Several hostile take-over bids making
headlines across Canada have taken place this year. In the current
market, where share prices may not accurately reflect
the value of a company's assets, junior and mid-tier
mining companies may be more susceptible to an unfriendly
take-over. So, what can a company do when it becomes the target of
a hostile bid?
In Canada, a company's board of
directors cannot reject a bid without first giving shareholders
their say. By contrast, in the United States, a board is permitted
to reject a bid barring shareholders the opportunity to tender to
the bid provided that, among other things, the board's response
is reasonable and the directors are not acting in their own
self-interest. This approach is amusingly known as the "just
say no defence" or the "Nancy Reagan defence,"
crediting the former first lady for the catchphrase as part of
America's war on drugs.
While regulators in Canada slowly move
closer to a U.S.-style approach, there is still no "just say
no defence" in Canada. The most common defensive tactic used
in Canada is the adoption of a shareholder rights plan (also known
as a poison pill). While technically a shareholder rights plan will
frustrate a take-over bid that does not meet the requirement of the
plan by causing mass dilution to offeror, in reality, poison pills
are typically cease traded before such dilution occurs. The poison
pill, therefore, operates as a delay tactic, buying the target
company time to negotiate a better deal. Generally, this is done by
shopping for an alternative transaction from a friendly suitor
called a "white knight."
This is exactly what happened in
Goldcorp Inc.'s recent hostile take-over bid for Osisko Mining
Corporation. On receiving the bid, the Osisko board unanimously
concluded that Goldcorp's offer was inadequate from a financial
point of view and not in the best interests of Osisko. They
recommended that Osisko shareholders reject the offer. Osisko and
its financial advisers immediately began contacting and receiving
expressions of interest from potential strategic and financial
counterparties. An electronic data room was assembled and made
accessible to interested parties subject to the terms of
confidentiality and standstill agreements. Osisko also began taking
interested parties on site visits.
After extending the bid several times
and increasing the initial consideration offered to Osisko
shareholders, Goldcorp finally abandoned its bid for Osisko in
April after Osisko negotiated an alternative transaction with
Agnico Eagle Mines Limited and Yamana Gold Inc. The friendly
agreement is said to be worth approximately $7.86 per Osisko share
compared to Goldcorp's offer, which was worth approximately
$7.38 per Osisko share.
When shopping for a white knight,
directors and officers should be aware of the fiduciary duty they
owe the target company, which requires them to act honestly and in
good faith with a view to best interests of the company. Boards and
management cannot recommend that shareholders reject a bid out of
self-interest or to entrench their position with the company.
Directors and officers should look to
maximize shareholder value while balancing the interests and
reasonable expectations of all stakeholders in the company.
Directors and officers are also subject to a duty of care, which
requires them to exercise the care, diligence and skill that a
reasonably prudent individual would exercise in comparable
circumstances. Canadian courts are reluctant to interfere with
business decisions of boards and management who meet their
fiduciary duty and duty of care. This principle is called the
business judgment rule. If the board acts in good faith on the
advice of its financial and legal advisers, on the advice of a
special committee of independent directors formed to consider the
bid, and has made an informed recommendation as to the best
available transaction for shareholders, the business judgement rule
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