The CSA Proposes Amendments to the Current Take-Over Bid Regime
On September 11, 2014, the Canadian Securities Administrators (the “CSA”) published CSA Notice 62-306, announcing proposed amendments (the “Proposed Bid Amendments”) to the current rules governing take-over bids contained in Multilateral Instrument 62-104 Take-over Bids and Issuer Bids (“MI 62-104”).
The CSA have indicated that the Proposed Bid Amendments will aim to facilitate the ability of shareholders to make voluntary, informed and co-ordinated tender decisions and provide target boards with additional time to respond to hostile bids, with the objective of re-balancing the current dynamics between hostile bidders and target boards.
Proposed Bid Amendments
The Proposed Bid Amendments will require that all non-exempt take-over bids contain the following features:
- 120 Day Minimum Bid Period – Non-exempt take-over bids will be required to remain open for a minimum of 120 days, subject to the ability of a target board to waive this period to a minimum of 35 days, provided such waiver must be made in a non-discriminatory manner in the face of multiple bids.
- Greater than 50% Minimum Tender Condition – More than 50% of all outstanding target securities owned or held by persons other than the bidder and its joint actors must be tendered and not withdrawn before the bidder can take up any securities under the bid.
- 10-day Bid Extension – All non-exempt take-over bids must be extended by the bidder for 10 days after the minimum tender condition has been met and the bidder announces its intention to take up and pay for the securities deposited under the bid.
Potential Implications of the Proposed Bid Amendments
We anticipate that if enacted in their current form, the Proposed Bid Amendments will render currently existing shareholder rights plans (“rights plans”) of limited practical use, as the Proposed Bid Amendments will legislatively mandate the features generally found in the “permitted bid” provisions of rights plans. A “permitted bid” provision is a standard component of Canadian rights plans which seeks to prevent potentially coercive behaviour permitted under the current take-over bid regime by specifying that a take-over bid permitted under a rights plan must contain 50% minimum tender and 10-day bid extension conditions similar to those required under the Proposed Bid Amendments, along with the requirement that bids remain open for a specified period of time (typically 60 days). As these features will be required under the Proposed Bid Amendments, the “permitted bid” provisions of rights plans will be superfluous, thereby potentially limiting the usefulness of existing rights plans. Rights plans may continue to serve other purposes, however, such as preventing creeping take-over bids or other potentially coercive or opportunistic share acquisitions that would otherwise qualify as exempt take-over bids under MI 62-104.
If enacted, the Proposed Bid Amendments will also re-balance the current dynamics between hostile bidders and target boards, providing target boards with a longer, consistently applied, period to run an auction process for white-knight alternative bidders or otherwise maximize shareholder value in a hostile take-over bid. Under current Canadian securities legislation, a take-over bid is required to remain open for a minimum of 35 days, which may not provide the board of directors of a target company with sufficient time to prepare an adequate response to a bid, especially if the target board wishes to engage in an auction process. While rights plans currently provide a greater period of time for a target board to respond to a hostile bid, because securities commissions have the discretion to cease trade a rights plan at any time (rights plans are typically cease-traded within 45 to 55 days after the commencement of the hostile bid), a target board has very little certainty as to how much time it will have available to respond to a hostile bid. The increase in the minimum bid period to 120 days under the Proposed Bid Amendments will give target boards a longer, consistently applied time frame to evaluate a take-over bid, explore and pursue superior alternatives to the bid and make recommendations to the shareholders in respect of the bid. We anticipate that this will give target boards a broader ability to seek alternative transactions to maximize shareholder value, while still giving the target company’s shareholders the ultimate choice whether to tender their shares to a hostile bid.
The greater than 50% minimum tender condition of the Proposed Bid Amendments will impede the ability of a bidder to complete partial bids, which can be coercive to shareholders.
Proposed amendments to MI 62-104 incorporating the Proposed Bid Amendments are expected to be published for comment in the first quarter of 2015. If the Proposed Bid Amendments are enacted, we recommend that public issuers that have previously adopted a rights plan should amend their rights plan to accord with the Proposed Bid Amendments, while still regulating potentially coercive or opportunistic share acquisitions that would otherwise qualify as exempt take-over bids under MI 62-104.
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