On March 31, 2015, the Canadian Securities Administrators (the CSA) published proposed amendments to Canada’s take-over bid regime (the Proposed Amendments) under Multilateral Instrument 62-104 – Take-Over Bids and Issuer Bids, other related instruments and the Ontario Securities Act. The Proposed Amendments will be open for comment until June 29, 2015.
There are three key features of the Proposed Amendments affecting non-exempt take-over bids:
- 120 Day Requirement. Take-over bids must remain open for a minimum deposit period of 120 days (the 120 Day Requirement) (as opposed to the current 35 day timeframe) unless (i) the target board states in a news release an acceptable shorter deposit period (provided that it is not less than 35 days); or (ii) the target announces that it has entered into an “alternative transaction”, in which case the original take-over bid will be subject to a shorter 35-day minimum period.
- Minimum Tender. Bidders must receive tenders of more than 50 per cent of the outstanding securities that are subject to the bid (excluding securities owned by the bidder itself or its joint actors).
- Mandatory Extension. The bid period must be extended by 10 days after a bidder has received tenders of more than 50% of the outstanding securities. The purpose of this requirement is to provide target shareholders who did not initially tender their shares the opportunity to take-up the offer after the bid crosses the minimum tender threshold.
The purpose of the Proposed Amendments, the CSA states, is to “provide target boards with sufficient time to respond to hostile bids, while facilitating the ability of target shareholders to make voluntary, informed and co-ordinated tender decisions.”
We expect that if adopted, the 120 Day Requirement will result in a reduction in hostile take-over bid activity, if for no other reason than the fact that bidders will be wary of committing themselves to a fixed acquisition price over a 120 day period. Such proposition makes less sense in a commodities driven economy where share prices can fluctuate significantly over short periods of time. As well, the 120 Day Requirement will increase the likelihood that a competing bid will be tabled, another risk that a hostile bidder must consider. As a corollary, we think we would see an uptick in the number of proxy contests being waged in the markets, a seemingly safer avenue through which to seek board control and increase shareholder value. We can also expect to see an increase in the use of hostile M&A tactics, including closed-door bullying and bear hug offers (an offer of a price much higher than fair market value is made in order to restrict the target’s options).