Most of the recent headlines concerning the unsolicited takeover bid by Suncor Energy Inc. (Suncor) for Canadian Oil Sands Ltd. (COS) surround the decision of the Alberta Securities Commission (ASC) to allow COS’s tactical shareholder rights plan to remain in place until January 4, 2016. While that decision is noteworthy on its own, what may be lost in the discussion is that the COS board has additional time to use its recommendation as a bargaining chip.
The ASC’s Decision
Following Suncor’s bid on October 5, 2015, the COS board adopted a second rights plan on top of its existing shareholder-approved plan. The new rights plan included a 120-day permitted bid period, essentially mirroring the proposed amendments to the take-over bid regime expected to be enacted next year (Proposed Amendments). While the ASC has yet to release its reasons for decision, it is noteworthy that, while COS will have an additional 30 days to find an alternative (bringing the total time the Suncor bid must remain outstanding to 90 days), it is apparent that the ASC was unwilling to effectively order that COS be permitted to have the full 120 days that would be the norm under the proposed new regime (as discussed in our previous blog post “New Take-Over Bid Rules Seek to Level the Playing Field…But Will Bidders Still Play?”). That said, the 90 day period is still on the lengthier side when compared to the vast majority of prior decisions.
The Value of Rights Plans is Undisputed…
Rights plans have proven to be advantageous to buy time for the board of the target company to consider alternatives and solicit competition. In that regard, our 2015 Hostile Take-Over Bid Study (Fasken Study) released earlier this year demonstrates that where a first-mover bid faced competition, that competition emerged after the 35 day statutory minimum bid period approximately two-thirds of the time. Moreover, competition was twice as likely to emerge when a target had a rights plan.
…But the Target Board’s Support is a Prized Asset, Particularly in a Share Exchange Bid
However, COS’ rights plan may be the least of Suncor’s worries given that the COS board continues to reject Suncor’s bid. Hostile bidders have a near perfect record when securing the board’s support and fare poorly without it. The Fasken Study illustrates that where a bidder ultimately won the support of the target board, the bid succeeded in all but one contest, or 98% of the time. In contrast, a hostile bid succeeded only 22% of the time in the absence of board support. As Suncor’s bid is a share exchange bid, the stakes are even higher. Over the ten year study period, there were a total of 34 share exchange hostile bids in which the bidder offered only share consideration and only one of those 34 bids succeeded without the support of the target board. As a result of the ASC decision, the COS board not only has more time to find an alternative, it may be able to use the continuing auction dynamic to its advantage.
Until the Proposed Amendments are in force, target companies that are subject to a takeover bid should not assume they will have the benefit of the 120-day minimum bid period before they become the law. Similarly, bidders should be aware that regulators may uphold tactical poison pills enacted by target boards without shareholder approval beyond the customary 60 days. The ASC decision shows that ambiguity still exists despite the Proposed Amendments and additional guidance by regulators as to how long target issuers have to respond to a bid would be worthwhile. But more than anything, target boards should be mindful that their recommendation is truly a prized asset for the bidder.