Canada set to make hostile takeovers much tougher

Thu Mar 14, 2013 10:11am EDT
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TORONTO, March 14 (Reuters) - Canadian regulators unveiled proposals on Thursday on the use of poison pills as a takeover defense, introducing new guidelines that will make hostile corporate takeovers a lot harder.

Two sets of proposals, laid out by the umbrella group for provincial securities regulators, aim to bring more coherence to Canada's regulatory regime after conflicting rulings by individual provincial regulators on the "poison pills", which companies use to fend off unwanted suitors.

The plans will curb drastically the ability of regulators to overturn a poison pill, and give 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.

Canadian provincial securities regulators typically quash these pills within two months, giving companies only a narrow window to look for an alternative proposal to the hostile bid.

But the lack of a single national watchdog overseeing Canadian securities regulation has muddied the waters as provincial regulators have sometimes issued varied rulings on poison pills. Some have allowed pills to stand indefinitely, while others have overturned them before shareholders have had a chance to vote on them.

The Canadian Securities Administrators (CSA), an umbrella group representing provincial authorities, proposes removing the regulators' ability to overturn a poison pill, provided a majority of the target company's shareholders have ratified the gambit.

The Autorité des marchés financiers - the securities regulator for the province of Quebec - outlined a separate proposal on Thursday, which it hopes will win more support than the one being touted by the CSA.

Quebec's regulator wants to give more power to the boards of target companies, allowing a board to put in place a shareholder rights plan without shareholder consent.

The Quebec regulator says it would only intervene if it believes a board is abusing its authority.

The implementation of either set of proposals will make hostile takeovers tougher in Canada, which has long been viewed as offering weak protection to companies in such situations.