February 26, 2013
Canadian securities regulators want to change the rules on takeover defenses to make it more difficult for hostile bidders to buy Canadian companies, according to officials and lawyers briefed on the matter.
The plan, due to be published in draft form on March 14, is designed to bring more coherence to Canada's regulatory regime after conflicting provincial rulings on so-called "poison pill" defenses to fend off unwanted suitors, the sources said.
Poison pills effectively raise the price of a hostile bid by giving all existing shareholders, excluding the hostile bidder, the right to buy additional stock in the target company at a discount. In Canada, boards of companies that are targets of a hostile bid typically have limited time in which to bring an alternate proposal before shareholders, as provincial regulators usually quash poison pills 45 to 60 days after a bid is launched. In recent years, regulators allowed poison pills to stay in place indefinitely in certain cases, since a majority of the shareholders of the target companies had ratified them.
"We did have divergent decisions, which created a bit of uncertainty for market participants," said John Emanoilidis, a partner with Torys.
"The recent flurry of foreign buyouts has sparked a debate over the sufficiency of tools that are available to the boards of Canadian companies," said Emanoilidis, who co-chairs the M&A practice at Torys. "By putting this proposal forward, the CSA is providing more tools to directors."
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