In Suncor's hostile bid for Canadian Oil Sands, the target adopted a poison pill that required a 120 day deposit period consistent with the required deposit period in the proposed new take-over bid regime. When Suncor asked the Alberta Securities Commission (ASC) to cease trade the pill, the ASC said it would leave the pill in place for now and cease trade the pill after a total of 90 days. Was this the right decision in the circumstances and is this a sign of further changes to the proposed new take-over bid regime?
In our previous bulletin we considered whether the harmonized take-over bid regime for non-exempt take-over bids proposed by The Canadian Securities Administrators (CSA) would mean the death of poison pills ( see here). The proposed regime is based on three principles:
- 50% Minimum Tender Condition: this requires that a minimum of more than 50% of all outstanding target securities owned or held by persons other than the bidder and its joint actors be tendered and not withdrawn before the bidder can take up any securities under the bid (i.e. a majority of "independent" security holders must be in favour of the bid);
- 10 Day Extension Requirement: if the minimum tender condition is met, and all other terms and conditions of the bid have been complied with or waived, the bid must be extended for an additional 10 days (effectively allowing other shareholders to tender once they know that a majority of security holders are in favour of the bid); and
- 120 Day Deposit Period: the minimum period that a take-over bid must remain open is increased from 35 days to 120 days (subject to the ability of the target company to reduce this period to 35 days).
The proposed regime, and the longer deposit periods in particular, is intended to provide target boards more time to consider and respond to take-over bids.
In the midst of this proposed regime, on October 5, 2015 Suncor Energy Inc. (Suncor) launched a hostile bid for all of the issued and outstanding shares of Canadian Oil Sands Limited (COS). At the time of making the bid, COS had a poison pill in place that provided that the pill would not be triggered if a bid (a "permitted bid") effectively (i) had a 50% Minimum Tender Condition; (ii) included a 10 Day Extension Requirement; and (iii) had a deposit period of 60 days. Suncor structured its bid as a "permitted bid". On October 6, 2015, the Board of COS adopted a new poison pill which provided that in order for a bid to be a "permitted bid" the minimum deposit period must be 120 days.
Under the existing take-over bid regime, the position of the CSA has generally been that there will come a time when a poison pill must go and shareholders must be able to decide to tender or not tender to a bid. After an appropriate length of time, a bidder typically applies to the securities regulators to have the poison pill "cease traded" (effectively rendered ineffective). The appropriate length of time depends on the facts, including whether the Board of the target has had sufficient time to evaluate the bid and potentially surface other bids and the likelihood of other bidders emerging, but the period is generally in the range of 45 to 60 days.
Suncor applied to the ASC to cease trade the new COS poison pill. In its submissions, Suncor argued that (i) under the original COS poison pill the directors had determined that 60 days was sufficient time to evaluate a bid, (ii) from the time that Suncor first approached COS (in March) until the expiry of the bid, almost 10 months would have elapsed; (iii) there are only a limited number of potential bidders who would be interested in COS and if none of them had emerged within the 60 days, they were not likely to emerge; (iv) adopting a new poison pill that changed the rules was an improper defensive tactic; and (v) COS did not have the new poison pill approved by shareholders. Suncor also specifically made the argument that although the proposed take-over bid regime contemplates a 120 deposit period, until the regime is in force the securities commission should not apply those provisions in determining whether to cease trade the new poison pill. At the hearing an executive of Suncor went so far as to state that it would not extend its bid if the ASC affirmed the new poison pill.
In response, COS argued that the original poison pill was adopted at "a very different time, in a very different context, and in very different market conditions" and that it should not preclude COS from adopting a new pill in the face of a hostile bid. COS went on to argue that in the current circumstances the Board and its advisors were of the view that 120 days was required in order to ensure that shareholders were able to make an informed choice. COS argued this additional time was required because (i) additional information with respect to Syncrude's 2016 budget would be available in early December and the lack of this information created an informational advantage to Suncor, (ii) if it took Suncor almost 8 months to determine to make a bid, it is not unreasonable that other potential bidders may also need more than 60 days in order to formulate a potential bid, (iii) 25 parties were reviewing the opportunity to acquire COS and 4 parties had signed confidentiality agreements, (iv) the bid was timed to take advantage of the political and regulatory uncertainty in the Alberta energy industry; and (v) the 120 period under the new poison pill was consistent with the minimum deposit period under the proposed new take-over bid regime.
In its oral decision, the ASC acknowledged that the implementation of the new pill was in the best interests of shareholders and additional time would be useful, and possibly necessary, because potential bidders and COS shareholders would likely want to see the information related to Syncrude's 2016 budget. The ASC also considered Suncor's stated intention not to extend its bid if the 120 day period in the new poison pill was upheld. Ultimately, the ASC concluded that an additional 30 days would be in the best interests of shareholders and determined to cease trade the pill on January 4, 2016. In coming to its decision the ASC did comment that the 60 day period in the original pill may have been sufficient based on the market standards at the time the original pill was adopted, but that did not mean that a 60 day period was sufficient for any bid. Finally, the ASC touched on the proposed new take-over bid regime's requirement for a 120 day bid period and observed that if it comes into force, all bids like Suncor's would be required to have a 120 day bid period.
In the end, the ASC has brought certainty to the length of time that COS' new poison pill will be allowed to stand. The decision, however, does leave two questions. Will the splitting the difference in bid periods be seen as the wisdom of Solomon or the impetus for Suncor to drop its bid, and is settling on a 90 day period for the COS poison pill a signal of any changes to the new take-over bid proposals?
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