The Canadian Securities Administrators (CSA) have announced that they intend to publish for comment significant amendments to the Canadian take-over bid regime in the first quarter of 2015. The amendments are an initiative of all CSA members and are intended to strike a fair balance between the interests of bidders and the boards of directors and shareholders of target issuers in hostile take-over bids.
While the proposals do not recognize a target board's right to "just say no" to and block a hostile bid, the proposals will provide boards of directors of target issuers with additional time to respond to such bids and shareholders with the ability to make "voluntary, informed and coordinated" decisions as to whether to tender their securities to the bid.
The proposed amendments would require that all non-exempt take-over bids:
- be subject to a mandatory tender condition that a minimum of more than 50% of all outstanding target securities, excluding those owned or held by the bidder and its joint actors, be tendered and not withdrawn before the bidder can take up any securities under the bid;
- be extended by the bidder for an additional 10 days once the mandatory minimum tender condition has been met and the bidder has announced its intention to immediately take up and pay for the securities deposited under the bid; and
- remain open for a minimum of 120 days, subject to the ability of the target board to waive, in a non-discriminatory manner when there are multiple bids, the minimum period to a period of no less than 35 days.
The announcement follows two earlier proposals published for comment by the CSA and the Autorité des marchés financiers (AMF) to address market concerns about potentially coercive defensive tactics in unsolicited bids.
The CSA published National Instrument 62-105 Security Holder Rights Plans, which was proposed as a comprehensive regulatory framework for the treatment of securityholder rights plans or "poison pills" in Canada. The CSA proposed requiring that a securityholders rights plan be approved by securityholders within 90 days of its adoption by the board and therefore effectively left the decision as to whether a securityholder rights plan should remain in place to securityholders and limited the circumstances where securities regulators would intervene to cease trade a plan.
The AMF's alternative consultation paper addressed the broader issue of defensive tactics and proposed replacing National Policy 62-202 Take-Over Bids – Defensive Tactics (NP 62-202) with a new policy that would give deference to boards of directors in responding to unsolicited take-over bids and redefine when the securities regulators would intervene on the ground of public interest. While the new proposals do not address the issue of deference to directors, they do adopt a mandatory minimum tender condition and a mandatory 10-day extension of the bid as set out in the AMF proposal. In light of the new harmonized regulatory response, the CSA and AMF have determined not to proceed with the other prior proposals.
Under the new proposals, the CSA do not intend to amend either the take-over bid exemptions or NP 62-202.
The CSA have provided little detail on the proposed amendments other than as set out above. We will provide further analysis on the proposed amendments once they are published for public comment. It is clear, however, that this is the most important development in the regulation of take-over bids in recent years and will require target companies, prospective bidders and their respective boards and management to re-evaluate their strategies in dealing with bids. While there are a number of questions raised by proposed amendments, those that boards and management are likely to find the most pressing include:
- under what circumstances should a target board shorten the 120-day bid period?
- what ability will a bidder have to influence the abridgement of the 120-day period?
- what is the role of poison pills under the new regime and in what circumstances will they continue to be adopted?
- will the proposals, particularly the implicit suggestion that 120 days is long enough for targets to consider alternatives to a bid, affect the current regulatory approach to poison pills (even before the amendments are formally adopted)?
- to what extent will partial bids be restricted?
The announcement is contained in CSA Notice 62-306 – Update on Proposed National Instrument 62-105 Security Holder Rights Plans and the AMF Consultation Paper An Alternative Approach to Securities Regulators' Intervention in Defensive Tactics and can be accessed here. We will continue to keep you apprised of developments.
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