December 14, 2010
The Ontario Securities Commission is still saying no to just-say-no defenses against hostile bids.
There has been much speculation that recent rulings on poison pill cases would open the door to boards of target companies putting in a shareholder rights plan to thwart a hostile bidder indefinitely, in a U.S. style just-say-no attempt. But a recent decision helps to clear the air, saying that only in certain cases can a pill stay in place for any longer than necessary.
In the Baffinland decision, the OSC says that the Neo decision is a narrow one that does not free directors to try to keep pills in place forever:
"Neo does not stand for the proposition that the Commission will defer to the business judgment of a board of directors in considering whether to cease trade a rights plan, or that a board of directors in the exercise of its fiduciary duties may 'just say no' to a takeover bid."
The key remains that shareholders vote on the pill and do so knowing that there is a takeover bid out there. Says the OSC in its decision:
"In Neo, the Commission concluded that it would defer to the wishes of shareholders who had overwhelmingly voted to keep the relevant rights plan in place in the face of the specific bid that was before shareholders at the time of the vote."
Click here to read the full ruling.
Still, there are open questions out there, the biggest being who does a board serve, notes Thomas Yeo in a recent bulletin on securities law. "Baffinland also does nothing to reconcile the Supreme Court of Canada's view of directors' duties – which focuses on the long-term best interests of the corporation, having regard to the interests of all stakeholders – with the securities regulators' insistence on shareholder value maximization and shareholder choice as the governing principles in evaluating takeover bid defensive tactics," writes Tom.
Read the full article here.