The Quebec government is going overboard in an attempt to prevent its public companies from being taken over by anyone based outside the province.
Proposed new rules, recommended in a task force report and endorsed in the provincial budget last week, are unnecessary, and handcuff what are supposed to be public markets.
The government’s move is a reaction to the attempt by U.S.-based retailer Lowe’s Cos. to take over iconic Quebec hardware-chain Rona Inc. in 2012. Quebec wants to ensure the province keeps those kinds of head offices, which Finance Minister Nicolas Marceau says are a major source of wealth and a key to the province’s strategic economic decisions. But the sweeping changes he’s proposed sharply diminish shareholder rights, and have the potential to insulate the boards and management of some publicly traded Quebec companies from the discipline of the market, and the will of their owners.
Among the proposed changes is one that would let a Quebec-based company facing a hostile takeover give additional voting rights to investors who have held their shares for at least two years. That would make activist investing much more difficult. Companies would also be able to put limits on what a buyer can do after a hostile takeover is complete – including limiting spinoffs of assets or changes to the board. That’s a bizarre restriction, akin to telling house buyers they cannot renovate without the permission of the past owner.
In any event, Quebec boards of directors will likely soon have new tools to fight hostile takeovers. Quebec’s securities regulator, the Autorité des marchés financiers, has promised new rules to strengthen the traditional “poison pill” defences that are already in place. These will allow directors to reject a takeover unless they appear to be blocking it for reasons of self-interest. That will also help redress a global imbalance, as it’s currently more difficult for boards in Canada to hold off hostile takeovers than it is for directors in much of the rest of the developed world.
Additional rules on top of what the AMF is proposing are overkill. It will diminish the value of Quebec companies and could make it harder for them to raise money. The bottom line is that these are public companies, owned by shareholders. There need to be reasonable safeguards to avoid unfair takeover offers, but shareholders must be able to change a company’s board, management and course. The Quebec government has gone too far.