Hostile Bids Go from Sprints to Marathons: Canadian Securities Regulators Propose Significant Amendments to Take-Over Bid Rules

Authors: Patricia L. Olasker, Franziska Ruf, William M. Ainley, Neil Kravitz, J. Alexander Moore and Kevin J. Thomson

The Canadian Securities Administrators (CSA) issued a major announcement today that all 13 of Canada’s securities regulators have agreed they will not pursue two previously announced competing proposals on the regulation of shareholder rights plans. Instead they intend to propose amendments to their take-over bid rules that will maintain a harmonized take-over bid regime across Canada, but will significantly change the way in which hostile take-over bids are conducted in Canada. The amendments are aimed at “rebalancing the current dynamics between hostile bidders and target boards”, and, in effect, will give target boards more time to respond and seek alternatives to a hostile bid, and will make bids materially more challenging for hostile bidders than they are under current Canadian take-over bid rules.

The proposed new harmonized take-over bid rules would require all formal take-over bids to have the following features:

  • Mandatory Minimum Tender Condition: The bid must be subject to a mandatory tender condition that a minimum of more than 50% of all outstanding target securities owned or held by persons other than the bidder and its joint actors be tendered before the bidder can take up any securities under the bid.
  • 10-Day Extension: The bidder must extend the bid for an additional 10 days after the bidder achieves the mandatory minimum tender condition and the bidder announces its intention to take up and pay for the securities deposited under the bid.
  • 120-Day Bid Period: The bid must remain open for a minimum of 120 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 no less than 35 days.

In the CSA’s view, the proposed amendments to the bid rules seek to “facilitate the ability of shareholders to make voluntary, informed and co-ordinated tender decisions and provide target boards with additional time to respond to hostile bids, each with the objective of rebalancing the current dynamics between hostile bidders and target boards.”

In addition to lengthening the amount of time that a hostile bid would have to remain outstanding, the proposed amendments would essentially eliminate the ability of a bidder to acquire a small but nevertheless material percentage of shares through a bid that is not widely accepted by target shareholders.

The proposed amendments are the culmination of 18 months of consultation by Canadian securities regulators following the publication in March 2013 of two different defensive tactics policy proposals by the CSA and Québec’s Autorité des marchés financiers (AMF), which are now no longer being pursued. Those proposals presented divergent approaches to regulation of defensive tactics with the AMF advocating the elimination of the CSA’s current policy on defensive tactics (National Policy 62-202 – Defensive Tactics) in favour of deference by regulators to the decisions of boards that were made in a manner consistent with their fiduciary duties.

The CSA is not currently contemplating any changes to the CSA’s existing Defensive Tactics Policy. While the proposed amendments will give target boards more time to seek alternatives to a hostile bid than boards have had through using shareholder rights plans, rights plans will continue to be relevant to regulate the ability of shareholders to accumulate large positions in a company through transactions that are exempt from the take-over bid rules.  We are interested to see whether rights plans could be used to afford a target board even more time after the new 120-day bid period has elapsed, or to hold off a bidder indefinitely. At a minimum, we would expect that there will be a heavy burden on issuers to demonstrate that it is not “time for a rights plan to go” where a bidder has complied with the new rules.

The CSA intends to publish the proposed amendments to the take-over bid rules in the first quarter of 2015. Given the long period of consultation and the fact that the AMF has determined not to pursue its prior proposal, we believe there is a strong likelihood that the proposed amendments announced today will become effective.

Comparison of Current Bid Rules to CSA Proposed Amendments and Abandoned CSA and AMF Proposals
Bid Rule
Existing Rules
CSA 2013 Defensive Tactics Proposal (Abandoned)
AMF 2013 Defensive Tactics Proposal (Abandoned)
Proposed Rule (Expected for Publication Q1 2015)
Length of Bid
35 days
No change
No change
120 days, waivable down to 35 days by target board
Mandatory Minimum Tender Condition
50% of securities owned by persons other than bidder
50% of securities owned by persons other than bidder
Bid Extension
No requirement to extend bid
No requirement to extend bid
Successful bidder required to extend for an additional 10 days
Successful bidder required to extend for an additional 10 days
Rights Plan Regulation
Regulators conduct hearings at request of hostile bidder to determine when it is “time for the pill to go”
Target would be permitted to maintain rights plan in place for at least 90 days or indefinitely with shareholder approval
Rights plan duration would be determined by the target board, in accordance with its fiduciary duties
No change to existing Defensive Tactics Policy

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