Canada regulators to propose extended poison pills

Tue Feb 26, 2013 4:15pm EST
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By Alastair Sharp and Euan Rocha

TORONTO (Reuters) - Canadian securities regulators want to change the rules on takeover defenses to make it more difficult for hostile bidders to buy Canadian companies, aiming to set up a national framework for dealing with corporate raiders, according to regulatory officials and lawyers briefed on the matter.

The plan, due to be published in draft form on March 14, is designed to bring more coherence to Canada's regulatory regime after provincial regulators have issued contrasting rulings on so-called "poison pill" defenses in recent takeover bids, the sources said.

Even so, the regulator for the province of Quebec said it is planning its own proposal that would give even more power to the boards of target companies in Quebec than would the main proposal from Canadian Securities Administrators, an umbrella group representing provincial authorities. There is no national watchdog for securities in Canada.

Poison pills effectively raise the price of a hostile takeover by enabling existing shareholders to buy additional stock in the target company at a discount. Current Canadian rules limit their use to between 40 to 70 days, while the company looks for a "white knight" to make a more acceptable acquisition offer.

The plan, which would bring Canadian rules more in line with those in the United States, would allow companies to keep poison pills in place almost indefinitely once they are approved by shareholders.

The new proposal comes as concerns about foreign control of domestic companies are growing in Canada.

A prominent example was an unsolicited C$1.8 billion ($1.75 billion) bid for Rona Inc RON.TO by U.S.-based Lowe's Cos Inc (LOW.N: Quote). The proposal sparked a wave of political opposition in Quebec, where the home improvement chain is based, and Lowe's ended up withdrawing it.

The Quebec regulator wants to go further than the CSA in protecting companies based there. Its proposal would not require that shareholders approve a poison pill, enabling a target company's board to impose the pill unilaterally.   Continued...