The TSX is proposing to amend its Company Manual with reference to pubic company acquisitions. This comes in the wake of the Ontario Securities Commission’s decision to overrule the Toronto Stock Exchange (“TSX”) and to require HudBay Mineral Inc. to obtain shareholder approval to issue in excess of 100% of its outstanding shares to acquire Lundin Mining Corporation.
The proposed amendment would require that shareholder approval be obtained for acquisitions of public companies where securities of the acquiror issued or issuable as payment of the purchase price exceed 50% of the number of issued and outstanding securities of the acquiror on a non-diluted basis.
Currently, the TSX does not require an acquiror to obtain approval from its shareholders for the acquisition of another “public” company (a reporting issuer or issuer of equivalent status having 50 or more beneficial security holders, excluding insiders and employees), regardless of the number of shares issued or issuable. Acquisitions of non-public companies will continue to require shareholder approval where the number of securities issued or issuable will exceed 25% of the acquiror’s outstanding securities.
The proposed amendment, first introduced by the TSX in 2007, reflects the TSX’s belief that shareholders should be provided with an opportunity to vote on acquisitions of public companies which considerably alter their investment and control rights through dilution. In addition, the TSX believes that the proposed amendment is appropriate since other remedies available to shareholders, such as derivative actions, oppression remedies or proxy contests, may not be practical alternatives for shareholders that do not have significant economic resources or sufficient economic incentive to initiate such actions.
Neither Canadian securities law nor corporate law presently requires shareholder approval of arm’s length dilutive transactions.
In the spring of this year, the TSX requested comments on the proposal, and unlike the 2007 proposal (that did not proceed following receipt of widely divergent views), the current proposal is likely to be adopted.