With a longer deposit period and a 50% minimum tender condition, Canadian securities regulators have agreed on a common cure for the differing views on regulating a traditional M&A defensive tactic.

The Canadian Securities Administrators (CSA) have resolved their competing views on the regulation of security holders rights plans (commonly known as poison pills) and have announced a proposed harmonized framework.

The CSA announced on September 11, 2014 that it will be publishing for comments amendments to the take-over bid regime to:

  • Change the minimum deposit period so that the minimum period that a take-over bid must remain open is increased from 35 days to 120 days, provided that:
    • the target company may reduce the minimum period to as little as 35 days; and
    • if there are multiple bids, the target company must reduce the period in a “non-discriminatory manner” (i.e. with respect to all bids).
  • Introduce a requirement that:
    • a minimum of more than 50% of all outstanding target securities owned or held by persons other than the bidder and its joint actors be tendered and not withdrawn before the bidder can take up any securities under the bid; and
    • if this minimum threshold is met and the bidder announces its intention to take up securities under the bid, the bid must be open for an additional 10 days (to allow other shareholders to tender).

The CSA will not be proceeding with proposed National Instrument 62-105 Security Holder Rights Plans and the Autorité des marchés financiers will not pursue the alternative approach described in its concurrent consultation paper (please see our previous bulletin here).

The proposed framework is intended to address the CSA’s concern that the Canadian take-over bid regime has become too “bidder friendly”. The CSA’s aim is to provide a target board with more time to respond to bids and the flexibility to reduce deposit periods if warranted, “with the objective of rebalancing the current dynamics between hostile bidders and target boards”. In addition, the amendments will effectively give shareholders some say in the sale of a company by allowing them to make “voluntary, informed and co-ordinated tender decisions”. One of the net results of the new regime may be that securities regulators will be unlikely to allow a poison pill to remain in place past the 120 day period.

As with any proposed cure, time will tell how effective it is and what, if any, the side-effects are.