Effective November 24, 2009, amendments (the "Amendment") to section 611(d) of the Toronto Stock Exchange (the "TSX") Company Manual (the "Manual"), which relates to security holder approval for acquisitions of public companies, will come into effect. The Amendment provides that TSX-listed issuers will be required to obtain security holder approval when the securities issued in payment for an acquisition exceed 25% of the number of issued and outstanding securities of the listed issuer (on a non-diluted basis), regardless of whether the target being acquired is a private or a public company.
Currently, the TSX requires security holder approval for the issuance of securities as full or partial consideration for an acquisition where such number of securities exceeds 25% of the issued and outstanding securities of the listed issuer (section 611(c) of the Manual). However, this requirement does not apply where the listed issuer is acquiring a public company (a reporting issuer or issuer of equivalent status having 50 or more beneficial security holders, excluding insiders and employees) (section 611(d) of the Manual).
The Initial Proposal
On April 3, 2009, the TSX published proposed changes to section 611 of the Manual relating to security holder approval requirements for acquisitions. The TSX proposed to require security holder approval for the issuance of securities in payment of the purchase price for an acquisition of a public company which exceeds 50% of the number of issued and outstanding securities of the listed issuer which are outstanding on a non-diluted basis (the "Initial Proposal").
The TSX published the proposed changes for a 30-day comment period ending on May 4, 2009. The TSX advised that the changes would become effective upon approval by the OSC following public notice and comment. For more information on the Initial Proposal and its genesis, please see our MarketCaps entitled "OSC Decision Requires Shareholder Vote on HudBay/Lundin Transaction - Implications for Dilutive Business Combinations in Canada" and "Dilutive Business Combinations in Canada - Part II".
Opposition to the Initial Proposal
There was significant opposition to the Initial Proposal. The TSX received twenty-three (23) comment letters with the vast majority arguing that a threshold of 50% dilution is too high and a majority arguing that the threshold dilution level for public company acquisitions should be the same as for private company acquisitions, being 25%.
In response to the comments relating to the Initial Proposal and together with its position that security holders should be provided with an opportunity to vote on public company acquisitions which may alter their investment through dilution, the TSX has determined to lower the 50% threshold presented in the Initial Proposal to the current 25% threshold applicable to private company acquisitions. As such, in accordance with subsection 611(c) of the Manual, the TSX will require security holder approval for the issuance as full or partial consideration for all acquisitions where such number of securities exceeds 25% of the issued and outstanding securities of the acquiring listed issuer. The Amendment will become effective on November 24, 2009 and will not have any retroactive effect such that any transaction of which the TSX has been notified in writing prior to November 24, 2009 will not be required to comply with the Amendment.