CSA Notice 62-306
Update on Proposed National Instrument 62-105 Security Holder
Rights Plans and AMF Consultation Paper An Alternative Approach
to Securities Regulators’ Intervention in Defensive Tactics
September 11, 2014
Introduction
On March 14, 2013, the Canadian Securities Administrators (the CSA or we) published for
comment proposed National Instrument 62-105 Security Holder Rights Plans and proposed
Companion Policy 62-105CP Security Holder Rights Plans (together, the CSA Proposal). The
Autorité des marchés financiers (the AMF), while participating in the publication for comment
of the CSA Proposal, concurrently published a consultation paper entitled An Alternative
Approach to Securities Regulators’ Intervention in Defensive Tactics (the AMF Proposal). This
notice provides an update on the CSA’s consideration of these two defensive tactics policy
proposals and our proposed regulatory approach going forward.
The CSA Proposal and the AMF Proposal sought to address, in different ways, concerns raised
with the CSA’s current approach to reviewing defensive tactics adopted by boards of directors of
target issuers in response to, or in anticipation of, unsolicited or “hostile” take-over bids.
Canadian securities regulators currently review defensive tactics under their respective public
interest jurisdictions in light of the guidance in National Policy 62-202 Defensive Tactics (the
Defensive Tactics Policy). We developed the CSA Proposal, and the AMF developed the AMF
Proposal, with a view to revising the application of the Defensive Tactics Policy by securities
regulators in response to developments subsequent to the implementation of the Defensive
Tactics Policy.
New Harmonized Bid Amendments Proposal
In light of the comments received and following further reflection and analysis, the CSA have
determined not to proceed with the CSA Proposal and the AMF has determined not to proceed
with the AMF Proposal. Instead, the CSA intend to publish for comment, subject to necessary
approvals, a new harmonized regulatory proposal based on amendments to the take-over bid
regime contained in Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids (for
jurisdictions other than Ontario) and Part XX of the Securities Act (Ontario) and Ontario
Securities Commission Rule 62-504 Take-Over Bids and Issuer Bids (for Ontario) (collectively,
the Proposed Bid Amendments).
The Proposed Bid Amendments will address key issues identified in the CSA Proposal and the
AMF Proposal, as further informed by the comments received in respect of those proposals. In
general, the Proposed Bid Amendments will aim to facilitate the ability of shareholders to make
voluntary, informed and co-ordinated tender decisions and provide target boards with additional
time to respond to hostile bids, each with the objective of rebalancing the current dynamics
between hostile bidders and target boards.
Specifically, the Proposed Bid Amendments would require that all non-exempt take-over bids:
(1)
be subject to a mandatory tender condition that a minimum of more than 50% of all
outstanding target securities owned or held by persons other than the bidder and its joint
actors be tendered and not withdrawn before the bidder can take up any securities under
the bid;
(2)
be extended by the bidder for an additional 10 days after the bidder achieves the
mandatory minimum tender condition and the bidder announces its intention to
immediately take up and pay for the securities deposited under the bid; and
(3)
remain open for a minimum of 120 days, subject to the ability of the target board to
waive, in a non-discriminatory manner when there are multiple bids, the minimum period
to a period of no less than 35 days.
At this time, the CSA are not contemplating any changes to the current take-over bid exemptions
or the Defensive Tactics Policy.
Subject to receipt of necessary approvals, we will publish for comment the complete details of
the Proposed Bid Amendments and their application.
Overview of 2013 CSA Proposal and AMF Proposal
CSA Proposal
The purpose of the CSA Proposal was to create a framework for the regulation of security holder
rights plans (Rights Plans) adopted by boards of directors of target issuers in response to, or in
anticipation of, hostile bids. Rights Plans are the most common form of defensive measure
adopted by target boards and, under the CSA’s current approach, are typically cease traded by
securities regulators within 45 to 55 days after the commencement of the hostile bid.
The CSA Proposal would have allowed a target board to maintain a Rights Plan in the face of a
hostile bid if a majority of the equity or voting securities of the target issuer (excluding the
securities of the hostile bidder and its joint actors) were voted in favour of the Rights Plan either
in the face of the hostile bid or at the issuer’s previous annual meeting. The CSA Proposal
contemplated that securities regulators would generally not intervene to cease trade Rights Plans
adopted under the CSA Proposal when security holders had approved the Rights Plan within 90
days from its adoption by the board or the commencement of the hostile bid.
We intended the CSA Proposal to address concerns about the utility of a Rights Plan to the target
issuer in response to a hostile bid, while ensuring that a majority of the holders of equity or
voting securities of the target issuer supported the application of the Rights Plan as proposed by
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the target board. The CSA Proposal would have potentially provided additional time for a target
board to exercise its discretion in responding to a hostile bid, allowed target issuer security
holders to, effectively, make a collective decision about a hostile bid by endorsing a Rights Plan
and enhanced harmonization in the review of Rights Plans among the CSA.
