Concurrently with the tabling of its budget on February 20, the Parti Québécois minority government released the Report of the Task Force on the Protection of Québec Businesses. In June 2013, Quebec’s Minister of Finance Nicolas Marceau had mandated the Task Force to recommend measures that would enable Quebec companies to better protect themselves from unwanted takeover bids and foster the maintenance and development of head offices in the province.
The report sets out a series of recommendations regarding hostile takeover bids that would apply to public companies governed by the Business Corporations Act (Quebec) (QBCA), including amending the QBCA to allow for:
- voting rights that could increase the longer that shares are held, to give greater voting rights to long term holders;
- the prohibition of certain post-bid transactions by targets subject to a hostile takeover bid (undertaken for the benefit of the bidders), unless bidders had obtained prior target board consent, such as the following:
- a five-year prohibition against the merger or other amalgamation of the bidder’s and the target’s assets or a substantial sale of assets representing 15% or more of the target’s assets;
- a requirement that a bidder remit to the target any profits made in the 24 months after the takeover bid from reselling shares of the target purchased by the bidder during the 12 months preceding the launch of the bid;
- a prohibition against removing, before the end of his or her term, any director in office at the time of the bid; and
- a bar against the exercise of a bidder’s voting rights in respect of the shares it holds after the launch of the takeover bid, subject to being restored by special resolution of the other shareholders.
The report contemplates that these measures would not apply automatically to existing QBCA-governed public issuers, but would rather require an amendment to their articles, to be approved by special resolution. The report also recommends to restructure the Bureau de décision et révision (the independent administrative tribunal of theAutorité des marchés financiers (AMF)) by converting it into a specialized administrative tribunal comprised of judges from Quebec’s provincial court.
The Task Force noted that its recommendations would be more effective if accompanied by a substantive review of the securities regulations that apply to the measures that boards implement in response to unsolicited takeover bids. As we discussed in a post last year, this review process began in March 2013, with the Canadian Securities Administrators’ (CSA) publication for comment of proposed National Instrument 62-105 Security Holder Rights Plans (NI 62-105). The proposed National Instrument, which is still under review by the CSA, proposed for consideration regulations that would apply specifically to the treatment of shareholder rights plans. Concurrently with the CSA’s publication of its proposal, the AMF issued a standalone proposal intended to address defensive tactics more broadly, including by proposing amendments to the current takeover bid regime under securities laws. Noting that the impact of proposed NI 62-105 may be limited, the Task Force supports the AMF proposal on the basis that, in its view, it would allow directors of issuers faced with a hostile bid to fully exercise their fiduciary duties and potentially restore the balance between the bidder under an unsolicited bid and the target.
The report further suggests specific tax measures that would encourage companies to establish and maintain their head offices in Quebec. These measures include, among others, introducing tax deferral measures that would encourage employee share ownership (which the Task Force notes may also in the long term serve to counter hostile takeover bids), reviewing the tax treatment of gains from stock options so as to attract and maintain qualified senior executives in the province, and relaxing the taxation of significant shareholdings upon their transfer from one generation to the next.
The Minister of Finance indicated that he intends to move quickly to propose legislative amendments to the QBCA. The Minister also mentioned that he endorses the position of the AMF with respect to shareholder rights plans and would, if necessary, amend the Securities Act (Quebec) as needed, while taking into account the Canadian context in which the broadest possible harmonization is desired.