Mar 18, 2013
INHOUSE, Canadian Lawyer Magazine
Canadian regulators are proposing changes to the way companies can manage hostile bidders in an attempt to give some power back to target boards.
Last week the Canadian Securities Administrators issued for comment National Instrument 62-105 Security Holder Rights Plans which would establish a new framework for handling rights plans in Canada that would give a target company’s board and shareholders greater discretion in the use of such plans known as “poison pills.”
“The important message coming out of the CSA and Quebec is the securities commissions are re-thinking the role they should be playing in hostile takeover bids,” says Robert Yalden, a Montreal-based partner with Osler Hoskin & Harcourt LLP. “Historically they’ve been quite interventionist and quite prepared to strike down rights plans in particular — the most common defensive tactic targets use in Canada when faced with a hostile bid.”
“I think there is a lot of merit in where the AMF is trying to take the debate,” says Yalden. “I think there is a lot to be said for standing back some. Rights plans have become more a part of the landscape and I think there is real merit in taking a look at whether there is a need to rebalance the equation between bidders, shareholders, and boards. I think it’s a very healthy thing the AMF is doing.”
Neither proposal would take Canada to the same place as in the U.S., where boards have a lot more room to maneuver in responding to hostile bids. The CSA’s proposed rules reflects certain elements of both the U.S.-Delaware and U.K. regimes.
“It would take us a little in the direction of the U.S., but not entirely,” says Yalden. “If a bidder wants to try to get rid of a pill that was otherwise in place for a year, really the only option would be to convene a shareholder meeting to have shareholders vote to remove the pill. That is another feature the CSA is proposing — the shareholders should be able to remove the pill through a shareholder vote.”
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