All acquisitions by TSX-listed companies require shareholder approval where payment is satisfied through the issuance of securities that dilute existing ownership by more than 25%, on a non-diluted basis. An exemption from this shareholder approval requirement currently exists where another public company is being acquired.  

Effective November 24, 2009, the TSX rules were amended to eliminate the public company acquisition exemption. The effect will be that all acquisitions by TSX-listed issuers, whether of private or public companies, will require shareholder approval where the transaction will result in the acquiror issuing shares totaling more than 25% of its outstanding shares, on a non-diluted basis.  

The TSX has noted that the implementation of the 25% dilution trigger for shareholder approval in respect of public company acquisitions will limit the TSX’s discretion under the TSX rules to impose or exempt an issuer from the TSX requirements regarding such acquisition. However, the TSX also noted that the level of dilution in an acquisition is only one factor that is taken into account in considering the application of discretion and it will retain the right to impose or exempt issuers from the TSX requirements in “appropriate circumstances.”

Companies that have notified the TSX of a public company acquisition prior to November 24, 2009 will still have access to the public company acquisition exemption regarding such acquisition.  

As acknowledged by the TSX, the shareholder approval requirement may disproportionately affect smaller issuers and is likely to dampen merger and acquisition activity at least in the near term because of increased costs and increased deal uncertainty.