Alex Gorka, Jeremy Fraiberg, Emmanuel Pressman, Douglas Marshall, Donald Gilchrist, Allan Coleman, Robert M. Yalden, Clay Horner
Sept 12, 2014
The Canadian Securities Administrators (CSA) have announced that they intend to publish for comment amendments (the Proposed Bid Amendments) that, if implemented, will result in significant changes to the take-over bid regime in Canada.
Under the CSA proposal, which is expected to be published for comment in the first quarter of 2015, all non-exempt take-over bids (including partial bids) will be subject to the following “50-10-120” requirements:
- 50% Minimum Tender Condition: Bids will be subject to a mandatory minimum tender condition of more than 50% of all outstanding target securities (excluding those held by the bidder and its joint actors). A 50% minimum tender condition is intended to give individual shareholders comfort that a bid will only succeed with the support of a majority of independent shareholders. However, it may also limit the ability of a shareholder to have its shares acquired in a bid by making the take up of shares dependent on the tendering decisions of other shareholders.
- 10 Day Automatic Extension: Following the satisfaction of the 50% minimum tender condition and the announcement of a bidder to take up and pay for securities deposited under a bid, bids would automatically be extended by a 10 day period during which time shareholders that had not tendered their securities would be given the opportunity to do so. Such an automatic 10 day extension reduces what some observers have described as a coercive aspect of the current bid regime by allowing shareholders to first see whether a bid has been successful before determining whether to tender their shares. In the absence of such an automatic extension, shareholders might tender to a bid before they are otherwise willing to do so for fear of being unable to tender following expiry of a bid.
- 120 Day Bid Period: Bids would be required to remain open for a minimum of 120 days, subject to the ability of the target board to waive, in a non-discriminatory manner when there are multiple bids, the minimum period to a period of no less than 35 days (the current minimum bid period). A 120 day minimum bid period would provide a target board with additional negotiating leverage with an unsolicited bidder and more time to run a managed sale process in the face of the potentially opportunistic timing of an unsolicited bid.
The Proposed Bid Amendments are a response by the CSA to comments received on its proposed rule on shareholder rights plans (the CSA Proposal) and an alternative proposal on defensive tactics (the AMF Proposal) from the Autorité des marchés financiers (AMF) of Québec, both released in March 2013 and both no longer proceeding. For our March 15, 2013 Osler update summarizing the CSA and AMF Proposals, click here. While the Proposed Bid Amendments incorporate certain aspects and themes of both the CSA and AMF Proposals, they ultimately represent a fresh approach that leaves to one side the question of how to regulate rights plans and that is focused on the specific policy objectives of preventing shareholder coercion and providing target boards with additional time to respond to an unsolicited bid.
Implications and Open Questions
The detail regarding the Proposed Bid Amendments remains to be addressed in the proposal expected in the first quarter of 2015. However, the following observations can be made at this time:
- Greater time to respond to a bid. The Proposed Bid Amendments will give directors of target companies more time to respond to a take-over bid and consider alternatives to the bid. Under the current regime, a rights plan is generally cease traded by securities regulators within 50-70 days of the commencement of an offer (although there has been notable variation in recent pill decisions). Standard shareholder rights plans provide for a 60 day “permitted bid.” The Proposed Bid Amendments will ensure that boards of directors have at least 120 days to respond to an unsolicited offer.
- Potential increased costs and risks to bidders. One consequence of giving target companies more time to respond to a take-over bid may be to increase the costs and risks for bidders. Higher financing costs, for example, as well as the greater likelihood of an interloper, may add incremental cost and risk from a bidder’s perspective.
- Ability to complete friendly deals in 35 days. Boards will still be able to complete friendly bids within the currently prescribed 35 day period, as the Proposed Bid Amendments provide that targets boards will be able to waive, in a non-discriminatory manner when there are multiple bids, the minimum bid period to a period of no less than 35 days.
- Greater certainty. The Proposed Bid Amendments would provide greater certainty in many cases as hearings before securities regulators to cease trade a rights plan under the current bid regime result in regulatory uncertainty (to the extent regulators approach rights plans differently from bid to bid and across Canada) and uncertainty as to the timing of bids.
- Regulation and Role of Rights Plans. The CSA’s announcement of the Proposed Bid Amendments does not explicitly set out the approach the CSA plans to take to the regulation of rights plans. Both the original CSA Proposal and AMF Proposal called for securities regulators to “get out of the business” of regulating rights plans, absent unusual circumstances. It will be interesting to see whether the CSA will propose a similar approach when the Proposed Bid Amendments are published for comment, such that a rights plan will generally be ineffective (and cease traded) following a “50-10-120” bid. In addition, since the Proposed Bid Amendments do not apply to exempt bids, there will still be a role for rights plans in protecting targets against creeping bids (e.g., bids made through the normal course purchase and private agreement exemptions).
- Decrease in partial bids and elimination of any-or-all bids. The Proposed Bid Amendments will discourage the use of partial bids (as they will become more difficult to execute due to the 50% minimum tender condition) and will eliminate the ability to make any-or-all bids.
- Broader review of defensive tactics. The CSA notice explicitly states that the CSA is not contemplating any changes to National Policy 62-202 Take-Over Bids - Defensive Tactics at this time. We would welcome a broader review of this policy having regard for the role of directors, regulators, courts and shareholders in the bid context. We recognize, however, that alternatives contemplated by such a broader review may take a considerable amount of time to formulate and implement. Adopting the Proposed Bid Amendments will not foreclose the ability of securities regulators to consider further changes in the future.
Authored by: Allan Coleman, Jeremy Fraiberg, Donald Gilchrist, Alex Gorka, Clay Horner, Douglas Marshall, Emmanuel Pressman, Robert M. Yalden