Authors: Steven Robertson, Andrew Dilts
This post was written prior to our January 2017 merger, under our previous firm name, MacPherson Leslie & Tyerman LLP.
Significant changes may soon be made to the rules governing takeover bids in Canada.
If enacted, a series of proposed amendments to Multilateral Instrument 62-104 – Take-Over Bids and Issuer Bids would lengthen the timeline of a typical Canadian take-over bid, thereby affording the target company’s board of directors much more time to respond. The amendments would impose mandatory terms and conditions on bids that would make the target company’s shareholders less susceptible to potentially coercive aspects of a bid and give them more time to decide whether to tender their securities to the bid. Details of the proposed amendments, originally brought forward in 2014, were published recently by the Canadian Securities Administrators (“CSA”), the collective body of securities regulators of all Canadian provinces and territories. Under the new regime, if enacted, all non-exempt bids would be subject to a number of conditions, including the following:
Minimum tender of 50%. More than 50% of each class of securities subject to the bid — not including the offeror’s securities — must be deposited before any of the tendered securities may be taken up by the offeror. No such minimum tender requirement exists under the current rules. The purpose of this requirement is to address the current possibility of a bidder acquiring control of the target company without a majority of the independent security holders supporting the bid if the bidder elects to waive its minimum tender condition (if any), and end its bid by taking up a smaller number of securities.
(Much) longer minimum deposit period. If the proposed amendments are adopted, take-over bids would need to remain open for a minimum deposit period of 120 days, more than three times as long as the current minimum requirement of 35 days. The extended minimum deposit period is intended to address the concern that a target company’s board of directors does not, under the current takeover bid regime, have enough time to respond to unsolicited take-over bids with appropriate action, such as seeking alternatives or developing and communicating to security holders its views on the merits of the bid.
Target companies may shorten the minimum deposit period, but this would apply to all bidders. Despite the longer minimum deposit period, a target company’s board of directors may elect to shorten this period to as little as 35 days. This may be appropriate in circumstances where a longer deposit period is not necessary for the target company’s board of directors to respond to the bid. However, if a shorter minimum deposit period is adopted, the shorter period will automatically apply to any other offers then open for the securities of the target company, or which arise before the end of the bid period to prevent discriminatory and unequal treatment of competing bids.
Mandatory 10-day extension period. If, after the expiry of the initial deposit period, the minimum tender requirement is satisfied and all terms of the bid have been complied with or waived, the bidder must extend the bid 10 days and promptly issue and file a news release indicating that the minimum tender requirement has been satisfied and the number of securities that have also been taken up. This requirement is intended to mitigate potentially coercive elements of bids where security holders are forced to tender to a bid that they might not otherwise support rather than face the risk that they may lose the opportunity to tender if the bidder obtains sufficient tenders from other security holders and elects not to extend the bid.
The proposed amendments also address additional and consequential changes to rules involving matters such as to variations to bid terms and requirements for take-up and payment for securities. The amendments are open for comment until June 29, 2015. If enacted as currently envisaged by CSA, they would take effect in all provinces and territories, meaning the current Multilateral Instrument 62-104: Take-Over Bids and Issuer Bids would become a truly national instrument.