The Toronto Stock Exchange has amended its rules to require listed companies to obtain shareholder approval when acquiring another public company if the transaction involves issuing more than 25% of the listed company’s outstanding shares (on a nondiluted basis). While TSX originally proposed a 50% threshold dilution level, it adopted the lower 25% threshold in part to make the new rule for public company acquisitions the same as the existing rule for private company acquisitions.

The new TSX rule, which will provide for limited discretionary relief, can be expected to have a significant effect on public company M&A transactions in Canada. Potential effects include higher acquisition costs and increased deal risk. At the same time, however, the 25% threshold dilution level for shareholder approval is consistent with that of many stock exchanges outside Canada, including the New York Stock Exchange and the London Stock Exchange.

The new rule will be effective on November 24, 2009 but will not be retroactive, meaning it will not apply to transactions of which TSX has been notified before the effective date, whether or not conditional approval has already been granted.

A copy of the TSX notice and amended rule can be found at