120-Day Poison Pill May Force Regulators' Hand Ahead of New "Just Say Slow" Bid Regime

In response to Suncor Energy Inc.’s unsolicited takeover for Canadian Oil Sands Limited (COS), COS has adopted a second poison pill that will require Suncor to either double its 60-day minimum bid period or seek a cease trade order from the Canadian securities regulators to terminate the pill by Suncor’s bid expiry date. This second poison pill will test whether the regulators will allow target boards to benefit from an extended 120-day minimum bid period in advance of the implementation of forthcoming Canadian takeover bid rule changes¹.

What You Need To Know

• Current bid regime. Under the current rules, a takeover bid may expire in as few as 35 days. As a result, Canadian target boards typically implement poison pills prior to, or following, a hostile bid to provide for more time to seek an alternative offer or to create leverage to negotiate an improved offer. Virtually all Canadian poison pills contain permitted bid provisions that allow a hostile bid to be made without triggering any dilution to the bidder. A hostile bidder can either choose to make a permitted bid in compliance with the poison pill or make its bid conditional on the poison pill being waived by the target board or terminated by the securities regulators.
• Suncor’s bid. Suncor's unsolicited takeover bid for COS is structured as a permitted bid under COS's first poison pill. The bid is open for acceptance for at least 60 days and is subject to a minimum tender condition of over 50% of outstanding shares held by the target's independent shareholders. If this condition is met, Suncor will extend its bid for a further 10-business day period.
• The proposed bid rules. Under Canada's proposed new takeover bid regime, all non-exempt takeover bids must be open for shareholders to deposit their shares for a minimum duration of 120 days (subject to a target board's ability to shorten the timeframe to as little as 35 days in certain cases). The proposed bid rules will also allow a hostile bidder to shorten its bid period if the target enters into a white knight transaction.
• Transition period. The Canadian securities regulators have not indicated when the final rules will be implemented, but we expect the new regime will be in effect early next year. The existing rules apply to any bid launched before the new rules become effective.
• Looking ahead. The current regulatory treatment of poison pills typically permits a hostile bidder to obtain a cease trade order from the regulators terminating a pill within approximately 45 to 60 days from the date of the hostile bid. If Suncor chooses not to amend its takeover bid to comply with COS's second poison pill, it will need to seek a pill cease trade order from the regulators if it wishes to take up shares at the end of its 60-day bid period. It will be interesting to see whether the securities regulators permit COS's second poison pill to remain in place for 120 days or cease trade the second poison pill at an earlier time, consistent with existing practice.

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¹ For background details on the proposed new "just say slow" takeover bid regime, see Torys' bulletin on Torys.com.