On September 11, 2014, the Canadian Securities Administrators (CSA) announced a harmonized approach to certain significant amendments to the take-over bid regime aimed at rebalancing the current dynamics between hostile bidders and target boards. The provisions reflecting the actual amendments are expected to be published for comment in early 2015. The CSA noted that the amendments will be designed to give target boards more time to respond to hostile bids while maintaining the right of shareholders to make a voluntary, informed and coordinated tender decision. The effect of these amendments will be to make it more challenging for hostile bidders than under the current take-over bid rules and will likely encourage more engagement with a target board prior to launching a hostile bid.
The CSA also announced that the previous competing proposals of the CSA and the Autorité des marchés financiers (AMF) have been abandoned. At this stage the CSA do not intend to make changes to either the current take-over bid exemptions or National Policy 62-202 Take-Over Bids - Defensive Tactics (the CSA's Defensive TacticsPolicy).
New Harmonized Take-over Bid Amendment Proposal
The regulators propose to introduce amendments to the current take-over bid regime that would require all non-exempt take-over bids to contain the following mandatory features:
- a mandatory minimum tender condition of more than 50% of the outstanding securities (not including the securities owned by the bidder and its joint actors);
- a 10 day bid extension after the bidder achieves the mandatory minimum tender condition of more than 50% and the bidder announces its intention to take up and pay; and
- a minimum bid period of 120 days (instead of the current minimum bid period of 35 days), subject to the ability of the target board to waive, in a non-discriminatory manner when there are multiple bids, the minimum period to a period of no less than 35 days.
The first two mandatory features are similar to those required by "permitted bids" under typical shareholder rights plans.
This proposal aims to rebalance the right of shareholders to decide the outcome of an unsolicited take-over offer and the ability of target boards to respond to a hostile bid. These amendments would have the effect of removing some of the perceived coercive features in the current regime.
In March of 2013, both the CSA and AMF released competing proposals aimed at reforming Canada's policy relating to shareholder rights plans, with the AMF proposal going further in seeking to regulate all defensive tactics. The CSA proposal was to implement a stand-alone rule regulating rights plans that would allow target boards to maintain a rights plan for at least 90 days or longer where the rights plan has been approved by a majority of the target company's shareholders within prescribed timeframes. The AMF proposed an alternative new regime seeking to address more fundamental issues surrounding the structural imbalance between bidders and target boards. More specifically, the AMF proposal suggested: (i) replacing the Defensive Tactics Policy with a new policy that would recognize the fiduciary role of the target board when responding to a bid and limit the intervention of the regulators to circumstances where security holders are deprived from considering a bona fide offer because the board failed to take measures to address its inherent conflict of interest; and (ii) amending the take-over bid regime to include a mandatory minimum tender condition of more than 50% and a 10-day extension prior to take-up upon achieving it (two of the features forming part of the current harmonized proposal).
At this point, the CSA are not contemplating any changes to either the current take-over bid exemptions or the Defensive Tactics Policy.
Despite the fact that the proposed amendments to the take-over bid regime would afford target boards more time to respond to a hostile bid and remove some of the coercive features of the current regime, it appears that the proposal would continue to leave it open to target boards to implement rights plans. Accordingly, rights plans could be implemented in order to regulate the ability of shareholders to accumulate large positions in a company through transactions that are exempt from the take-over bid rules, or to thwart bidders that comply with the new take-over bid rules. However, by keeping the Defensive Tactics Policy in place, the regulators have left open the possibility for regulatory intervention in appropriate circumstances, and we would be surprised if the regulators would, except in truly extraordinary circumstances, permit a target board to maintain a rights plan if a bid complies with the new take-over bid rules.
The CSA are in the process of developing the proposed amendments to the bid regime and intend to publish draft rules for comment in the first quarter of 2015. We will take the opportunity to comment on such rules when they are published.