Canadian regulators have announced proposed new rules that will give boards of directors far more time to respond to hostile takeover bids, but will not allow them to indefinitely turn away unwanted offers.
The new standards will require takeover offers to remain open for a minimum of 120 days, which is a major extension to the current 35-day minimum period, giving boards more time to search for alternative bids and mount campaigns to dissuade investors from tendering to the offer.
The Canadian Securities Administrators, an umbrella group for all provincial and territorial securities commissions, said takeover bids will only proceed if 50 per cent of shares are tendered, excluding shares already held by the bidder. The rule is intended to ensure takeovers will only succeed with strong support from all other investors.
The rules have been under development for years in Canada after many directors complained they had little power to deal with unwanted or under-priced takeover bids. Directors argued a takeover bid was a virtual guarantee the company would end up being sold, because boards had little ability to reject an offer and little time to find a better deal.
The final standards reflect a compromise that has won the support of all provinces and territories. Originally, Quebec had unveiled its own takeover bid regime, saying it disagreed with rules being proposed by all the other jurisdictions because they would not give boards enough power to reject unwanted bids.
But other provinces later agreed to adopt several key provisions that Quebec was seeking, and regulators announced last September they had reached a compromise, which is reflected in the formal rule published Tuesday.
Louis Morisset, chair of the Autorité de marchés financiers in Quebec, said the new rule "reflects well" on the ability of regulators to align their efforts and "address the variety of concerns that were raised across the country."
"The proposed amendments promise to bring important enhancements to the takeover bid regime in Canada," he said in a statement. "Our goal is to provide target boards with sufficient time to respond to hostile bids, while facilitating the ability of target shareholders to make voluntary, informed and co-ordinated tender decisions."
Securities lawyer Jeremy Fraiberg of Osler Hoskin & Harcourt LLP said the new standards do not duplicate U.S. rules, which give directors more power to reject takeover bids. But he said they will be welcomed by boards, who wanted far more time to deal with offers.
"It's more time for boards, but it's not an ability to 'just say no' as in the States, in the sense that the bid will ultimately get to be considered by shareholders," he said.
Mr. Fraiberg said regulators should also provide guidance on how they will now deal with shareholder rights plans – better known as poison pills – which most companies have in place to give boards more time to deal with takeover bids.
For example, Mr. Fraiberg said it appears likely poison pills would now have no application during 120-day takeover bids that comply with the terms of the new rules, but said they could still be applicable in other situations, such as when a shareholder makes a creeping takeover by acquiring small amounts of new shares over a long period of time.
Under the new proposals, which are open for public comment for 90 days, shareholders will essentially get a form of vote on any takeover deal because a bidder will have to get 50 per cent of all other shares outstanding for a takeover to proceed.
OSC chair Howard Wetston has previously described the rules as a "balance" between the rights of boards to challenge takeover offers, and the rights of shareholders to ultimately decide whether they want to sell or not.
In addition, shareholders will have an additional 10 days to submit their shares after the minimum 50-per-cent voting support requirement is met.
The 10-per-cent extension, which was championed by Quebec, is intended to address concerns that shareholders felt pressured to tender shares to an offer they did not like rather than risk being left as minority shareholders with no opportunity to sell later.
"This situation creates 'pressure to tender' or coercion concerns, since security holders may tender to the takeover bid or sell in the market not because they support the bid but because they are afraid of being left behind," regulators said in an explanation published Tuesday.