The Canadian Securities Administrators (CSA)
are making significant changes to
Canada's takeover bid regime. The reforms are designed to
obviate the need for overly aggressive and coercive behaviour on
both the offensive and defensive sides of hostile takeovers. When
the amendments come into force on May 9, 2016, it will mark the
first time that the takeover bid rules have been harmonized across
the entire country, as the formerly recalcitrant Ontario securities
regime has agreed to abandon its own rules and adopt National
Instrument 62-104 Take-Over Bids and Issuer Bids.
The most notable change is the new 105-day minimum bid period,
which requires buyers to keep an offer open for seventy days longer
than under the previous rules. By allowing target boards more time
to respond to bids, they will in theory no longer need to resort to
aggressive defensive tactics such as poison pills. Furthermore, a
buyer's minimum tender must be for at least 50% of the
outstanding securities of the particular class that is the subject
of the bid (e.g., common shares). This requirement should
reduce the ability of buyers to make "any-and-all" bids
and take the pressure off of shareholders to tender or be left
behind in the face of a hostile offer. By making hostile takeovers
more difficult, the CSA hopes, among other things, to facilitate
more friendly deals.
Despite the best intentions of the regulators, the new takeover
bid regime may encourage the use of even more aggressive and
bullying tactics in M&A transaction. As discussed in a recent
report by Norton Rose Fulbright and Financial Post article, many bidders that
would have launched a hostile bid under the current regime will now
pursue "bully" tactics in ostensibly friendly
transactions to achieve the same result.
One such tactic is the use of a "bear hug" letter,
which involves a potential buyer announcing its interest in making
a bid for a target company. The letter typically includes basic
terms and a preliminary price (often at a hefty premium). The more
aggressive "grizzly bear hug" entails going public with
the letter, while the comparatively friendlier "teddy bear
hug" keeps the letter confidential outside of the board and
the suitor. Since the prospective buyer is not legally bound by the
offer, it does not constitute a proper bid and therefore does not
trigger the onerous takeover rules. However, the board is
duty-bound to consider the offer, putting pressure on it to
negotiate with the buyer.
Other aggressive tactics that will gain traction under the new
takeover bid regime include creeping acquisitions and lock-up
agreements. A creeping acquisition involves the acquisition of over
20% of a target company through a series of exempt purchases
(e.g., exemption for private agreements) so as not to
trigger the takeover bid rules. Alternately, multiple shareholders
of a company can enter into a legally binding lock-up agreement
whereby they cannot sell their shares for a defined period of time.
The effect of the lock-up agreement is to effectively block a
takeover bid by another party. While falling short of a proper bid,
both tactics give buyers an upper hand in negotiating a transaction
with the target.
Now that boards have regained power in what has historically
been called an overly buyer-friendly regime, hostile bidders will
need to use less conventional tactics to gain leverage under the
new rules. The tactics that will be favoured under the new rules
are ones that circumvent the takeover bid rules altogether while
putting enormous pressure on the target. Expect to see more such
bullying tactics after the amendments come into force.
The author would like to thank Markus Liik, articling
student, for his assistance in preparing this legal
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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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