On October 12, 2007, the TSX issued a request for comments to determine whether it should revisit its practice of exempting listed issuers from the requirement to obtain security holder approval for share exchange acquisitions of other public entities. The request for comments includes a summary of some of the material considerations for or against such a proposal and a comparison to similar requirements in other jurisdictions.
The TSX Manual currently requires shareholder approval for acquisitions where the number of securities issued or issuable as consideration exceeds 25% of the issued and outstanding securities of a listed offeror. Prior to January 1, 2005, the TSX generally applied its historical practice of exempting listed issuers from this requirement for acquisitions of other public entities. Amendments that were effective on that date expressly added this exemption as Section 611(d) of the TSX Manual. In response to concerns raised by some market participants, the TSX has decided to review whether it is appropriate to continue to make this exemption available to its listed issuers.
The TSX's notice summarizes a number of policy and other considerations relevant to its review. Some of the considerations discussed by the TSX include:
- Whether such securityholder approval is in line with proper governance, given the potential for significant dilution, or whether such matters are better left to the directors to decide, in line with their fiduciary obligations;
- The fact that some type of securityholder approval requirement is imposed by other comparable exchanges;
- Whether the requirement might disadvantage offerors in a competitive bid situation or may disproportionately affect resource issuers or those with a smaller market capitalization; and
- The impact such a requirement may have on the structuring of M&A transactions.
In its notice, the TSX has also asked for comments on a number of specific issues, including whether imposition of an approval requirement might discourage acquisitions or make them more difficult to complete. As well, the TSX is interested in feedback on other unintended consequences of imposing such a requirement and whether an exemption should continue to apply to issuers with a smaller market capitalization. In the event that the security holder approval requirement is imposed, the TSX is also interested in views on whether approval should be required where insiders receive 10% or less of the securities issued as consideration, whether approval by a majority of the securityholders is appropriate, and what other factors might come into play to warrant continued exempt treatment for a transaction. The TSX has also asked whether 25% dilution is an appropriate threshold (to trigger the approval requirement). In this regard the TSX notes that the threshold imposed by the Johannesburg, London and Hong Kong Stock Exchanges is 25% or higher, whereas the threshold imposed by NASDAQ, NYSE and AMEX is 20%. Both the AIM and the Australian Stock Exchange impose no approval requirement or have exemptions similar to those made available by the TSX.
The proposal is open for comments until December 12, 2007. Based on the responses received to this request for comments the TSX will determine whether further action is required. Any proposed rule changes will then be published for further comment and review.