Not everyone thinks it is such a good idea, however. Prominent Toronto securities lawyer Philip Anisman said securities commissions are supposed to protect investors and put shareholders first – by ensuring they get a chance to vote on an offer for their shares. The courts, by contrast, tend to defer to the judgment of boards of directors – potentially denying shareholders a vote and leaving inefficient managers of a company entrenched.
Mr. Anisman said the argument that changing the takeover rules is necessary to address concerns that Corporate Canada is being “hollowed out” doesn’t wash. Boards might still decide to sell their companies, regardless of what the takeover rules are, he said. Addressing this issue would require new legislation, he said, not simply shifting takeover battles from securities commissions to the courts.
“If you want to deal with protection of Canadian businesses, you should deal with it head on, rather than by giving the directors the ability to make that decision,” Mr. Anisman said. “Because it does not accomplish it unless you assume … that the directors are always going to do one of two things: They are always going to oppose bids or they’re always going to make the right decisions. And neither is the case.”
The OSC’s deputy director of corporate finance, Naizam Kanji, said the country’s securities regulators are in the midst of reviewing the current rules around poison pills. But the OSC doesn’t believe walking away altogether is the answer.
“We continue to believe there is an important role for securities regulators in reviewing defensive tactics,” Mr. Kanji said in an e-mail.
Still, recent decisions by securities commissions have suggested to some that the ground might be shifting. Mr. Waitzer said the series of contradictory rulings has put a confusing spotlight on the issue of how the system handles poison pills.
“You have inconsistent decisions, so nobody really knows what the law is now, at the securities commission level,” he said.
Mr. Waitzer acknowledges that any sweeping reform will be a long time coming, especially given the slow march of Ottawa’s plan for a national securities regulator, now before the Supreme Court of Canada. “All we are saying is, you know what? It is time to have a debate on this issue.”
POISON PILL DECISIONS
A string of recent, and contradictory, rulings by Canadian securities regulators have some securities law experts wondering if the ground rules on corporate takeovers are shifting.
At issue is the “poison pill,” a defensive tactic used by boards of directors trying to fight off a hostile takeover.
Poison pills, or “shareholder rights plans,” usually involve the issuing of rights to shareholders to buy many new shares at rock-bottom prices. The move is an attempt to dilute the holdings of a hostile bidder and make a takeover prohibitively expensive.
Canadian securities watchdogs generally disallow poison pills after a short time period (40 to 70 days), in order to allow target companies to seek other bidders. But in two recent rulings, securities regulators actually allowed poison pills to be used to defeat hostile bids.
In 2007, the Alberta Securities Commission allowed a poison pill to stand in a decision about an attempted takeover of Calgary-based Pulse Data Inc.
In 2009, the OSC allowed a poison pill to stand indefinitely. Toronto-based Neo Material Technologies Inc. used a poison pill to block a hostile partial takeover by Pala Investments Holdings Ltd., an activist fund controlled by Swiss-based Russian billionaire Vladimir Iorich. Mr. Waitzer was on the case for Neo, which makes metals and magnetic powders used in electronics.
While some speculated that the Neo ruling could mean an open door to a “just say no” defence, OSC vice-chairman James Turner was quick to play down the decision in a 2009 speech, saying it did not change the OSC’s policy on poison pills because it hinged on the fact that Neo shareholders had actually, and unusually, voted to approve the poison pill.
More recently, the OSC “cease-traded” a poison pill put in place by the board of Baffinland Iron Mines Corp. in the face of an initial takeover bid by Nunavut Iron Ore Acquisition Inc., to allow shareholders the right to vote.
And last year, the British Columbia Securities Commission knocked down a poison pill put in place by the board of nominally Vancouver-based Lions Gate Entertainment Corp., which was trying to fend off a hostile takeover by Carl Icahn, the American corporate-raider-turned-activist.
Mr. Icahn, who eventually abandoned his bid for the Hollywood studio, even accused Lions Gate of contemplating moving its corporate listing to the United States, where a poison pill would have a better chance of survival, to keep him at bay.