Over the summer, the British Columbia Securities Commission (BCSC) issued reasons for its previous decision that allowed Augusta Resource Corporation (Augusta) to maintain its shareholder rights plan after a hostile bid was made by HudBay Minerals Inc. (HudBay). The BCSC permitted Augusta’s rights plan to stay in place for an unusually long period of 155 days after HudBay initiated its bid.
HudBay had brought an application to the BCSC asking for the shareholder rights plan to be cease traded under the public interest power of the Securities Act. HudBay argued that the shareholder rights plan was no longer serving any defensible purpose, and that Augusta’s board was “just saying no” to the bid. Augusta’s position, on the other hand, was that the best interests of the shareholders would be served if the board was given more time to complete the permitting process on a mine.
Consistent with previous decisions, the BCSC considered a variety of contextual factors in determining whether to cease trade the rights plan. However, the BCSC clearly placed considerable weight on the fact that Augusta’s shareholders overwhelmingly approved the continuation of the rights plan in the face of HudBay’s bid. Of the shares that were voted, an overwhelming 94% of the shares (excluding those held by HudBay) were voted in favour of maintaining the shareholder rights plan.
The decision’s recognition of the importance of a shareholder vote is to some extent consistent with the principles underlying the recent proposal of the Canadian Securities Administrators (CSA) on rights plans (National Instrument 62-105) – see the previous blog post by our colleagues Ian Michael and Shane D’Souza on this topic. However, the BCSC clearly stated that it was not following the changes in policy which were reflected in the CSA proposal, and that under existing policy a shareholder vote should not be determinative of whether a rights plan will be allowed to continue.
The ultimate outcome of the CSA proposal is not yet known. In the meantime, companies fending off a hostile bid should continue to strongly consider the strategic merit of seeking shareholder ratification of a rights plan through a vote that is held after the hostile bid has been made.