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Canada may not have managed to establish a national securities regulator, but at least the Canadian Securities Administrators and l'Autorité des marchés financiers have now proposed a better way of handling "hostile" takeover bids – that is, bids that a company's directors and management have not invited.
The hope is that "poison pills," more politely known as "defensive tactics," can be phased out, by providing a comfortable time period – say, four months or more – in which other bidders could come forward with different or better offers.
At the same time, in Quebec, it also marks an unmistakable and welcome departure from former premier Jean Charest's election promise two years ago that could have allowed the management of corporations to reject takeovers outright, without deigning to consult their shareholders – the mere owners of the company.
Poison pills typically are offers by management to issue stock options to existing shareholders at large discounts, with the apparent intention of keeping the current management in place. As the CSA have delicately said in the past, "There is a possibility that the interests of management of the target company will differ from those of its shareholders." There is indeed.
Surely, it is better to provide something like a competitive auction of the majority of a company's shares, with time to consider, rather than to set up artificial, convoluted obstructions, inducing shareholders to make decisions in a mad panic. Being able to buy some time is a good thing.
In the United States, takeovers are comparatively difficult, as a result of a gradual accumulation of judge-made law. But in such complex transactions, statutory or regulatory regimes are preferable.
A board of directors has a fiduciary duty to maximize the long-term value of the company's shares. Short-term tactics are not likely to do that. Poison pills won't be banned under the new rules, but they are likely to wither away by becoming superfluous or needless. Good.