Making a hostile bid for a Canadian company just got a little bit harder.
Canada's securities regulators are steadily giving corporate boards more room to breathe in hostile takeover situations, an evolution that will please critics who have long said that it's too easy to put Canada's companies in play with unsolicited bids. And it's happening in the absence of national reform on the issue, which has stalled because of a standoff between Quebec and the rest of Canada on the amount of power that companies should have to shun hostile bids.
Unlike the United States, where boards of directors can simply say no thank you to a hostile bid, in Canada a bid has more often than not led to a sale just a few months later. That's because the anti-takeover defences erected in the form of shareholder rights plans (better known as poison pills) have historically been viewed very skeptically by regulators. Pills can be complicated affairs, but the upshot is that they make it very difficult for a hostile bid to succeed so long as they are in place.
However, they aren't in place very long. Provincial securities watchdogs have generally tossed out the defences six to nine weeks after a hostile bid is made. The mantra has been to let shareholders decide whether they want to sell.
Now, shareholders are still deciding in some key situations, but in a different manner. Over the past few years, regulators have been increasingly open to letting shareholders vote to keep their pills in place.
First in Ontario and Alberta, securities commissions allowed pills to remain so long as shareholders had recently voted on them and approved them with strong support in the face of a bid. The British Columbia Securities Commission, which until now had not done so, came some way to the same conclusion in a case decided Friday that will be closely studied by all in the mergers and acquisitions field.
The BCSC said Friday that it would allow Augusta Resource Corp.'s pill to remain in place to mid-July, giving Augusta more time to seek alternatives to a hostile bid from HudBay Minerals Inc. That means that it will be more than five months from the time the bid was announced in February to when shareholders will be allowed to tender, an eternity in Canadian hostile takeovers.
The key in the BCSC situation appears to be that Augusta shareholders just voted 94 per cent in favour of keeping the pill, and the company argued it needed a few more weeks to suss out the full range of possible alternatives, and to get key permits for the copper mine it wants to build.
The decision means securities commissions in three key provinces are largely in step. It's not the hoped-for national rule, but it's something.
The commissions are "very much more aligned," said Kevin Thomson, a lawyer at Davies Ward Phillips & Vineberg LLP who acted for Augusta. "This decision moves B.C. quite a bit further down the path. It's a very, very helpful decision, from the point of view of regulatory continuity in Canada."
That's especially helpful given that an attempt by regulators to harmonize their guidelines and explicitly give more weight to shareholder votes on pills has hit a snag because Quebec has a different idea. Ontario Securities Commission head Howard Wetston said in March that its unlikely a national rule will "will be achievable in the short term."
To be clear, Canada is not moving to the U.S. "just say no" standard, by which boards can keep pills up indefinitely to fend off acquirers. (That's one of the reasons that hostile and unsolicited bids are about five times more prevalent here, according to figures prepared for The Globe and Mail by Thomson Reuters.)
"A vote on a pill in the face of a hostile bid and a decision whether to tender to a bid are tantamount to the same thing," said Jamie Scarlett, a merger lawyer at Torys LLP. "Shareholders are having their say."
But companies now have one more option to try to keep acquirers at bay. Expect to see more votes now on poison pills when companies face a hostile bid and believe they can make the case to their shareholders strong enough to get a big vote of approval.
"This has to go on the list now of topics for discussion when boards are sitting there saying, 'What do we do in the face of a hostile bid?'" Mr. Thomson said.