The Toronto Stock Exchange (TSX) recently announced changes to
its rules that require TSX-listed companies to obtain shareholder
approval of certain public company acquisitions. Effective November
24, 2009, shareholder approval is required when the number of
securities issued as payment for an acquisition of a public company
exceeds 25 per cent of the total number of outstanding securities
of the buyer on a non-diluted basis. Previously, shareholder
approval was generally only required in the case of an acquisition
of a private company resulting in dilution of more than 25 per
The TSX's changes follow the decision of the Ontario
Securities Commission (OSC) earlier this year in respect of a
proposed acquisition by HudBay Minerals Inc. (HudBay) of Lundin
Mining Corporation that would have resulted in HudBay's
shareholders being diluted by just over 100 per cent without their
approval. The OSC found that the TSX's failure to require
approval of the transaction by HudBay's shareholders
significantly undermined the quality of the Canadian marketplace.
In response, the TSX proposed a bright-line test requiring
shareholder approval where the securities to be issued as payment
for an acquisition of a public company would result in dilution of
more than 50 per cent.
For a discussion of the facts and ruling in the Hudbay decision,
please see our
Legal Update, published May 6, 2009, and the
article in our May 2009 issue.
In light of the uncertainty created by the OSC's decision in
HudBay, the TSX's changes provide guidance to directors of
Canadian public companies proposing to acquire a public company
using the buyer's securities as consideration. The new
requirement is intended as a bright-line test as to when a
TSX-listed company may issue shares in an acquisition without
seeking the approval of its shareholders, and is generally
consistent with the existing rules of the New York and London stock
exchanges. The TSX will retain the discretion to require
shareholder approval in transactions that will result in dilution
of less than 25 per cent where the transaction could materially
affect control or involves insiders.
This new requirement for shareholder approval will factor into
the assessment of the completion risk associated with acquisitions
of publicly traded entities in Canada as buyers and targets
consider the likelihood of obtaining shareholder approval of the
transaction where the 25 per cent dilution threshold is exceeded.
The requirement is not likely to impact materially the time
required to complete an acquisition of a public company by way of a
plan of arrangement or other transaction requiring the approval of
the target's shareholders so long as the shareholder meetings
of the buyer and the target to approve the transaction are held
within the same time period. However, acquisitions by way of a
take-over bid will be impacted, as Canadian take-over bid rules
require that an offer be open for acceptance for a period of 35
days, whereas a shareholders' meeting typically involves a
period of 40 to 50 days. It remains to be seen what impact this
change to the TSX's rules will have on Canadian public M&A
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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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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