Effective May 9, 2016, take-over bids for Canadian issuers will be subject to a minimum 105-day deposit period. Attempting to strike a balance between their original proposal and comments received, the Canadian Securities Administrators (CSA) have published final amendments to the Canadian take-over bid regime (Take-Over Bid Amendments) which, in addition to the longer 105-day bid period, will impose a minimum tender condition and a mandatory 10-day extension to the bid period after the tender condition is satisfied. Other than the change to the minimum bid period, the final Take-Over Bid Amendments generally reflect the CSA's original proposal.
Three key features
Aimed at providing target boards with increased time to respond to take-over bids and seek out value-maximizing alternatives while facilitating shareholders' ability to make voluntary, informed and coordinated tender decisions without coercion, the Take-Over Bid Amendments are comprised of the following key features:
- 105-day minimum deposit period subject to exceptions. Take-over bids will generally be required to remain open for a longer minimum deposit period of 105 days (as opposed to the current 35-day minimum deposit period), subject to two exceptions:
- the target issues a press release announcing an initial deposit period of not less than 35 days and not more than 105 days, in which case all outstanding or subsequent contemporaneous take-over bids must remain open for at least this announced shorter deposit period; or
- the target issues a press release announcing that it has agreed to enter into or has determined to effect a specified "alternative transaction", in which case all outstanding or subsequent contemporaneous take-over bids will be subject to a shorter 35-day minimum period.
- Minimum tender condition. More than 50% of the outstanding securities owned by persons other than the bidder and any joint actors must be tendered and not withdrawn before the bidder can take up securities under the bid.
- Mandatory 10-day extension. The bid period must be extended by 10 days after the minimum tender condition is satisfied and all other conditions of the bid have been satisfied or waived.
New minimum deposit period
In the final Take-Over Bid Amendments, the CSA have reduced the originally proposed 120-day minimum deposit period to 105 days in light of the potential conflict with the compulsory acquisition (or squeeze-out) provisions of certain Canadian corporate statutes as noted to the CSA by one of our partners, which entitle an offeror to acquire the remaining securities held by dissenting securityholders if the take-over bid has been accepted by not less than 90% of the securities of the class to which the bid relates within 120 days of the bid.
According to the CSA, the 105-day requirement affords target boards sufficient time to respond to an unsolicited bid while providing bidders with a reasonable opportunity to rely on such compulsory acquisition provisions.
Target boards will be able to reduce the 105-day period in certain circumstances to no less than 35 days, including where the target issues a press release announcing a shorter period and where the target has entered into an "alternative transaction", which includes an amalgamation, merger, arrangement or similar transaction resulting in the interests of an equity securityholder being terminated without the holder's consent, or a sale of all or substantially all of the property of the target. The CSA have tried to comprehensively include transactions agreed to or initiated by the target that could result in the acquisition of an issuer or its business in the definition of "alternative transaction", but have not revised the definition to include transactions that "affect materially" the control of the target. In response to comments received, the CSA note that a transaction initiated by a target's board in the context of a take-over bid may, regardless of whether or not it is an "alternative transaction", still be subject to review under National Policy 62-202 Take-Over Bids – Defensive Tactics (NP 62-202), depending on the circumstances. Recognizing the tactical use of timing in hostile offers, the CSA also acknowledge that the new regime is not premised on equalization of timing but rather is intended to preserve both offeree board discretion and "first mover advantage".
Minimum tender and mandatory extension
Pursuant to the Take-Over Bid Amendments, more than 50% of the issued and outstanding securities of the target not owned by the bidder and any joint actors must be tendered to the offer and, once the minimum tender condition is satisfied and all other conditions of the bid have been satisfied or waived, the bid period must be extended for 10 days. These amendments reflect provisions which are generally included in "permitted bid" provisions of shareholder rights plans and are designed to alleviate target shareholder coercion concerns.
In the final Take-Over Bid Amendments the CSA have clarified that except in the case of a partial bid, the mandatory 10-day extension must be a period of at least 10 days and that if an offeror chooses to extend its bid after expiry of such period for a period of more than 10 days, the offeror will be required to take up securities deposited during the extension period not later than 10 days after the deposit of the securities. The CSA have also clarified that, in the case of a partial take-over bid, the mandatory 10-day period must not exceed 10 days and an offeror cannot extend its partial bid after the expiry of such period.
As noted by a number of commentators, the Take-Over Bid Amendments do not expressly address issues associated with the current exemptions from formal bid requirements, including creeping takeovers and private agreement purchases. While ostensibly obviating the need for shareholder rights plans, it is expected that poison pills may nonetheless continue to be a valuable tool in the hands of target boards, albeit in more narrow and specific circumstances. The Take-Over Bid Amendments also do not specifically make any changes to the CSA's approach to shareholder rights plans and other defensive tactics under NP 62-202. The CSA reminds capital markets participants of NP 62-202's continued applicability and that securities regulators are prepared to examine the actions of target boards in specific cases, and in light of the amended bid regime, to determine whether they are abusive of securityholder rights.
Ontario joins MI 62-104
In connection with the Take-Over Bid Amendments, the bifurcation of the take-over bid regime, as between the Securities Act (Ontario) (OSA) and Ontario Securities Commission Rule 62-504 Take-Over Bids and Issuer Bids (OSC Rule 62-504), and Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids (MI 62-104) in all other jurisdictions, will be eliminated with Ontario adopting MI 62-104, which will become a national instrument.
On December 10, 2015, the Budget Measures Act, 2015 (Ontario) was passed by the Legislative Assembly of Ontario and received Royal Assent. Schedule 18 of the Budget Measures Act included legislative amendments to the OSA to remove the detailed take-over and issuer bid provisions and early warning provisions of the OSA and to include general "platform provisions" in their place (the Platform Amendments). The Platform Amendments will come into force upon proclamation by the Lieutenant Governor of Ontario. The Take-Over Amendments and amendments to the early warning regime will come into force in Ontario on the later of May 9, 2016 and the day on which the Platform Amendments are proclaimed into force.
Provided all necessary approvals are obtained, the Take-Over Bid Amendments will come into effect on May 9, 2016. Take-over bids and issuer bids commenced before such date will continue to be subject to the current take-over bid regime. Similarly, competing bids in respect of take-over bids commenced before May 9, 2016, and take-over bids in respect of the securities of an issuer that announced an alternative transaction before May 9, 2016, will also be governed by the current regime. If the experience during the proposal period is any indication, during the transition period the CSA will continue to use their discretion if called upon to rule on defensive tactics.
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