Does a company facing a hostile bid have to start seeking alternative bids immediately, or can it try another strategy and still keep its poison pill in place?
That's the question facing the Ontario Securities Commission Wednesday as it looks at an application by hostile bidder Wi-LAN Inc. to throw out the poison pill of target Mosaid Technologies Inc.
Mosaid's board made the call after getting a hostile bid from rival patent company Wi-Lan to hold off seeking alternative bids, and instead to try to pursue another strategy that it thought would fend off Wi-Lan. That hasn't worked as well as planned, and now Mosaid is arguing the OSC should keep the pill in place longer to compensate for the lost time while the company seeks other bids.
The OSC's ruling will have significant ramifications for boards handling hostile bids.
Canadian regulators generally let a poison pill stand something in the neighborhood of 60 days, so the question of when to start the clock is crucial. If it starts when Wi-Lan announced its bid, the deadline is approaching in mere days. If it starts when Mosaid seriously began seeking alternative bids, the deadline pushes into November.
In a hearing Wednesday, Wi-LAN is seeking to have regulators throw out Mosaid's shareholder rights plan to allow it to proceed soon with a hostile bid that currently expires Oct. 14, arguing that Mosaid has had more than enough time.
Mosaid says it has a dozen parties interested enough in a competing transaction to have signed a confidentiality agreement, and is asking the Ontario Securities Commission to give Mosaid until Nov. 11 to consumate a deal.
Wi-LAN announced on Aug. 17 that it planned a hostile bid for Mosaid, and Wi-LAN officially launched the offer on Aug. 23.
Mosaid hired GMP Securities and Barclays Capital as its advisers on Aug. 24. But instead of kicking into high gear and starting the process of finding a white knight, Mosaid made a different call.
Mosaid in its submissions said the special committee of its board told the financial advisers to hold off on looking for alternatives to the Wi-LAN bid until after Mosaid announced a huge patent transaction that it was working on. And even then the focus of bankers was to try to push to investors the value of the patent transaction.
There was a belief that after the transaction was announced in early September, Mosaid's shares would trade significantly higher and put the company out of reach of Wi-LAN.
It hasn't happened. Neil Selfe, a GMP banker working for Mosaid, said in his affidavit that that's because of the messy markets, the fact that Mosaid won't really get any cash from the new patent portfolio for at least 18 months, and the Wi-LAN offer, which could lead to the patent transaction falling through.
As a result of the delay, Mosaid said it didn't begin contacting other potential acquirers until Sept. 10, almost three full weeks after Wi-LAN announced its bid and close to a month after Wi-LAN announced its intention to bid.
Since then, Mr. Selfe said, the company has contacted 35 parties. A dozen entered confidentiality agreements. However, some of the parties have expressed concern about the short timeline created by the Wi-LAN bid, Mr. Selfe said.