On May 2, 2014, the British Columbia Securities Commission (the Commission) extended the life of the shareholder rights plan of Augusta Resource Corporation (Augusta) until July 15, 2014, provided that Hudbay Minerals Inc. (Hudbay) held its bid for Augusta shares open until July 16, 2014 and agreed to a ten-day extension in the event any shares were taken up by Hudbay. On June 24, 2014, the Commission released detailed reasons for the lengthy extension, which was, in part, responsive to Augusta needing until June 30, 2014 to obtain certain project permits that would help it maximize auction value.
In its reasons, the Commission emphasized the fact that Augusta’s shareholder rights plan was approved by shareholders prior to the Hudbay bid, and then affirmed again in the face of the Hudbay bid. The Commission noted that a rights plan without a real transaction on the horizon is merely a “theoretical” exercise; by contrast, a shareholder’s decision to keep a rights plan in the face of an available take-over bid is a true economic choice, which the Commission found provided better guidance as to actual shareholder intention. The Commission also took comfort in the fact that approval levels for the plan from before the bid corresponded well with approval levels once the bid had been made, suggesting consistent shareholder support.
The Augusta decision sends a clear message to corporations with existing shareholder rights plans, are subject to a hostile takeover bid, and need more time to complete a market canvas to maximize shareholder value: in the face of a hostile bid, shareholder affirmation of an existing rights plan may provide strong justification to allow the rights plan to continue beyond what securities regulators might normally permit, in order to allow the target company more time to seek a better bid. Of course, a vote to affirm a plan is not without risk – given the Commission’s comments on the significance of consistent shareholder support, any significant drop in support after a hostile bid is made could stop a rights plan dead in its tracks.