The debate over the poison pill that protects Augusta Resource Corp. from a hostile takeover bid by HudBay Minerals Inc. – for now – will be the first big test of a new set of proposed rules on such anti-takeover protections.
Last year, facing a number of seemingly contradictory rulings from various provincial securities regulators, the regulators came together and crafted a proposed rule to unify treatment of poison pillls. The upshot of the new rules would allow pills to stand, rather than be thrown out, if they have been recently approved by a shareholder vote. The question is whether the British Columbia Securities Commission will take those rules into consideration even before they have been finalized.
Pills, more properly known as shareholder rights plans, are designed to give a target board time to drum up alternatives to a hostile bid. Essentially, they make a takeover impossible, unless it's on the seller's terms. However, Canadian regulators have usually thrown out pills after a period of five or six weeks, arguing that is enough time for a target board to look for another option and that boards can't just say no to a bid indefinitely.
That's what HudBay is arguing should happen. Earlier this week, it has asked the British Columbia Securities Commission to toss out the Augusta pill before May 5, when the HudBay bid expires.
Augusta wants to be able to hold a shareholder vote on the pill on May 2. That would put it on side with the gist of the new pill rules that give a lot of deference to pills that have approval from shareholders.
"The proposed rule will allow rights plans adopted by boards of directors of issues to remain in place provided majority security holder approval of the rights plan is obtained within specified times," the securities regulators said last year in their outline of the proposed rule. "This aproach would change the current regulatory treatement of rights plans. Currently, if a hostile bidder asks a Canadian securities regulatory authority to cease trade a rights plan to render it inoperative, that authority will generally do so after a specified time."
Now it's up to the BCSC to decide whether it wants to start abiding by rules that are only proposals, and wait for the Augusta shareholder vote. Given that the BCSC is one of the regulators that put together the proposed rules, it could be ticklish to ignore them.