On February 25, 2016, the Canadian Securities Administrators
("CSA") announced the adoption of
amendments (the "Amendments") to
Canada's takeover bid regulations as set out in National
Instrument 62-104 – Takeover Bids and Issuer Bids
("NI 62-104"). The Amendments, expected
to come into force on May 9, 2016, substantially conform to the
proposed amendments to the takeover regime published by the CSA in
March of 2015. However, notably, the 120 day minimum bid period
proposed in March has been lessened to 105 days (the
"Minimum Bid Period"), which is still a
significant increase from the 35 day period under the current
This softening of the Minimum Bid Period reflects an
apparent compromise by the CSA, taking into account concerns and
comments it received in response to its March 2015 proposals. The
feedback received included indications of a preference, by some
jurisdictions and participants, for a 90 day minimum bid period.
Concerns were raised that the proposed 120 minimum bid period, and
obligatory 10-day extension, could interfere with the compulsory
acquisition provisions generally available where a takeover bid is
accepted by securityholders of not less than 90% of the shares
subject to the bid within 120 days after the date of the
bid. Two exceptions to the Minimum Bid Period will permit
shorter minimum periods (to as short as 35 days) when: (i) a target
issuer's board of directors
("Board"), in their sole discretion,
consents to a shorter bid; or (ii) a target issuer announces the
entering into of an alternative transaction.
Main Elements of the Amendments
Minimum Bid Period – Non-exempt takeover bids
("Bids") must remain open for a minimum
of 105 days.
Minimum Tender Obligation – Bids must contain a
minimum tender of more than 50% of the outstanding securities of
the class subject to the Bid, excluding those beneficially owned,
or over which control or direction is exercised, by the bidder and
any joint actors ("Minimum Tender"). The
Minimum Tender obligation also applies to partial bids, thereby
increasing bid obligations on another front for hostile
Obligatory 10-Day Extension – After the Minimum
Tender has been met and, if all other terms and conditions of the
Bid have been satisfied and/or waived, Bids must now be extended
for an additional 10-day period by the offeror (the
Anticipated Effects of the Amendments
Less Pressure to Tender – The CSA expects that
the obligatory Minimum Tender and 10-Day Extension will address the
"pressure to tender" and coercion concerns associated
with the existing tender process. Previously, the possibility that
an offeror would waive its minimum tender condition or refuse to
extend its bid, had the negative result of forcing
securityholders' hands. Securityholders that did not support a
Bid were prompted to tender rather than risk being left holding
less liquid securities of the offeree issuer. The obligatory
Minimum Tender is aimed at preventing or, at least, lessening this
pressure on target securityholders.
Increased Incentive for Friendly Transactions or Proxy
Battles – The Minimum Bid Period reallocates some
leverage to a target issuer's Board by providing an increased
period of time to find an alternative transaction or negotiate a
more favorable bid. As a result, hostile bidders may face
additional deal uncertainty causing new need to reconsider the
benefits of choosing the path of a negotiated transaction rather
than issuing an unsolicited takeover bid. That being said, given
the Amendments, if bidders are unable to negotiate a friendly
transaction with the target issuer, they may be more inclined to
initiate a proxy battle rather than launch a hostile bid.
The Utility of Shareholder Rights Plans Will Be Reduced
– The Amendments also do not specifically make any
changes to the CSA's approach to shareholder rights plans or
other defensive tactics under National Policy 62-202 –
Take-over Bids — Defensive Tactics. However, we
believe that shareholder rights plans will be of limited practical
use going forward and as such, will only be adopted in rare
circumstances. As a result, applications to securities commissions
to cease trade shareholder rights plans is expected to become less
common or even eliminated entirely.
Role and Duties of Target Boards in the Context of a
Takeover Bid Do Not Change – The Amendments do not
change the responsibilities of a target board to exercise the duty
of care and to act in good faith and in the best interests of the
issuer in the context of a Bid. Therefore, target board members
will have to consider whether waiving the Minimum Bid Period is in
the best interests of the target issuer in light of the alternative
of taking advantage of the extended period to find value-enhancing
alternatives or allow unsolicited proposals to arise.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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