March 15, 2013 / 10:04 AM / 6 years ago

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

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.

But the lack of a single national securities watchdog has muddied the waters in Canada as some provincial regulators, have on occasion, issued divergent rulings on poison pills. Some have let pills stand indefinitely, while others have overturned them before shareholders have even voted on them.

The proposed changes come just as Alamos Gold Inc (AGI.TO) attempts to overturn a pill put in place by Aurizon Mines Ltd ARZ.TO, which is the target of its C$780 million hostile bid. Separately, Huntingdon Capital HNT.TO is fighting the target of its hostile bid - KEYreit KRE_u.TO, over a similar issue.


The CSA proposes removing a regulator’s ability to overturn a poison pill, as long as a majority of the target company’s shareholders have ratified the gambit within 90 days of a board adopting a pill, or if adopted after a bid has been made, within 90 days from the date the bid was commenced.

“The CSA proposal really strikes a balance from between the appropriate role of boards, which is to put in a poison pill and decide how to use it and the role of shareholders, which is to decide whether or not they want the pill to be maintained,” said Naizam Kanji, who is deputy director of mergers and acquisitions at the Ontario Securities Commission, which is one of the CSA’s most influential members.

The Autorité des marchés financiers (AMF) - the securities regulator for the province of Quebec - outlined a separate plan 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 intervene only if it believes a board is abusing its authority.

“Our view is that we should look at what has happened in Canada over the last 25 years and really change our approach to these matters,” Louis Morisset, the superintendent of securities markets in Quebec, said in a phone interview. “The CSA approach does not change anything or really empower boards of directors in (hostile-takeover) situations.”

The AMF proposal also seeks to tweak rules on tender offers by ensuring that investors are not coerced into tendering shares into an offer. Currently, in some instances, a bidder can take up shares tendered into an offer and win majority control, leaving the investors who did not tender their shares stuck in an ill-liquid stock with no takeover premium. The AMF is seeking to alter this by forcing bidders to extend their bid, thus giving shareholders the latitude to not tender shares for fear of getting shut out.

A 90-day period of public consultation will begin now that the CSA and Quebec proposals have been published. The CSA and AMF both have indicated that they would like to see either idea, or a blend of both, be implemented across Canada as competing rules in different provinces would not be ideal.

“Our goal is to have a consistent harmonized regime across Canada,” said Naizam Kanji, who is deputy director of mergers and acquisitions at the Ontario Securities Commission, the CSA’s most influential member. “This is not an area in which you’d want to have differing rules across the country.”

The implementation of either set of proposals would make hostile takeovers tougher in Canada, but regulators will first have to sift through the feedback and try to come to a consensus before outlining the final rules, and lawyers warn that this may take many months.

“This process does move slowly,” said David Woollcombe, a partner with McCarthy Tétrault in Toronto. “This could happen by the end of the year, but given the competing proposals I would expect there would be lots of commentary and submissions to both sets of regulators.”

Reporting by Euan Rocha; Editing by Janet Guttsman; and Peter Galloway; Editing by Chizu Nomiyama

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