TSX Adopts New Shareholder Approval Requirement For Public Company Acquisitions


On September 25, 2009, the Toronto Stock Exchange (“TSX”) announced an amendment to its rules regarding shareholder approval for takeover bids. The new rules become effective for transactions after November 24, 2009. Issuers will now be required to obtain shareholder approval if a takeover of another public company will result in more than 25% dilution to an issuer’s shareholders, that is, if the shares to be issued to a target company’s shareholders will exceed 25% of an issuer’s outstanding shares. The TSX has stated that while the new rule is effectively a “bright-line” test, discretion may be applied in appropriate, limited circumstances. Although shareholder approval is already required if dilution will exceed 25% in connection with the acquisition of a private target, there is currently an exemption from shareholder approval in place with respect to the acquisition of public targets.

While it is expected that the new requirement may dampen M&A activity as a result of the associated risks and uncertainties connected with obtaining shareholder approval, the new rule brings TSX policies in line with the policies of other major international stock exchanges. Although the new requirement will not take effect until November 24, 2009 and will not be retroactive, some institutional investors have stated that they will expect issuers to comply with the new rule prior to its formal implementation on November 24th.

A copy of the TSX notice and amended rule can be found at: tmx.complinet.com/en/display/display_main.html?rbid=2072&element_id=728.

If you have any questions about the new TSX rules, or any other TSX rules or policies, contact any member of Clark Wilson LLP’s Corporate Finance & Securities Group.