Staff at securities regulators in Ontario and Saskatchewan endorsed the position of marijuana company Aurora Cannabis Inc. at a hearing Wednesday on Aurora's bid to quash a poison pill that is obstructing its hostile takeover of CanniMed Therapeutics Inc.
Last month, CanniMed enacted the so-called poison pill as a way of thwarting Aurora's unfriendly offer to acquire the Saskatoon-based company. The defence tactic would make the Aurora deal financially unattractive. It also blocks Aurora from locking up additional support of CanniMed investors – beyond the 36 per cent of the stock it has already locked up so far – and prevents Aurora from buying any more shares of CanniMed.
But Aurora has objected to the move by CanniMed and has asked the Ontario Securities Commission (OSC) and the Financial and Consumer Affairs Authority of Saskatchewan (FCAA) to remove it. It is also asking that the bid period of 105 days be shortened to 35 days.
Its request is the first test of both the poison pill and the amount of time an unfriendly bid should remain open since Canada revised its rules for hostile takeover bids in 2016. This means the rulings could have far-reaching implications beyond the future of just these two cannabis deals.
Aurora, which has a market cap of $3.1-billion, is looking to purchase CanniMed in a transaction that is worth $586-million today. But CanniMed doesn't want to be bought and has instead struck a deal to acquire a smaller cannabis firm called Newstrike Resources Ltd.
The provisions of the poison pill that CanniMed has adopted "seek to place an undue amount of power and control in the hands of the target board to the potential detriment of the target shareholders," Kate McGrann, the lawyer who spoke on behalf of staff at the securities regulators, argued in an opening submission.
Unless the 105-day bidding period is shortened, Aurora's offer has to remain open until March 9 for CanniMed to consider.
But CanniMed's shareholders are set to vote on the Newstrike deal on Jan. 23. Newstrike investors will do the same on Jan. 17.
Aurora and CanniMed have been firing shots at each other for weeks, and on Wednesday, their lawyers appeared before two three-person panels staffed with commissioners from the OSC and FCAA.
Ms. McGrann also said that Aurora's offer should remain open for 105 days, but that it should be able to acquire up to 5 per cent more shares in CanniMed, per the rules in Canada.
"The predictability of this regime is key to its success," Ms. McGrann said.
"Staff submits that departures from the bid regime may decrease the predictability of the hostile-bid process and in doing so, may undermine its important policy goals."
Wednesday was the first day of a joint hearing, where securities commissioners will aim to come to a final ruling on the poison pill, among other issues. A flawed telecom connection left the proceedings in limbo for more than an hour not long after it began.
The parties will return to the hearing Thursday morning.