The Canadian Securities Administrators (CSA) today published a staff notice setting out the view of CSA staff regarding the ability of an offeror in a formal take-over bid to make negative variations to a bid, variations the CSA staff characterize as those that vary a bid in a manner that is “less favourable” to target security holders. Such variations cited by the CSA include: (i) lowering the consideration offered; (ii) changing the form of consideration other than to add to the consideration already offered; (iii) lowering the proportion of outstanding securities subject to the bid; or (iv) adding new conditions.
In response to the question of whether an offeror can reduce the offer price or add new conditions for any reason, and at any time, prior to expiry of a bid, CSA staff state that the bid regime does not contemplate the unilateral “withdrawal” of a bid, or, if all the terms and conditions have been satisfied or waived, a reduction in the price or introduction of new conditions. In this respect, CSA staff note that language contained in offer documents and bid circulars that provides that the offeror may vary the bid at its sole discretion at any time, including by reducing the offered consideration, "may be inconsistent" with bid requirements.
Where the terms and conditions of an offer have not been satisfied by the expiry of the bid or "clearly will not be satisfied during the offer period," staff will not object to the addition of new conditions or reductions in consideration provided the variation is not prejudicial to security holders.
In deciding whether to challenge negative variations under NP 62-203 Take-over Bids and Issuer Bids, CSA staff will consider whether the variation: (i) is in response to the failure of a bona fide condition of the offer; (ii) is an alternative to allowing the bid to expire unsuccessfully; (iii) provides sufficient procedural protections to offeree security holders and other market participants affected by the variation; and (iv) would not be abusive to offeree security holders. CSA staff may also request submissions from the offeror as well as confirmations as to the circumstances justifying the offeror’s position.
Further, according to the CSA, an offeror should consider and address the risk that some security holders who have to take active steps to withdraw tendered securities following a variation may not become aware of the variation. "An offeror should consider and address this risk in deciding whether to vary a bid rather than to commence a new bid and in implementing the procedural protections to be provided to offeree security holders in the event it elects to proceed with a negative variation."
In the CSA staff's view, "the offeror's conditions to a formal take-over bid should be bona fide, and should be interpreted in good faith and on a reasonable basis". Further, a negative variation "should not be used to avoid the obligation on the offeror to have funds available to pay the consideration offered under a bid."