSC's decision in MOSAID where the shareholder vote to renew a poison pill during a hostile bid gave the target board an additional 70 days after the commencement of the bid to pursue strategic alternatives.

The Augusta decision reinforces the significance of a shareholder vote approving a target board's adoption of a poison pill in the face of a hostile bid as a shield to give a target board more time to pursue strategic alternatives. To the extent that seeking shareholder ratification of a poison pill becomes a part of a target board's strategy in response to a hostile bid, we may see shareholder meetings becoming an increased focus for disputes before the regulators and the courts.

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
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
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