On March 31, 2015, the Canadian Securities Administrators (the “CSA”) published proposed amendments to Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids and National Policy 62‑203 Take-Over Bids and Issuer Bids (the “Proposed Amendments”). If adopted, the Proposed Amendments will significantly change Canada’s take-over bid rules.
The Proposed Amendments are designed to give target company security holders the ability to make better decisions about whether to tender their securities to a bid, and target company boards of directors additional time and discretion when responding to a take-over bid.
To facilitate these objectives, the Proposed Amendments implement three major changes to Canada’s take-over bid regime.
- Minimum Tender Threshold
The Proposed Amendments require that all non-exempt take-over bids must tender for more than 50% of the outstanding securities of the class that are subject to the bid, excluding securities already controlled by the offeror (the “Minimum Tender Requirement”).
Currently, there is no minimum tender threshold in Canada’s take-over bid rules. While an offeror can make its bid conditional upon receiving a specified percentage of securities, this condition can be waived at the discretion of the offeror. The offeror’s ability to waive the minimum tender condition, or to set no minimum threshold, can effectively force security holders to tender their securities out of fear that they will miss their opportunity to sell. The Minimum Tender Requirement will require a majority of the independent security holders to tender their securities to the bid, ensuring that the offered price is broadly acceptable.
- 10 Day Extension Period
The Proposed Amendments require that all non-exempt take-over bids be extended for an additional 10 days after the Minimum Tender Requirement has been achieved and all other terms and conditions of the bid have been complied with or waived (the “10 Day Extension Requirement”).
Currently, there is no requirement for offerors to extend their take-over bids after taking up offeree issuer securities. This means that offeree security holders are forced to make tender decisions without knowing what other security holders will do in response to the bid. The result of the 10 Day Extension Requirement is that offeree security holders who have not tendered their securities get an opportunity to participate in the take-over bid after knowing that a majority of independent security holders have tendered their securities and the bid will succeed.
- 120 Day Deposit Period
The Proposed Amendments require that all non-exempt take-over bids remain open for a minimum deposit period of 120 days (the “120 Day Requirement”), subject to the following exceptions: first, the 120 Day Requirement will not apply if the offeree board of directors issues a news release announcing a shorter period is acceptable to the offeree board, which must be at least 35 days; second, the 120 Day Requirement will not apply if the offeree board of directors issues a news release announcing an alternative transaction. If an alternative transaction occurs, any outstanding or subsequent take-over bid is entitled to a deposit period that is at least 35 days from the date of the bid.
Currently, an offeror must allow securities to be deposited under its take-over bid for at least 35 days from the date of the bid. Therefore, the 120 Day Requirement gives offeree boards of directors a longer period of time to assess the merits of an unsolicited take-over bid. At the same time, the exceptions to the 120 Day Requirement provide a mechanism to expedite the deposit period for friendly change of control transactions structured as a take-over bid. While it is common for the deposit period to get extended by securities commissions under Canada’s current take-over bid regime, the 120 Day Requirement should provide more certainty and reduce legal expenses associated with regulatory intervention.
The Proposed Amendments are subject to a 90 day comment period ending on June 29, 2015, following which the CSA will revisit the Proposed Amendments prior to making any final decisions.
If you have any questions about the proposed amendments, contact any member of Clark Wilson’s Corporate Finance & Securities Group.