Canadian regulators are now likely to announce they’ll boost to 105 days how long a hostile bid must remain open for acceptance by a target company’s shareholders, the Financial Post has learned.
Canadian Securities Administrators, an umbrella group that co-ordinates policy among Canada’s patchwork of provincial and territorial securities commissions, is anticipated to unveil the brand new takeover rules to the staff of their 13 member regulators now. A proper, public announcement is expected in the spring.
The new 105-day timeline emerges following a policy process that has taken nearly 3 years. Bids must currently remain open for just 35 days, and this encourages the boards of targeted companies to buy additional time by using shareholders’ rights plans or “poison pills.”
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In September 2014, the CSA released a draft policy that will have hiked the minimum tender period with an unsolicited bid to 120 days. Since that time, some M&A lawyers and practitioners have argued this four-month period might be too long. Several comment letters filed with regulators suggested a 90-day limit could be more appropriate.
The 105-day period likely to be unveiled through the CSA now attempts to balance the views of those that advocated a three-month period with the four-month period announced within the original draft.
An early danger signal that the originally proposed 120-day period might not hold emerged after Suncor Energy Inc. challenged the shareholders’ rights plan unleashed by Canadian Oil Sands Ltd. In December 2015, the Alberta Securities Commission ordered Canadian Oil Sands to cease trade its pill on the date which was shorter than the 120 days the pill ended up being to stay in place. Canadian Oil Sands and Suncor have since reached an amiable merger deal.
One trouble with the proposed 120-day timeframe is it would conflict with a few existing Canadian corporate law statutes.
Mike Devereux, an attorney with Stikeman Elliott LLP in Toronto, wrote the CSA to indicate the proposed 120-day limit might make it impossible for bidders to use the “compulsory acquisition” provisions of numerous corporate statutes. For instance, the Canada Business Corporations Act allows a bidder who acquires 90 percent of the target company’s shares to make the rest of the shareholders to sell. Yet that power is just available when the 90 percent of shares are acquired within 120 days from the launch of the takeover bid.
On another hand, the 120-day period was a key part of the proposal advanced by Quebec’s regulator, the Autorit des marchs financiers. Back in March 2013, Quebec’s AMF proposed a policy that will have because of the boards of target companies the right to refuse an unwanted offer without having to put it to shareholders. Meanwhile, the other people in the CSA proposed a framework by which target company boards would be able to buy time by enacting poison pills, then having investors ratify those shareholders’ rights plans at regular intervals.
The CSA therefore needed to balance the 120 days sought by the AMF, using the 3 months suggested by a number of commenters. At the same time, the insurance policy required to work with the compulsory take-out provisions for statutes like the CBCA. The answer ended up being to split the 30-day distinction between the original 120-day proposal and also the 3 months recommended by some commenters.
Canadian securities regulators have been searching for a new takeover policy so they can lessen the period of time their hearing panels spend adjudicating disputes over poison pills.
A poison pill threatens to flood the marketplace with a company’s shares to really make it practically impossible for any hostile bidder to buy enough of those shares to complete a takeover. While the pill might thwart a hostile bid, it might also dilute the need for existing shares. Additionally, it gives a target company’s board the power to reject a deal without letting shareholders decide.
In reality, the only practical use for a poison pill is to buy a target company some time to search for an alternative choice to a hostile offer. Hostile bidders more often than not convince security commission hearing panels to “cease trade” or turn off their poison pills.
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