Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Securities Regulation, September 2009

On September 25, 2009, the Toronto Stock Exchange (TSX) announced that, effective November 24, 2009, TSX-listed issuers will be required to obtain security holder approval when the number of securities issued in payment for an acquisition exceeds 25% of the number of issued and outstanding securities of the listed issuer that are outstanding (on a non-diluted basis), regardless of whether the acquired company is private or publicly held. Prior to this amendment, the TSX rules contained an exemption from security holder approval requirements for a TSX-listed issuer's issuance of securities as full or partial consideration for an acquisition of a public company.

The TSX security holder approval requirements for dilutive acquisitions came to the forefront most recently in connection with HudBay Mineral Inc.'s proposed acquisition of Lundin Mining Corporation in November 2008. In that transaction, HudBay proposed to issue shares as consideration that exceeded 100% of its issued and outstanding shares without obtaining approval from its shareholders. The TSX approved the listing of the shares without requiring shareholder approval. However, in January 2009, the Ontario Securities Commission ordered that HudBay could not proceed with the share issuance without obtaining approval from its shareholders. In so ordering, the Commission noted that, in its view, the proposed dilution without shareholder approval was "extreme". See our January 2009 Blakes Bulletin on Mergers & Acquisitions: Ontario Securities Commission Determines Fair Treatment of Shareholders Requires Purchaser to Obtain Shareholder Approval for Dilutive Acquisition.

The TSX initially requested comments in October 2007 regarding its security holder approval requirements for acquisitions of public companies, and again published proposed amendments for comment in April 2009. The April proposals included a 50% dilution threshold for requiring security holder approval. See our April 2009 Blakes Bulletin on Mergers & Acquisitions: TSX Proposes Security Holder Approval Requirement for Acquisitions of Public Companies. In announcing its amendments on September 25, 2009, the TSX indicated that commenters were nearly unanimous in their views in calling for security holder threshold at or below 25%.

Highlight

Security holder approval required by TSX for issuance of securities as purchase price for an acquisition if the

  • dilution exceeds 25%, regardless of whether the company being acquired is private or publicly held


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