OSC ruling potentially has significant implications for our treatment of poison pills, says James Tory in Financial Post

Firms May Be Able to Reject Bids for Control

September 28, 2009

Canadian public companies may now be able to "just say no" to unwanted takeover bids, rather than being forced to run auctions in search of richer offers, according to a recent ruling from the Ontario Securities Commission, Canada's largest securities regulator.

In a May ruling whose written reasons were issued this month, the OSC signalled it may change its approach to shareholder rights plans, also known as poison pills, and emphasized boards' fiduciary duties to the corporations they serve. The ruling drew on the Supreme Court of Canada's decision regarding the infamous battle between BCE and some of its bondholders, and could shake up the way Canadian takeover battles generally unfold.

"[The ruling] potentially has significant implications for our treatment of poison pills, which are a significant feature in our corporate landscape," said James C. Tory. "Our securities regulators, up until now, have tolerated poison pills for a limited time and limited purposes. The effect of the [Neo/Pala] decision seems to be to expand the purposes for which they can be used and the time frame they will be allowed to operate. We'll have to wait and see how broadly commissions are prepared to apply the decision, or whether they will apply it narrowly, limiting it to the sorts of circumstances [in Neo]."

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