AMF Proposal
While the CSA Proposal only addressed the use of Rights Plans by target boards, the AMF
Proposal raised more fundamental issues regarding the regulation of defensive measures in
Canada, including the role of boards of directors when faced with unsolicited take-over bids and
the structural imbalance between bidders and target boards, and sought comments on the specific
changes to the take-over bid regime set out in the AMF Proposal.
The AMF Proposal identified three main concerns with the current take-over bid regime and
application of the Defensive Tactics Policy:
(1)
the take-over bid regime has become too “bidder friendly” and is inconsistent with its
stated goal of neutrality as between bidders and target boards and their management;
(2)
the Defensive Tactics Policy is being applied to inappropriately limit the target board’s
ability to exercise its fiduciary duty, including to maximize security holder value in the
long term; and
(3)
the take-over bid regime is structurally coercive to target security holders as it does not
permit them to make a collective decision about the transaction.
The AMF Proposal proposed two changes to address these concerns. First, it suggested
replacing the Defensive Tactics Policy with a new policy that would recognize the fiduciary duty
of the target board to the issuer when responding to a hostile bid. The new policy would limit
the intervention of securities regulators to circumstances where security holders are deprived
from considering a bona fide offer because the target board failed to take measures to address its
conflicts of interest and risk of entrenchment.
Second, the AMF Proposal contemplated that the take-over bid regime be amended to require a
minimum tender condition of more than 50% of all outstanding target securities owned or held
by persons other than the bidder and its joint actors, along with a mandatory 10 day extension of
the bid following the announcement that the minimum tender condition has been met to give the
remaining security holders the opportunity to tender to the bid.
Public Comments on the CSA Proposal and the AMF Proposal
The comment period on the CSA Proposal and the AMF Proposal ended on July 12, 2013. We
received approximately 70 comment letters from various market participants, including issuers,
institutional investors, industry associations and law firms that reflected a broad diversity of
opinions on the CSA Proposal and the AMF Proposal. Many commenters provided helpful
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substantive submissions, information and alternative considerations. We have reviewed the
comments and wish to thank all of the commenters for their contributions.
We intend to provide a general summary of comments received in respect of the CSA Proposal
and AMF Proposal when, subject to necessary approvals, we publish the Proposed Bid
Amendments for comment.
Next Steps
We are in the process of developing the Proposed Bid Amendments and, subject to necessary
approvals, intend to publish them for comment in the first quarter of 2015.
Questions
Please refer your questions to any of the following:
Ontario Securities Commission
Naizam Kanji
Deputy Director, Corporate Finance
Head, Mergers & Acquisitions and Shareholder Rights
Ontario Securities Commission
(416) 593-8060
nkanji@osc.gov.on.ca
Jason Koskela
Senior Legal Counsel
Mergers & Acquisitions and Shareholder Rights
Corporate Finance Branch
Ontario Securities Commission
(416) 595-8922
jkoskela@osc.gov.on.ca
Adeline Lee
Legal Counsel
Mergers & Acquisitions and Shareholder Rights
Corporate Finance Branch
Ontario Securities Commission
(416) 595-8945
alee@osc.gov.on.ca
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Autorité des marchés financiers
Lucie J. Roy
Senior Director, Corporate Finance
Autorité des marchés financiers
(514) 395-0337, ext. 4361
Toll free: 1 (877) 525-0037
Lucie.roy@lautorite.qc.ca
Diana D’Amata
Senior Policy Adviser
Autorité des marchés financiers
(514) 395-0337, ext. 4386
Toll free: 1 (877) 525-0037
Diana.damata@lautorite.qc.ca
Andrée-Anne Arbour-Boucher
Senior Securities Analyst, Corporate Finance
Autorité des marchés financiers
(514) 395-0337, ext. 4394
Toll free: 1 (877) 525-0037
Andree-anne.arbour-boucher@lautorite.qc.ca
British Columbia Securities Commission
Gordon Smith
Senior Legal Counsel, Corporate Finance
British Columbia Securities Commission
(604) 899-6656
Toll free across Canada: 1 (800) 373-6393
gsmith@bcsc.bc.ca
Leslie Rose
Senior Legal Counsel, Corporate Finance
British Columbia Securities Commission
(604) 899-6654
Toll free across Canada: 1 (800) 373-6393
lrose@bcsc.bc.ca
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Alberta Securities Commission
Ashlyn D’Aoust
Legal Counsel
Corporate Finance
(403) 355-4347
Ashlyn.daoust@asc.ca
Tracy Clark
Legal Counsel
Corporate Finance
(403) 355-4424
tracy.clark@asc.ca
Financial and Consumer Affairs Authority of Saskatchewan
Sonne Udemgba
Deputy Director, Legal, Securities Division
Financial and Consumer Affairs Authority of Saskatchewan
(306) 787-5879
sonne.udemgba@gov.sk.ca
Manitoba Securities Commission
Chris Besko
Acting General Counsel & Acting Director
Manitoba Securities Commission
(204) 945-2561
chris.besko@gov.mb.ca
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