Let the ‘bully’ M&A tactics and proxy battles begin

In two months the recently published amendments towards the country’s take-over bid regime will require effect.

For some observers the important thing changes C the 105-day minimum deposit period, the minimum target condition and the mandatory 10-day extension – strike a balance between your 120-day original proposal and comments received by the regulators.

A recent report prepared by Stikeman Elliott said the changes are “aimed at providing target boards with an increase of time to react to takeover bids and seek out value-maximizing alternatives while facilitating shareholders’ capability to make voluntary, informed and coordinated tender decisions without coercion.

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While the new rules “ostensibly obviate the need for shareholder rights plans,” the report argues that poison pills “may nonetheless continue being something in the hands of target boards, albeit in more narrow and specific circumstances.”

For its part, Norton Rose had a different take. In a recent report, it argues the amendments “may result in the increased use of proxy fights and bully M&A tactics by acquirors to effect acquisitions of commodity issuers.”

One reason for that view is that underneath the new rules the so-called off-ramps won’t be available. The report C written by Walied Soliman, Orestes Passparakis and Trevor Zeyl C defines off ramps as the “multiple” opportunities available underneath the current rules for bidders to withdraw their bids, including 35 days after launching their offer.



Because those chances to obtain off the highway aren’t available C instead bidders will be required to leave their fully financed fixed price bids open for 105 days C potential customers might be loath to get a company in the commodities business. The reason: Commodity issuers are susceptible to volatile fluctuations in share prices over short amounts of time,

Indeed the trio of lawyers write they may have found a means for a prospective acquirer “to steer clear of the use of the brand new and more onerous take-over bid regime.”

How can that be achieved? The possibility acquirer can employ “more traditional” activist tactics to effect an acquisition. And also the three C who’ve been major players in hostile bids and proxy fights Cargue tithe acquirer has a bag of tricks to employ: it might run agitation campaigns, it might start proxy fights, or it could use bully M&A tactics.

One such bully tactic is one thing referred to as a bear hug letter, in which a shareholder (having a less than 10 per cent stake) or an agent from the shareholder calls on the target to discuss matters, one of these could be a merger or purchase with the ultimate goal being. The best goal is for the possibility acquiror, “to sweep the target into as firm an embrace as you possibly can, the so-called “bear-hug” letter,” wrote Graham Gow from McCarthy Tetrault.

In viewing three Norton Rose lawyers, such tactics C which are intended to limit the choices available to the target – offer “a seemingly safer avenue through which an acquiror can influence a board or seek board control and ultimately effect an acquisition in possibly a far more efficient and cost-effective manner.”

The lawyers note the regulators had anticipated this type of potential outcome. “While the Amendments clearly give target boards incrementally greater leverage in a hostile or unsupported context as compared to the existing regime -there are multiple ways in which acquirers is capable of “hostile” acquisitions under Canadian corporate law.”

bcritchley@nationalpost.com