On February 20, 2014, the Ministry of Finance and the Economy (Québec) tabled its Budget for 2014-2015 and issued a press release quoting Minister Nicolas Marceau as “reacting very favourably to the Report of the Task Force on the Protection of Québec Businesses” which was released in conjunction with the Budget.
Reminiscent of the message of former Québec premiers Lesage and Lévesque, “Maîtres chez nous” (masters in our own house), which inspired the cultural revolution in Québec in the 1960s, the Minister said: “Being masters and prosperous in our own house also means protecting the head offices of Québec businesses. The presence of head offices in Québec is both a major source of wealth and a strategic factor in economic development decisions”. The press release went on to say: “That is why we are very favourable to the Task Force’s recommendations that seek to maintain and foster the development of Québec head offices and enable Québec’s public companies to protect themselves against unsolicited takeover bids”.
The Minister intends to move quickly to propose legislative amendments to the Business Corporations Act (Québec) to permit publicly-traded Québec corporations to adopt and embody in their constating documents (articles) some key recommendations of the Report. They are a strong departure from the current state of affairs and include:
- voting shares including additional voting rights when beneficial owners have held such shares for two years or more;
- a prohibition on mergers or other amalgamations of the assets of the corporation with those of the offeror or a substantial sale of assets representing 15% of the corporation for five years;
- a “giving” to the corporation by the offeror of the profits made in the 24 months following the takeover bid at the time of resale of the shares of the corporation purchased during the 12 months preceding the launching of the takeover bid;
- preventing the revocation of the term of office of an existing director before the end of his term for three years; and
- preventing the offeror from exercising its voting rights in respect of shares it holds after the launching of the bid, to apply until the other shareholders, excluding the directors and the manager-shareholders, adopt a resolution with two-thirds of the votes restoring the voting rights to the offeror and related parties.
These proposals echo and reinforce the proposal of the Autorité des marches financiers (AMF), released in March, 2013, that would update the regulatory framework concerning all defensive tactics by a board. The AMF proposals were made in the context of an ongoing dialogue on shareholder rights plans (poison pills) amongst the AMF, the Canadian Securities Administrators (CSA), and other interested parties in Canada. What is at stake is nothing less than who prevails in change-of-control scenarios: directors or the owners of businesses (the shareholders). American investors, in particular, who, along with Canadian institutional investors, maintain a robust market in improving underperforming companies, will quickly see that the proposals go well beyond the most far reaching consitituency state statutes promoting local industrial development at the expense of owners of these businesses. The Executive Director of the Canadian Coalition for Good Governance was quoted today as saying “as shareholders we don’t believe this is a decision to be made by directors – it’s a decision that should be made by shareholders”, in commenting on Québec’s move. With an imminent Québec election on the horizon, movement on these proposals will bear close monitoring.