The Canadian Securities Administrators (CSA) have announced that
they are adopting amendments to the country's takeover bid
regime that will extend the current 35-day minimum bid period
for takeover bids to 105 days, rather than the previously proposed
120-day period for tendering to a takeover bid in Canada.
Along with this change, the CSA are also adopting new early warning rules that will require,
among other things, disclosure of decreases in ownership of public
company securities of 2% or more and when ownership levels fall
below the 10% reporting threshold.
The regulators' switch from a 120-day to 105-day minimum bid
period was driven by the need to ensure that the new takeover bid
period does not conflict with compulsory acquisition provisions in
Canadian corporate statutes―these statutes generally allow a
bidder to squeeze out minority shareholders if at least 90% of the
target's shares have been tendered within 120 days of the date
of the bid. Aside from the new 105-day period, the CSA's draft
rules on Canada's proposed new takeover bid regime, released in
March 2015, remain largely unchanged.1 CSA National
Policy 62-202 governing defensive tactics is also unaffected.
The new takeover bid and early warning rules are expected to
take effect on May 9, 2016.
WHAT YOU NEED TO KNOW
New Takeover Bid Regime
All non-exempt takeover bids will be
open for shareholders to deposit their shares for a minimum
duration of 105 days, which the target board can shorten to as
little as 35 days in certain cases.
Non-exempt takeover bids will be
subject to a mandatory minimum tender condition of over 50% of
outstanding shares, other than shares held by the bidder and its
joint actors. The deposit period must be extended by 10 days once
the minimum tender requirement has been met and all other bid terms
and conditions are satisfied or waived.
The new 105-day period will increase
deal uncertainty for hostile bidders, exposing them, for example,
to interloper risk for an extended period of time. This will
strengthen target boards' negotiating leverage. We anticipate
that hostile bidders will perceive the benefit of engaging more
with target boards who will have the ability to reduce the minimum
tender period for friendly transactions.
Target boards will continue to see
the advantage of adopting a poison pill to regulate exempt
purchases of target securities through creeping acquisitions and
private agreement purchases, and to prevent irrevocable lock-up
agreements. However, absent unique circumstances, we expect that
the regulators would not generally permit a target board to
implement a poison pill for the purpose of delaying a bid beyond
105 days, if the bid has been accepted by a majority of
disinterested shareholders and otherwise complies with the new
Enhanced Early Warning
The new rules clarify that early
warning news releases must be issued by the opening of trading on
the next business day.
Disclosure will be required of
decreases in ownership of public company securities of 2% or more
and when ownership levels fall below the 10% reporting
Eligible institutional investors will
be prevented from using the Alternative Monthly Reporting System if
they solicit proxies to
contest a director election or
support an M&A transaction that
is not supported by management or oppose an M&A transaction
that is recommended by management.
Enhanced disclosure in early warning
reports will be required in respect of
the acquiror's plans or future
intentions with respect to the reporting issuer and involving, for
example, a corporate transaction, board or management change, or a
solicitation of proxies, among other actions, and
the acquiror's interest in
related financial instruments, securities lending arrangements and
other arrangements in respect of the securities.
Lenders and borrowers will, in some
cases, be exempt from including the securities lent or borrowed for
the purposes of determining the early warning reporting threshold
1. For background details on the CSA's proposed
takeover bid rules, see Torys' bulletin on
2. For background details on the CSA's proposed early
warning rule changes, see Torys' bulletin on
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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