Hellen Siwanowicz, McMillan LLP
On March 31, 2015, the Canadian Securities Administrators (the ‘CSA’) published proposed amendments to Canada’s take-over bid regime which, if implemented, will significantly change the landscape governing the execution of take-over bids. The proposed amendments represent a compromise reached by the Autorité des marchés financiers and the other CSA jurisdictions regarding the appropriate amendments to Canada’s take-over bid regime. The proposed amendments do not permit a target to ‘just say no’ to a take-over bid.
According to the CSA, the proposed amendments are intended to enhance the quality and integrity of the take-over bid regime and rebalance the current dynamics among bidders, target Boards of directors and target securityholders, by facilitating the ability of target securityholders to make voluntary, informed and co-ordinated tender decisions and providing the target Board with additional time and discretion when responding to a bid.
The proposed amendments would apply to all non-exempt take-over bids and would be subject to the following requirements:
- 50% Minimum Tender Requirement
The bidder must receive tenders of more than 50% of the outstanding securities of the class that are subject to the bid, excluding securities beneficially owned, or over which control or direction is exercised, by the bidder or by any person acting jointly or in concert with the bidder (the ‘50% Minimum Tender Requirement’);
- 10 Day Extension Requirement
The bid deposit period must be extended by the bidder for an additional 10 days after the 50% Minimum Tender Requirement has been achieved and all other terms and conditions of the bid have been complied with or waived (the ‘10 Day Extension Requirement’); and
- 120 Day Deposit Period Requirement
The bid must remain open for a minimum deposit period of 120 days unless:
(a) the target Board issues a news release stating a shorter deposit period for the bid of not less than 35 days that is acceptable to the target Board, in which case all contemporaneous bids must remain open for at least the stated shorter deposit period, or
(b) the target issues a news release stating that it has agreed to enter into, or has determined to effect, a ‘specified alternative transaction’ (generally, a plan of arrangement or similar change of control transaction approved by target securityholders), in which case all contemporaneous bids must remain open for a deposit period of at least 35 days (the ‘120 Day Requirement’).
The 50% Minimum Tender Requirement would establish a mandatory majority acceptance standard for all take-over bids, whether a bid is made for all or only a portion of the outstanding securities of the target.
The 10 Day Extension Requirement would provide target securityholders who have not tendered their securities with an extended opportunity to participate in the bid after a majority of independent securityholders have tendered to the bid and it is known that the bid will succeed.
The 120 Day Requirement would provide target Boards with a longer, fixed period of time to consider and respond to a bid. The current take-over bid regime mandates a minimum 35 day deposit period. Where a target Board has adopted a shareholder rights plan to prevent a bid from being completed after 35 days, securities regulators have typically cease traded the shareholder rights plan approximately 45-60 days after the commencement of the bid. The 120 Day Requirement responds to the concern that target Boards have insufficient time to respond to unsolicited take-over bids with the appropriate action, such as seeking value-maximizing alternatives or developing and articulating their views on the merits of the bid.
The purpose of the first exception to the 120 Day Requirement is to prevent discriminatory and unequal treatment of competing bids. The purpose of the second exception to the 120 Day Requirement is to avoid unequal treatment of bidders when a target Board supported change of control transaction is proposed to be effected through an alternative transaction rather than by way of a friendly take-over bid. If the bidder reduces the initial deposit period by issuing a news release stating an acceptable shorter deposit period, or an alternative transaction, the bid would have to remain open for at least 10 days after the date of any notice of variation concerning the reduction of the deposit period.
The 120 Day Requirement does not apply to issuer bids. The minimum deposit period for issuer bids remains at 35 days.
According to the CSA, the expected impact of the proposed amendments on the take-over bid regime is as follows:
1. Mitigation of coercive aspects of the current tender process
The 50% Minimum Tender Requirement and the 10 Day Extension Requirement will address the pressure to tender and coercion concerns associated with the existing tender process.
2. Collective majority securityholder decision making
The 50% Minimum Tender Requirement would ensure that an effort to gain control of a company or a controlling interest in a company would succeed only with the uncoerced approval of a majority of independent securityholders. The 120 Day Requirement would provide securityholders with additional time to assess the bid information.
3. Increased leverage for target Boards
The 120 Day Requirement would provide target Boards with more time to communicate their vision for the target and provide information about its value. The target Board would also have more time to attract competing offers or seek value maximizing strategic alternatives. In addition, the fact that the 120 day minimum deposit period can be shortened if a target Board issues a news release stating an acceptable shorter deposit period may provide an incentive for bidders to negotiate with the target. Given the fiduciary obligations of target Boards, it will be interesting to see under what circumstances a target Board will shorten the 120 day minimum deposit period.
4. Higher quality bids
Bidders may put forward higher quality bids to win the support of a majority of independent securityholders.
5. Fewer partial take-over bids
The proposed amendments could reduce the number of partial bids because all partial take-over bids would have to satisfy the 50% Minimum Tender Requirement in order to proceed.
It has been suggested that the proposed amendments may result in a reduction in hostile take-over bid activity because of the increased likelihood that a competing bid will be tabled during the 120 day bid period. Given this risk to bidders, acquirors may use other methods such as proxy contests to take control of targets. The proposed amendments will certainly make it more time consuming and expensive to conduct an unsolicited take-over bid.
The proposed amendments were out for comment until June 29, 2015.
Hellen Siwanowicz is a Partner at McMillan LLP.