Canada's M&A regime overhaul set to stymie hostile bids

Fri Mar 15, 2013 5:58am EDT
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By Euan Rocha

TORONTO (Reuters) - Canadian regulators unveiled proposals on Thursday that are set to overhaul the country's mergers and acquisitions regime and potentially make hostile corporate takeovers more difficult.

The two sets of proposals, laid out by provincial securities regulators, aim to bring more coherence to Canada's rules on the use of poison pills. They follow divergent rulings by some provincial regulators on the defensive gambits, which are widely used to fend off unwanted suitors.

The proposed rules on poison pills come a just day after the Canadian Securities Administrators (CSA), an umbrella group representing provincial authorities, outlined plans to lower the early warning reporting threshold, potentially reducing the odds of a stealth attack on a publicly-listed Canadian company.

The measures could go a long way in altering the mergers and acquisitions landscape in Canada, which has long been viewed as offering little protection to Canadian companies that are faced with hostile takeovers or stealth bids. The proposed rules will bring Canada's M&A regime more in line with U.S. regulations.

"This represents one of the most far-reaching debates about the acquisition of corporate control that we have had in this country in almost the last 50 years," said Richard Steinberg, who heads law firm Fasken Martineau's securities and mergers and acquisitions group.

The proposed new regulations will curb dramatically curb the ability of regulators to overturn a poison pill, and give target companies more ammunition to fight hostile bids through the use of the defensive maneuver.

Poison pills, or shareholder rights plans, effectively raise the price of a hostile bid by giving existing shareholders, excluding the hostile bidder, the right to buy more stock in the target company at a discount.

Provincial securities regulators typically quash these pills within 60 days, giving target companies a fairly narrow window in which to look for an alternative proposal to a hostile bid.   Continued...