The Ontario and British Columbia Securities Commissions (the
Commissions) issued orders on July 22, 2016
allowing junior B.C.-based miner, Dolly Varden Silver Corp.
(Dolly Varden), the target of a hostile takeover
bid from Idaho-based Hecla Mining Co. (Hecla), to
proceed with a proposed private placement, which was announced
shortly after Hecla launched its hostile bid. While the Commissions
have not yet published written reasons for the orders, their
decision is notable in Canada's new takeover bid regime.
As discussed in a
previous post, Canadian securities regulators enacted
harmonized amendments to Canada's takeover bid regime earlier
this year under Multilateral Instrument 62-104 –
Take-Over Bids and Issuer Bids, including the requirement
for a bid to remain open for a minimum deposit period of 105 days,
which in practice has reduced the effectiveness of
shareholders' rights plans as a defensive measure for targets.
The Dolly Varden and Hecla case was thought by many to be a test
case as to whether private placements would become the new
"poison pill", with issuers using a private placement as
a tactical mechanism to make a hostile bid more difficult and more
expensive for an acquirer.
On June 27, 2016, Hecla announced its intention to acquire all
of the outstanding shares of Dolly Varden not already owned by it
and formally commenced its bid on July 8, 2016 with the filing of
its offer and bid circular. Shortly after the Hecla bid was
announced, Dolly Varden announced on July 5, 2016 a proposed
private placement financing to raise up to $6 million (the
Private Placement). On July 8 and 14, 2016, Hecla
filed applications with the British Columbia Securities Commission
(BCSC) and the Ontario Securities Commission,
respectively, seeking an order to cease trading the Private
Placement. On July 14, 2016 Dolly Varden signed an undertaking to
the BCSC that it would not issue any securities under the Private
Placement until the BCSC had rendered its decision. A joint hearing
on the applications was held with the Commissions over two days on
July 20 and 21, 2016.
The orders issued by the Commissions dismissed Hecla's
applications and in doing so, allowed Dolly Varden to proceed with
the Private Placement, with the effect of diluting the target's
share capital and making it more costly for Hecla to complete its
bid. Hecla had previously announced when filing its offer and bid
circular that it would not proceed with the bid if the private
placement was completed and accordingly withdrew its bid shortly
after the orders were issued, on July 25, 2016.
Without detailed reasons from the Commissions, it is not yet
known to what extent the Commissions will provide guidance on
private placements in the context of hostile bids more generally.
Acquirers and targets can expect that Canada's regulators will
evaluate so-called "tactical" private placements on a
case by case basis, however an argument can be made that the Dolly
Varden and Hecla case has, at the very least, given targets a
signal they may proceed with caution in using the private placement
as a tool in their defensive arsenal in Canada's new takeover
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