After many months of soliciting and considering comments, on February 25, 2016, the Canadian Securities Administrators announced amendments to the take-over bid rules.1 The new regime makes three principal changes:
- Bid must be open for 105 days, with exceptions
Under the previous take-over bid regime, the minimum deposit period was 35 days. The new rules require a minimum deposit period of 105 days unless the target issuer's board waives this requirement, supports a competing bid or announces an "alternative transaction", as discussed below.
- More than 50 percent of the securities of the class must be tendered
As a bid condition, the new rules require that more than 50 percent of the securities of the class being bid for, other than those securities beneficially owned or controlled by the bidder or its joint actors, be tendered.2
- Ten-day extension
If the 50 percent tendering threshold has been exceeded, the relevant deposit period has expired and the other bid requirements have been satisfied, the bidder is required to extend the bid (with the same terms and conditions) to the non-tendering security holders for a period of at least 10 days (not to exceed 10 days in the case of a partial bid).
Effect of the new rules
The new rules appear to shift power in favour of target issuers. Extending the deposit period to 105 days creates:
- barriers for cash bidders as financing must be secure for the entire period;3 and
- greater opportunity for targets to find alternatives.
This combination is expected to increase costs for bidders and decrease the success rate of hostile take-over bids.
Target issuers may reduce the deposit period to not less than 35 days by supporting the bid or an alternative bid (via the issuance of a news release), thus encouraging "friendly" transactions. Cooperation between the bidder and target issuer may reduce the deposit period by as much as two-thirds and encourage security holders to tender their securities in that the target issuer would be supporting the bid. If a target issuer reduces the deposit period, then all competing bids – including those of a hostile bidder – will likewise have their deposit periods reduced.
Similarly, the minimum deposit period for a take-over bid, and any contemporaneous take-over bids, will automatically be reduced to 35 days if the target issues a news release announcing its intention to carry out an "alternative transaction", which is essentially a transaction (other than a take-over bid) that, if completed, would result in the acquisition of the target issuer or the business of the target issuer.4
Absent a competing friendly bid, alternative transaction, or negotiation with the target issuer, hostile bidders will have to navigate the full 105 day deposit period.
It is unclear what role the shareholder rights plan will have going forward in that the new rules:
- give substantially more time for target issuers to find alternative suitors; and
- require that successful bids be supported by holders of a majority of the securities (as the 50 percent tendering threshold must be exceeded).
When the new rules comes into effect
The new rules are scheduled to come into effect in all provinces and territories on May 9, 2016. However, the rules under the old regime will apply to any take-over bid that is:
- commenced prior to May 9, 2016;
- made in competition with a take-over bid commenced prior to May 9, 2016; or
- made in respect of a news release issued by an issuer before May 9, 2016, announcing that the target issuer intends to effect an alternative transaction (that has yet to expire or be abandoned).
As the new rules pose obstacles to unsolicited bidders, hostile bidders may be motivated to commence take-over bids prior to May 9, 2016.
1. Amendments to be reflected in NI 62-104 – Take-Over Bids and Issuer Bids
2. This majority threshold applies to both spartial bids and bids for all of the outstanding securities of the applicable class.
3. Financing must be in place prior to making the bid, pursuant to section 2.27 of NI 62-104.
4. Alternative Transaction" means "an amalgamation, merger, arrangement, consolidation, or any other transaction of the issuer, or an amendment to the terms of a class of equity securities of the issuer, as a consequence of which the interest of a holder of an equity security of the issuer may be terminated without the holder's consent, regardless of whether the equity security is replaced with another security", subject to certain exceptions. For the complete definition, please see amendments to section 1.1 of NI 62-104 to come into effect May 9, 2016
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