On February 25, 2016, the Canadian Securities Administrators published final amendments to the rules governing take over bids in Canada that mark the completion of the process to enhance the quality and integrity of Canada’s take-over bid regime and rebalance the current dynamics among offerors and boards of directors and security holders of targets.
The final rule amendments substantively track the prior proposal that was previously issued for comment (which is discussed in our April 2015 Blakes Bulletin: Fundamental Changes to Take-over Bid Regime One Step Closer With Release of Draft Amendments), with one key difference.
WHAT HAS CHANGED?
The principal change from the prior proposal is that a formal take-over bid will be required to remain open for acceptance for a minimum of 105 days, rather than the previously proposed 120 days, unless the target board consents to a shorter period. This will facilitate the use of the compulsory acquisition provisions under Canadian corporate statutes, which provide that an offeror can acquire the remaining outstanding securities of a class of a target entity without the approval of the holders of such securities if, within 120 days of making a take-over bid for those securities, the offeror’s bid is accepted by holders of 90 per cent or more of the outstanding securities of such class (excluding securities owned by the offeror and its affiliates and associates). The prior proposal may not have allowed for the use of the compulsory acquisition provisions, as it is typical not to reach the 90 per cent threshold until an offeror has extended its bid at least once following the first take-up of securities under the bid, and under the prior proposal a bid would have been required to remain outstanding for a minimum of 120 days plus a mandatory 10-day extension (i.e., if the 90 per cent acceptance threshold is not reached until after the first extension, the compulsory acquisition 120-day timeframe would not be satisfied). The reduction of the minimum tender period to 105 days allows the offeror to satisfy the minimum tender period and complete its mandatory 10-day extension prior to the 120-day compulsory acquisition cut-off.
Given that hostile take-over bids generally take 60-75 days to complete, the increase to a minimum of 105 days remains a significant change that will provide the target board additional time to identify and explore other value-maximizing alternatives.
The new take-over bid regime will require that all formal take-over bids:
- Remain open for a minimum of 105 days, subject to a reduction of the minimum deposit period (i) to no less than 35 days with the consent of the target board, provided that when there are multiple contemporaneous bids, each bid shall be permitted to have that same minimum deposit period or (ii) if the target enters into or determines to effect a board-supported change of control transaction, such as a plan of arrangement, to a minimum deposit period for any contemporaneous take-over bid of 35 days
- Be subject to a minimum tender condition of more than 50 per cent of the outstanding securities of the class subject to the bid, excluding target securities held by the bidder and its joint actors
- Be extended for at least 10 days after the bidder first takes up securities under the bid (with partial take-over bids requiring an extension of exactly 10 days)
IMPLEMENTATION AND TRANSITION PROVISIONS
It is expected that the amendments will come into force on May 9, 2016 in all Canadian jurisdictions other than Ontario. In Ontario, the amendments will become effective on the later of May 9, 2016 and the day on which certain sections of Schedule 18 of the Budget Measures Act, 2015 (Ontario) are proclaimed into force.
The new take-over bid rules will not apply to:
- Any take-over bid commenced before May 9, 2016
- Any take-over bid commenced on or after May 9, 2016 that relates to securities for which another take-over bid had been commenced prior to May 9, 2016, provided that such original bid had not expired before the second bid was commenced
- Any take over bid commenced on or after May 9, 2016 that relates to securities of a target that issued a news release before May 9, 2016 announcing that it intends to effect an alternative transaction (for example, a plan of arrangement transaction), provided such alternative transaction has not been completed or abandoned prior to the commencement of the bid