‘Poison pill’ antidote expected this week from Canadian regulators

Canadian regulators are this week expected to announce they will boost to 105 days how long a hostile bid must remain open for acceptance with a target company’s shareholders, the Financial Post has learned.

Canadian Securities Administrators, an umbrella group that co-ordinates policy among Canada’s patchwork of provincial and territorial securities commissions, is expected to unveil the brand new takeover rules towards the staff of their 13 member regulators now. A formal, public announcement is expected in the spring.

The new 105-day timeline emerges following a policy procedure that has taken nearly three years. Bids must currently remain open for just 35 days, which encourages it’s of targeted companies to purchase additional time by using shareholders’ rights plans or “poison pills.”

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In September 2014, the CSA released a draft policy that will have hiked the minimum tender period on an unsolicited bid to 4 months. Since then, some M&A lawyers and practitioners have argued this four-month period might be too much time. Several comment letters filed with regulators suggested a 90-day limit could be more appropriate.

The 105-day period likely to be unveiled by the CSA now tries to balance the views of those who advocated a three-month period with the four-month period announced in the original draft.

An early danger signal the originally proposed 120-day period may not hold emerged after Suncor Energy Inc. challenged the shareholders’ rights plan unleashed by Canadian Oil Sands Ltd. In December 2015, the Alberta Securities Commission ordered Canadian Oil Sands to cease trade its pill on a date that was shorter compared to 4 months the pill was to remain in place. Canadian Oil Sands and Suncor have since reached an amiable merger deal.

One problem with the proposed 120-day timeframe is that it would conflict with a few existing Canadian corporate law statutes.



Mike Devereux, a lawyer with Stikeman Elliott LLP in Toronto, wrote the CSA to point out the proposed 120-day limit could make it impossible for bidders to use the “compulsory acquisition” provisions of various corporate statutes. For example, the Canada Business Corporations Act allows a bidder who acquires 90 per cent of a target company’s shares to make the remaining shareholders to market. Yet that power is only available when the 90 percent of shares are acquired within 120 days from the launch of the takeover bid.

On the other hand, the 120-day period was a key part of the proposal advanced by Quebec’s regulator, the Autorit des marchs financiers. Back in March 2013, Quebec’s AMF proposed a policy that would have given the boards of target companies the right to refuse an unwanted offer without having to put it to shareholders. Meanwhile, the other members of the CSA proposed a framework by which target company boards could buy time by enacting poison pills, then having investors ratify those shareholders’ rights plans at regular intervals.

The CSA therefore required to balance the 4 months sought through the AMF, with the 90 days suggested by a number of commenters. At the same time, the policy required to work with the compulsory take-out provisions for statutes like the CBCA. The answer was to split the 30-day difference between the initial 120-day proposal and the 90 days recommended by a few commenters.

Canadian securities regulators happen to be hunting for a new takeover policy so they can lessen the amount of time their hearing panels spend adjudicating disputes over poison pills.

A poison pill threatens to flood the market with a company’s shares to make it practically impossible for a hostile bidder to buy enough of those shares to complete a takeover. As the pill might thwart a hostile bid, it might also dilute the value of existing shares. Additionally, it provides a target company’s board the ability to reject an offer without letting shareholders decide.

In reality, the only real practical use for any poison pill is to buy a target company some time to hunt for an alternative to a hostile offer. Hostile bidders more often than not convince security commission hearing panels to “cease trade” or turn off their poison pills.

dhasselback@nationalpost.com
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bshecter@nationalpost.com
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