Canadian securities regulators recently provided the reasons behind their decision not to cease trade Dolly Varden Silver Corporation's private placement in the context of Hecla Mining Company's unsolicited takeover bid (read our analysis of the regulators' guidance in the decision here). These reasons are of great interest to those watching how the rules under Canada's new takeover bid regime, enacted earlier this year, would be applied. Torys' bulletin, by partners John Emanoilidis, Andrew Gray and counsel Sophia Tolias, was quoted in a Financial Post article on the newly released guidance from regulators. Below is an excerpt of the article.
Yet while the bidding rules changed, the Canadian policy on defensive tactics remains. The gist of these rules is to protect the interests of a company's shareholders. The question is whether litigation over private placements will become a regular feature of hostile takeover battles. The Dolly Varden decision says securities regulators must "tread warily" in this area and only block a placement that provides a clear abuse to the target company's shareholders or to capital markets. Of course, "tread warily" doesn't mean don't tread at all.
"Target boards will struggle to defend the legitimacy of a private placement undertaken in the context of a bid unless it clearly serves an actual financing need," write lawyers from Torys LLP in a note on the Dolly Varden case. "Even if the private placement does have a legitimate corporate purpose, the regulators may nonetheless intervene if its effect ultimately frustrates the takeover bid process."
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