Amendments to Canada’s Take-Over Bid Regime: 50-10-105Friday, April 29, 2016
On February 25, 2016, the Canadian Securities Administrators (the “CSA”) published Amendments to Take-Over Bid Regime (the “Amendments”). The Amendments were published by the CSA following several rounds of proposals - the last of which was made on March 31, 2015, and receipt by the CSA of multiple comment letters (the “Comments”) from stakeholders.
The Amendments are aimed at enhancing the quality and integrity of Canada’s take-over bid regime and finding a balance in the protection of the interests of offerors, target boards and shareholders of a target. The Amendments attempt to achieve this stated objective by making three fundamental changes to the take-over bid regime, namely by subjecting all non-exempt take-over bids (including partial bids) to the following new requirements: (i) a minimum deposit period of at least 105 days for an offeror’s bid, subject to certain exceptions, (ii) a more than 50% minimum tender condition, and (iii) a minimum 10-day extension period.
Canada’s take-over bid regime is currently governed by: Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids (“MI 62-104”) in all jurisdictions of Canada, except Ontario where the requirements are set out in Ontario Securities Commission Rule 62-504 Take-Over Bids and Issuer Bids (the “Ontario Rule”) and the Securities Act (Ontario); and National Policy 62-203 Take-Over Bids and Issuer Bids (“NP 62-203”). In addition, all jurisdictions in Canada (including Ontario) have adopted National Policy 62-202 Defensive Tactics (“NP 62-202”).
In connection with the Amendments: Ontario will repeal the Ontario Rule and become the last Canadian jurisdiction to adopt MI 62-104 and upon its adoption in Ontario, MI 62-104, revised pursuant to the Amendments, will become a fully harmonized national instrument National Instrument 62-104 Take-Over Bids and Issuers Bids; and NP 62-203 will also be amended. The CSA have cautioned that while they will not amend NP 62-202, they will continue to examine target board tactics and intervene if such tactics are viewed as abusive of shareholder rights.
The Amendments will come into force in Ontario on May 9, 2016. Take-over bids commenced prior to May 9, 2016, or competing bids to such take-over bids, will be governed by the current regime. Additionally, the Amendments will not apply to take-over bids commenced with respect to securities of an issuer that announced an alternative transaction prior to May 9, 2016.
105-Day Bid Period
Currently, offerors are only restricted by the requirement that a take-over bid remain open for a minimum 35-day period from the date of the bid. This minimum bid period was a key provision that the CSA were looking to change in an effort to provide target boards more time to evaluate bids and consider alternative bids or transactions.
In their earlier proposals, the CSA had indicated that the minimum bid period would be extended to 120 days. However, concerns were expressed in the Comments that this would prohibit offerors from relying on the compulsory acquisition provisions provided for under corporate law which allow an offeror that holds at least 90% of a class of a target’s shares from acquiring the remaining shares without shareholder approval, as long as this 90% threshold has been met within 120 days of the date of the take-over bid.
As such, the CSA settled on a 105-day minimum deposit period subject to certain exceptions. This period may be reduced to a period of not less than 35 days (the “Reduced Period”) if the target board approves and issues a news release stating as much. In such case, all contemporaneous bids may also have a minimum deposit period that is at least the number of days as the Reduced Period. The minimum deposit period may also be reduced to 35 days by all contemporaneous bids if the target board issues a news release stating that it intends to effect an alternative transaction.
50% Minimum Tender Condition
Currently, an offeror conducting a take-over bid has discretion over the number of securities of the target that it acquires pursuant to its bid. As such, there were concerns that shareholders of the target may feel compelled to tender their shares to avoid being left holding a minority position in an issuer with securities that are less liquid and valuable.
To address concerns regarding the pressure to tender or coercion, the amendments have imposed a requirement that all take-over bids receive tenders from more than 50% of the outstanding securities of the class that are subject to the bid, excluding securities that the offeror and its joint actors beneficially own, or over which they exercise control or direction (the “Minimum Tender Condition”).
Concerns were raised in the Comments that the Minimum Tender Condition would provide shareholders that hold a substantive block of shares of the target with leverage and the ability to impede a take-over. The CSA acknowledged that this was a potential consequence of the Minimum Tender Condition but that they were not prepared to establish a separate set of rules to account for such situations.
10-Day Extension Period
The Amendments require that once the Minimum Tender Condition of a take-over bid, other than a partial take-over bid, has been met and all other terms and conditions have either been complied with or waived, the offeror must extend its bid for at least an additional 10 days.
In the case of partial takeover-bids where the Minimum Tender Condition has been met and all other terms and conditions have either been complied with or waived, the offeror must extend its bid for exactly 10 days and will not have the option to extend beyond this 10-day period.
The Amendments introduce significant changes to Canada’s take-over bid regime and will likely require offerors and target boards to re-evaluate their tactics and strategies. Offerors contemplating the launch of a take-over bid without target board approval must consider the risks inherent in having a bid outstanding for 105 days, and, depending on the circumstances, may find the advantages afforded by pursuing a negotiated take-over with target board support to be more appealing.
Target boards must consider the utility of retaining or adopting a shareholder rights plan, which until now has been the tool most commonly used by issuers as a defence to unsolicited bids. Such tactics have often been successfully challenged by offerors who have had shareholder rights plans cease-traded by securities regulators within a limited time, usually between 40 and 60 days from the date of the bid. While the new 105-day bid period will likely render shareholder rights plans ineffective against unsolicited take-over bids which require compliance under Canada’s take-over bid regime (as they likely would not endure regulatory scrutiny), shareholder rights plans may still serve issuers well in guarding against acquisitions of securities made through a take-over bid that is exempt from the take-over bid rules such as a bid made through a private agreement.
This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.
If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.