February 17, 2010
In the early 1980s, U.S. corporate lawyers appropriated the term "poison pill" to describe new defence tricks for corporate boards fighting hostile takeovers. These poison pills are usually contracts that trigger rights for existing shareholders to buy large quantities of new shares at bargain prices, making an unwanted takeover much more expensive for the would-be buyer.
In Canada, however, poison pills have not been particularly poisonous. Securities regulators have allowed corporate boards to use them only to fend off a hostile takeover bid for a limited time to seek better offers.
The Ontario Securities Commission's decision to quash the hostile partial takeover of Neo Material Technologies Inc. by Pala Investments Holdings Ltd., however, has some Bay Street lawyers talking about a precedent that could make poison pills here more potent. Courts in Delaware allow boards wide latitude with poison pills, giving them what lawyers call "just say no" defences to override shareholders and decisively beat back takeovers.
Until Neo, poison-pill hearings before securities regulators had become rather lacklustre affairs, says Matthew Cockburn. "We'd sort of evolved to a place in Canada where at these poison-pill hearings, people almost didn't show up at them any more. They were a done deal."
He adds that Neo could be a cautious first step toward a "just say no" defence for boards in Canada: "I think Neo opens the door a crack. I don't think it represents a sea change in Canadian mergers and acquisitions."
The full article is available to subscribers here.