In Canada, a take-over bid made directly to shareholders is the only method to acquire legal control of a public company without the consent of the target board. Such an unsolicited (or "hostile") bid is often used to bypass the board and present an offer directly to shareholders after discussions with the target board have failed, thereby putting the target company "in play". The current regulatory regime governing bids has attracted criticism that it unduly favours bidders over targets and their shareholders. In 2015, Canadian securities regulators will propose significant changes to the bid regime with the goal of levelling the playing field.
Fasken Martineau is pleased to present its ground-breaking empirical analysis of all 143 hostile take-over bids for control of Canadian-listed issuers over the ten-year period between 2005 and 2014.
Key findings include:
- When initiating a public contest for control, a hostile bidder was successful more than half the time; however, in these circumstances the sale of the company was by no means inevitable, with targets of these bids remaining independent almost 30% of the time.
- Competitive auction scenarios occurred infrequently (37% of the time), but when they did, shareholders were the clear winners, on average receiving a substantially higher premium, while the hostile bidder was most often left empty-handed, prevailing only one-third of the time.
- A hostile bidder's odds improved when offering cash, and offering a healthy premium didn't hurt either. But more than anything else, it paid to start from a position of strength with a toe-hold or lock-ups (or both) of 20% or more.
- Shareholder rights plans proved their worth by buying time and driving competition. In fact, a hostile bid for a target that had a rights plan in place was more than twice as likely to face competition.
- The board's support was a prized asset: hostile bidders had a near-perfect record when securing the board's support and fared poorly without it (prevailing on only 22% of contests), particularly where the board's recommendation was more likely to influence the outcome.
Given the increased risks and potential costs to bidders in the new regime, we may well witness a decrease in the number of unsolicited bids, and perhaps of equal importance, a significant weakening of the very threat of a bid. To the extent that the reforms seek to enhance the auction dynamic with a view to increasing shareholder choice and maximizing shareholder value, that objective can only be achieved if bidders believe they have a reasonable prospect of success, justifying the risks inherent in launching a bid.