Canada’s ad-hoc takeover bid rules could benefit from reform, especially given the inconsistent approach taken by various courts and securities regulators in recent years. But Premier Jean Charest’s election campaign promise to allow Quebec companies to reject unwanted takeover offers is not the the way to go about it.
Mr. Charest announced on Monday that his government would introduce regulations to help Quebec companies fight takeovers, which is an undeniably populist response to an unpopular takeover bid two weeks ago for Quebec-based Rona by U.S. retailer Lowe’s. The proposal was so hastily slapped together that Mr. Charest and his Finance Minister, Raymond Bachand, didn’t even seem to agree on how it would work, and in lieu of details mentioned only that many U.S. states also have legal defences to protect companies from hostile takeovers. (A related promise also made by Mr. Charest on Monday, to create a $1-billion fund to help Quebec companies finance their own foreign takeovers, is equally short on details.)
Many securities experts in Canada have debated the merits of similar “just say no” rules for Canada, and a 2008 blue-ribbon panel on Canadian competitiveness headed by business executive Lynton “Red” Wilson recommended reforms that would move Canada toward the U.S. system. Securities lawyers in particular have called on regulators to clear up conflicting rulings from securities commissions and courts on how long companies can maintain “poison pills” to block takeover bids.
It’s hard to know if Mr. Charest’s proposal would clear up much of anything. He said boards would have to weigh the impact on local jobs and communities when considering takeover offers, while Mr. Bachand told reporters boards could reject takeover offers only for strictly “commercial reasons.”
Few firms want to be taken over, which means rules must also protect shareholders from entrenched boards that resist even the most desirable offers. In the U.S., such protection typically comes from the courts, when bidders petition to put their offer to shareholders. Where it would come from in Quebec is still unknown.
Mr. Charest is well aware that politicians win few votes by discussing such legal technicalities. Still, he would have done better not to address the issue at all during the campaign than to put forward something so half-baked.
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