Poison Pill Policies All Over the Map

Allan Coleman

Dec 6, 2010

By Kevin Marron, Investment Executive

Pressure for a single national securities commission could increase in light of the confusion created by contradictory rulings in different provinces over the use of “poison pills” in hostile takeover bids.

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“Does this provide support for the need for a national regulator?” asks Allan Coleman, partner with Osler, Hoskin & Harcourt LLPin Toronto. “If you have a single securities regulator, you’re not going to have these cross-jurisdictional disputes concerning what the policy is.”

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Concerns over the use of poison pills are rising because of the inconsistent responses of several securities commissions to shareholders’ rights plans, the formal name for poison pills. These rights plans are generally set up by corporate boards to stop or stall hostile takeover bids.

Until three years ago, the prevailing trend was for securities commissions to allow these barriers to remain in place for short periods (usually about 70 days) to give boards of directors time to hold an auction, look for an alternative buyer or get a better offer from the original bidder. ... This practice differs from that in the U.S., where boards are viewed as having the right to “just say no” to unwanted takeover bids by erecting poison pills that are not removed in most cases.

Over the past three years, two decisions by the securities commissions in Alberta and Ontario reversed the previous practice of severely limiting the use of poison pills and appeared to open the door to a U.S.-style “just say no” defence for takeover targets. [Pulse Data Inc. and Neo Technologies Inc.]

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The fact that the Neo and Pulse Data poison pills won the overwhelming support of those companies’ shareholders was a key consideration for the securities commissioners in those cases, according to Coleman.

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Coleman sees a national regulator as one possible solution. An alternative, he adds, could be an amendment to the CSA’s national poison pill policy.