Hellen Siwanowicz, McMillan LLP
On December 4, 2015, Suncor Energy Inc. (“Suncor”) extended its unsolicited take-over bid for Canadian Oil Sands Limited (“COS”). The extension followed a decision of the Alberta Securities Commission (“ASC”) relating to COS's shareholder rights plan, in which the ASC reasserted the long established position of the Canadian Securities Administrators that there is a time when a “poison pill” must go and shareholders must be able to decide to tender or not tender to a bid.
A brief summary of the background of the Suncor bid for COS may be useful.
The shareholders of COS ratified and confirmed a shareholder rights plan on April 30, 2013 (the “2013 Rights Plan”). The 2013 Rights Plan included a typical “Permitted Bid” exception for a bid that would not trigger the rights plan. One of the conditions of a “Permitted Bid” under the 2013 Rights Plan is that it remain open for acceptance for not less than 60 days.
On October 5, 2015, Suncor formally launched its bid for all of the issued and outstanding shares of COS. Suncor's bid was open for acceptance until 5:00 p.m. (Calgary time) on December 4, 2015. Suncor structured its bid for COS as a “Permitted Bid” under the 2013 Rights Plan.
On October 6, 2015, the Board of COS adopted a second tactical shareholder rights plan (the “2015 Rights Plan”), which was substantially similar to the 2013 Rights Plan, except that one of the conditions of a “Permitted Bid” under the 2015 Rights Plan is that it remain open for acceptance for a minimum of 120 days. COS did not obtain shareholder approval for the 2015 Rights Plan. The Suncor bid was not a “Permitted Bid” for purposes of the 2015 Rights Plan.
On November 6, 2015, Suncor applied to the ASC for an order cease trading the 2015 Rights Plan. On November 30, 2015, the ASC issued an order cease trading the 2015 Rights Plan effective on January 4, 2016, or the 91st day after the Suncor bid was launched. To date, formal written reasons for the ASC's decision have not been released.
The appropriate length of time for a rights plan to remain in effect prior to being cease traded by a Canadian securities commission is fact specific but the period has generally been in the range of 45 to 60 days.
Currently, a take-over bid in Canada must be open for acceptance for a minimum of 35 days. There are proposed amendments to the take-over bid regime in Canada that would give target companies a minimum of 120 days to respond to a take-over bid. Interestingly, this proposed 120-day period mirrors the “Permitted Bid” period in the 2015 Rights Plan. It is unclear exactly when the proposed amendments to the take-over bid regime in Canada will be in force and whether they will be amended before coming into force. It is clear, however, that during this transition period, rights plans still have an important role to play in the Canadian unsolicited bid landscape.
Suncor and COS presented various arguments before the ASC with respect to Suncor's application to cease trade the 2015 Rights Plan. Suncor argued that a 60-day rights plan was consistent with the upper range of the period of time that Canadian securities commissions have allowed rights plans to remain in place in the context of an unsolicited take-over bid. In addition, Suncor argued that (i) its bid complied with the 2013 Rights Plan; (ii) the 2015 Rights Plan was implemented solely to block the Suncor bid; and (iii) COS did not need an additional 60 days to seek alternatives since no alternatives were likely to emerge. Suncor also argued that the proposed amendments to the Canadian take-over bid regime are irrelevant to the issue of whether it was time for the 2015 Rights Plan to be cease traded because the proposed amendments are not in force.
COS argued that (i) the 2015 Rights Plan was adopted in response to the highly unique nature and circumstances of the Suncor bid; and (ii) the 2015 Rights Plan was necessary to permit COS adequate time to consider the Suncor bid, alongside any potential alternatives. COS noted that its Board took into account, among other factors: (i) the context in which Suncor made its bid, namely, historically low and volatile oil prices, significant political, economic and industry uncertainty, and ongoing review of royalty and environmental considerations of particular relevance to COS; (ii) the information imbalance between Suncor and the COS shareholders because Suncor, as a member of the Syncrude Joint Venture, had the benefit of as yet undisclosed information about COS's business; and (iii) that adequate time would be required for the COS Board to review, consider and evaluate value-enhancing and strategic alternatives, particularly in light of the expected timing for public disclosure by COS of certain relevant information. COS also argued that the 120-day period in the 2015 Rights Plan was consistent with the minimum deposit period under the proposed amendments to the Canadian take-over bid regime.
The ASC accepted COS's assertion that its shareholders would benefit if COS was provided with more time, 91 days, to find a superior alternative transaction. It is unclear whether the ASC decision in this case will have any effect on the proposed amendments to the Canadian take-over bid regime and, specifically, the proposed length of time that a bid must remain open for acceptance.
Hellen Siwanowicz is a Partner at McMillan LLP.