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Canada's largest association of corporate directors has come out in favour of Quebec's position on proposed reforms to takeover rules, saying the province's model will give boards more scope to deal with unsolicited takeover bids.
The Institute of Corporate Directors has taken a clear side in a national debate about how much power companies should have to reject unwanted takeover offers, saying the proposal from Quebec's securities regulator – the Autorité des marchés financiers (AMF) – should be adopted as a national system for all of Canada.
"We particularly support to the current AMF proposal, which takes a holistic approach to assessing the shareholder rights plan and defensive tactics regime in Canada," ICD chief executive officer Stan Magidson said in a news release.
The issue has divided Canada's securities regulators, who normally try to harmonize their rules and propose national standards.
In March, Quebec tabled new takeover rules that would give boards strong powers to reject takeover offers out of hand if they follow certain procedures. On the same day, Canada's other provinces jointly tabled their own more modest proposed rule, which would allow companies to put a poison pill in place to block offers if it was approved by shareholders within 90 days of a takeover bid being announced.
Both models are now open for public comment, and the comment date has been extended to July 12 because regulators said some groups asked for more time to consider the merits of the competing models. The ICD, which represents 7,200 corporate directors across Canada, appears to be only the sixth commenter to submit a letter so far, based on proposals published as of Tuesday.
In its comment letter, the ICD said Canada has become a "highly bidder-friendly jurisdiction" where the sale of a company is "highly likely" as soon as an unsolicited takeover bid is launched, in contrast to the United States where boards can more easily reject takeover officers. The ICD said the trend does not always maximize value for investors because offers typically come at the worst time for target companies, and the takeover trend has hindered Canadian firms from reaching global scale.
The directors' association argues Quebec's proposal is superior because it would allow the courts to make the final determination in a dispute over the propriety of a firm's defensive tactics, while typically leaving the decisions about how to respond to an offer in the hands of directors.
The association argues independent directors on boards are in a unique position to weigh the merits of takeover offers because their employment is not materially affected like that of management, but they also are responsible for acting in the best interests of the corporation.
If shareholders are unhappy with a board's decision on a takeover bid, they can communicate their views or even replace the board, the ICD argues.
"This approach will no longer render the sale of Canadian companies highly likely just because someone has commenced a hostile takeover bid, which is the current state of affairs in Canada, and would continue to be under the CSA proposal," the ICD said in its comment letter.
The ICD said the CSA's proposal to allow boards to put poison pills in place to stall a takeover bid once it is announced – but only with shareholder approval – may be impractical because arbitrageurs who buy up large blocks of shares once a hostile bid is announced will likely vote against a poison pill.
The institute has also proposed creating a national task force to "advance the [Quebec] proposal nationally and to make it best of class globally."
(Janet McFarland is a Globe and Mail Business Reporter.)
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Janet McFarland