With a 50% minimum tender condition and longer deposit periods, have Canadian securities regulators effectively eliminated the need for the traditional poison pill defensive tactic?
The Canadian Securities Administrators (CSA) have announced a proposed harmonized take-over bid regime for non-exempt take-over bids that is based on three principles:
- 50% Minimum Tender Condition: The new regime will require that a minimum of more than 50% of all outstanding target securities owned or held by persons other than the bidder and its joint actors be tendered and not withdrawn before the bidder can take up any securities under the bid. This requirement allows for collective action by security holders – in effect security holders have a "vote" on the bid (i.e. a majority of security holders must be in favour of the bid).
- 10 Day Extension Requirement: If the minimum tender condition is met, and all other terms and conditions of the bid have been complied with or waived, the bid must be extended for an additional 10 days. The extension requirement allows other shareholders to tender once they know that a majority of security holders are in favour of the bid. It also alleviates the concern of regulators that security holders may otherwise have felt "pressure to tender" to a bid for fear of being "left behind" if the bidder received sufficient tenders from other security holders.
- 120 Day Deposit Period: The minimum period that a take-over bid
must remain open is increased from 35 days to 120 days, provided
that:
- the target company may, by news release, reduce the minimum period to as little as 35 days, in which case the reduced period will apply to all outstanding bids (if the bidder files a notice of variation) and all subsequent bids; and
- if the target company, by news release, announces that it will effect an "alternative transaction" (generally a transaction that requires a vote of security holders, such as a plan of arrangement) the minimum period for all outstanding bids (if the bidder files a notice of variation) and subsequent bids will be 35 days.
The longer deposit periods are intended to provide target boards more time to consider and respond to take-over bids. In doing so, the risk to hostile bidders is increased. The exceptions to the longer deposit periods will provide boards flexibility to reduce deposit periods in negotiated transactions although, if a board does choose to reduce the deposit period for a particular bid, it must do so for all bids without discriminating. The extended deposit period coupled with the board's ability to reduce it, will give boards much more bargaining power in dealing with prospective bidders.
While the proposal is aimed at bids which would involve a change of control, the new provisions also apply to bids by shareholders who already have a control position. Therefore, a bid by a 60% shareholder for the other 40% would still need to comply with the 50% minimum tender condition, such that a 20% block of shares could block the 60% shareholder from acquiring any additional shares at all.
So, with the proposed take-over bid regime adopting several elements of a "permitted bid" under traditional poison pills, have Canadian securities regulators effectively killed the need for poison pills? Certainly, there would appear to be no compelling reason to adopt a tactical poison pill in the face of a hostile bid since the proposed 120 day deposit period is greater than that required by the permitted bid provisions of most poison pills. However, although the proposed take-over bid regime addresses many of the factors for which poison pills were useful, some issuers may be reluctant to give them up entirely. For example, poison pills may still be relevant in the context of exemptions from the take-over bid rules that allow acquirers to effect creeping acquisitions and private agreement transactions. Even in those circumstances, we expect that if a target company that has a poison pill in place is the subject of a non-exempt bid and a majority of security holders (unrelated to the bidder) are in favour of the bid, regulators are not likely to allow a poison pill to continue to live.
The proposals are open for comment until June 29, 2015.
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