A significant proposal regarding the take-over bid regime in Canada was released on September 11, 2014 by the Canadian Securities Administrators (CSA). The CSA and the Autorité des marchés financiers (AMF) in Quebec had previously released competing proposals in March 2013 on how shareholder rights plans and take-over bid defensive tactics should be dealt with by securities regulators. See our previous bulletin on the 2013 proposals. Following a review of comments on the 2013 proposals, the CSA, including the AMF, have abandoned their earlier proposals and are now proposing to develop a new harmonized take-over bid regime in Canada.
Proposal Aims to Balance Power Between Target Boards and Bidders
The stated goal of the new proposal is to provide for a more even playing field in Canada between hostile bidders and target boards, by facilitating the ability of shareholders to make voluntary, informed and co-ordinated tender decisions and providing target boards with significantly more time to deal with hostile bids. This is in response to long-standing criticism from many market participants that Canada’s take-over bid regime has been too “bidder-friendly”, which has in turn been a significant reason for the widespread adoption of shareholder rights plans by Canadian public companies. The proposed new amendments would apply to non-exempt take-over bids only.
Although the complete details of the proposed take-over bid amendments are not expected until 2015, the CSA has set out the broad new proposed requirements for non-exempt take-over bids:
- Minimum Tender Condition: There is to be a minimum tender condition requiring at least 50% of all of the target securities (not including those owned by the bidder and its joint actors) to be tendered to the bid. Some observers see this minimum tender requirement as having an effect roughly equivalent to a positive shareholder vote requirement;
- 10 Day Automatic Extension: The bidder must extend the bid by an additional ten days after the bidder achieves the minimum tender condition and announces its intention to immediately take up and pay for the deposited securities. This bid extension requirement is intended to eliminate some of the pressure shareholders feel to tender to a bid in order not to be left behind should the bid succeed; and
- 120 Day Bid Period: The minimum bid period would have to be 120 days (instead of the current 35 day minimum), although the target board would have the option, to be exercised in a non-discriminatory manner when there are multiple bids, of decreasing the period to 35 days.
Under the current regime, National Policy 62-202 Take-Over Bids - Defensive Tactics (which provides guidance to securities regulators regarding how they should treat defensive tactics) has been interpreted, through the decisions of securities regulators, to generally allow for a shareholder rights plan to remain in place for about 45 to 55 days following commencement of the bid, before it is ordered cease-traded. However, there has been inconsistency in the treatment of rights plans in Canada and the 45 to 55 day time period has been frequently criticized as being insufficient time for a target board to negotiate with the bidder or find alternatives. The CSA has indicated in the new proposal that they are no longer seeking changes to the policy on defensive tactics, so it is not clear what the exact future role of shareholder rights plans will be if the new proposal is implemented.
However, given the fact that a minimum tender condition, a 10-day automatic extension feature and a lengthened bid period are all common and key features of the “permitted bid” provisions of Canadian shareholder rights plans, it is likely that the CSA’s proposal, if adopted, would weaken the force of some of the existing arguments for adopting rights plans. It can be argued that the CSA’s proposal amounts to the legislative imposition of certain key features of shareholder rights plans on all Canadian public companies. Consequently, it is reasonable to expect that this will result in fewer rights plans being adopted in the future. However, the CSA has stated that it is not currently planning any changes in the area of exempt take-over bids, such as the current “private agreement” exemption, which allows for purchases from no more than five persons in the aggregate without the purchaser having to launch a formal take-over bid. There is accordingly some market speculation that Canadian public companies may continue to adopt or retain shareholder rights plans, in order to keep in check so-called “creeping take-overs” by way of exempt acquisitions of securities.
Proposed Changes Good News for Shareholders Facing A Bid
Many Canadian market participants will no doubt welcome the proposed changes to rebalance the power dynamics between target boards and bidders and the introduction of a harmonized regime for take-over bids across Canada. While target boards have not been given the power to “just say no” to bids, the proposed amendments would no doubt empower shareholders in the face of a bid and give target boards a greater opportunity to look for other options.
The CSA plans to publish the full details of the proposed amendments for comment during the first quarter of 2015. We will provide a further update when the details are released.