Canadian regulators extend time for unsolicited takeover bids

TORONTO – Unsolicited takeover bids for Canadian companies must seek at least 50 per cent of the target company’s stock and remain open for at least 105 days, according to new rules that will take effect in May.

Canadian Securities Administrators, the umbrella group that coordinates policy among Canada’s 13 provincial and territorial securities regulators, published the brand new rules Thursday. The policy completes a three-year process in which Canadian regulators have sought to overhaul the rules on hostile takeover bids.

“The new regime will enhance the ability from the security holders to create voluntary, informed and co-ordinated tender decisions while providing boards with additional some time and discretion when responding to a take-over bid,” said Louis Morisset, chair of the CSA and president and leader of the Autorit des marchs financiers.

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As reported in The Financial Post on Monday, the brand new rules require bids to stay open for 105 days, up from the current rule with a minimum of 35 days. Within an earlier draft policy, the CSA had proposed extending the minimum bid period to 120 days. The originally proposed four-month period was viewed as too long, as it clashed with the limitation period for that compulsory acquisition parts of some Canadian corporate statutes.

Unchanged in the original proposal, bids must require acceptance by a minimum of Half of a target company’s outstanding shares. The current rules don’t require unsolicited bids to come having a minimum tender requirement.

Bids that meet conditions set through the bidder, as well as the minimum Half take-up requirement set through the new rules, should be automatically extended for 10 days so hold-out investors can tender.

Lengthening the required time period for hostile bids is designed to lessen the need for target companies to depend on shareholders’ rights plans or “poison pills” to buy additional time to find alternatives. Normally, this is accomplished by forcing the unsolicited bidder to hostile the poison pill before a provincial securities commission. A primary reason Canadian regulators are changing the rules is to reduce the quantity of poison pill litigation they hear.  

The new rules work through amendments towards the documents that show Canada’s takeover rules, National Instrument 62-104 and National Policy 62-203. The amendments take effect on May 9, though they might require more time in Ontario when the province’s budget legislation isn’t proclaimed in force as of that date.