TORONTO – Unsolicited takeover bids for Canadian companies must seek at least 50 per cent of the target company’s stock and remain open for at least 105 days, according to new rules which will work in May.
Canadian Securities Administrators, the umbrella group that coordinates policy among Canada’s 13 provincial and territorial securities regulators, published the brand new rules Thursday. The insurance policy completes a three-year process in which Canadian regulators have sought to overhaul the guidelines on hostile takeover bids.
“The new regime will enhance the ability from the security holders to make voluntary, informed and co-ordinated tender decisions while providing boards with additional some time and discretion when answering a take-over bid,” said Louis Morisset, chair from the CSA and president and chief executive from the Autorit des marchs financiers.
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As reported within the Financial Post on Monday, the new rules require bids to stay open for 105 days, up from the current rule with a minimum of 35 days. In an earlier draft policy, the CSA had proposed extending the minimum bid period to 4 months. The originally proposed four-month period was viewed as too much time, as it clashed using the limitation period for that compulsory acquisition parts of some Canadian corporate statutes.
Unchanged from the original proposal, bids must require acceptance by a minimum of Half of the target company’s outstanding shares. The current rules don’t require unsolicited bids to come with a minimum tender requirement.
Bids that meet conditions set through the bidder, plus the minimum Half take-up requirement set through the new rules, must be automatically extended for 10 days so hold-out investors can tender.
Lengthening the mandatory time period for hostile bids is made to reduce the need for target companies to rely on shareholders’ rights plans or “poison pills” to purchase more time to find alternatives. Normally, this is accomplished by forcing the unsolicited bidder to hostile the poison pill before a provincial securities commission. A primary reason Canadian regulators are changing the guidelines would be to reduce the quantity of poison pill litigation they hear.
The new rules take effect through amendments to the documents that show Canada’s takeover rules, National Instrument 62-104 and National Policy 62-203. The amendments take effect on May 9, though they might require more time in Ontario if the province’s budget legislation is not proclaimed in effect by that date.
