* Regulators unveil two separate proposals on poison pills
* Proposals now open to public comment for a 90 day period
* Proposals could dramatically alter Canadian M&A landscape
By Euan Rocha
TORONTO, March 14 Canadian regulators unveiled
proposals on Thursday that are set to overhaul the country's
mergers and acquisitions regime and potentially make hostile
corporate takeovers more difficult.
The two sets of proposals, laid out by provincial securities
regulators, aim to bring more coherence to Canada's rules on the
use of poison pills. They follow divergent rulings by some
provincial regulators on the defensive gambits, which are widely
used to fend off unwanted suitors.
The proposed rules on poison pills come a just day after the
Canadian Securities Administrators (CSA), an umbrella group
representing provincial authorities, outlined plans to lower the
early warning reporting threshold, potentially reducing the odds
of a stealth attack on a publicly-listed Canadian company.
The measures could go a long way in altering the mergers and
acquisitions landscape in Canada, which has long been viewed as
offering little protection to Canadian companies that are faced
with hostile takeovers or stealth bids. The proposed rules will
bring Canada's M&A regime more in line with U.S. regulations.
"This represents one of the most far-reaching debates about
the acquisition of corporate control that we have had in this
country in almost the last 50 years," said Richard Steinberg,
who heads law firm Fasken Martineau's securities and mergers and
The proposed new regulations will curb dramatically curb the
ability of regulators to overturn a poison pill, and give target
companies more ammunition to fight hostile bids through the use
of the defensive maneuver.
Poison pills, or shareholder rights plans, effectively raise
the price of a hostile bid by giving existing shareholders,
excluding the hostile bidder, the right to buy more stock in the
target company at a discount.
Provincial securities regulators typically quash these pills
within 60 days, giving target companies a fairly narrow window
in which to look for an alternative proposal to a hostile bid.
But the lack of a single national securities watchdog has
muddied the waters in Canada as some provincial regulators, have
on occasion, issued divergent rulings on poison pills. Some have
let pills stand indefinitely, while others have overturned them
before shareholders have even voted on them.
The proposed changes come just as Alamos Gold Inc
attempts to overturn a pill put in place by Aurizon Mines Ltd
, which is the target of its C$780 million hostile bid.
Separately, Huntingdon Capital is fighting the target
of its hostile bid - KEYreit, over a similar issue.
The CSA proposes removing a regulator's ability to overturn
a poison pill, as long as a majority of the target company's
shareholders have ratified the gambit within 90 days of a board
adopting a pill, or if adopted after a bid has been made, within
90 days from the date the bid was commenced.
"The CSA proposal really strikes a balance from between the
appropriate role of boards, which is to put in a poison pill and
decide how to use it and the role of shareholders, which is to
decide whether or not they want the pill to be maintained," said
Naizam Kanji, who is deputy director of mergers and acquisitions
at the Ontario Securities Commission, which is one of the CSA's
most influential members.
The Autorité des marchés financiers (AMF) - the securities
regulator for the province of Quebec - outlined a separate plan
on Thursday, which it hopes will win more support than the one
being touted by the CSA.
Quebec's regulator wants to give more power to the boards of
target companies, allowing a board to put in place a shareholder
rights plan without shareholder consent. The Quebec regulator
says it would intervene only if it believes a board is abusing
"Our view is that we should look at what has happened in
Canada over the last 25 years and really change our approach to
these matters," Louis Morisset, the superintendent of securities
markets in Quebec, said in a phone interview. "The CSA approach
does not change anything or really empower boards of directors
in (hostile-takeover) situations."
The AMF proposal also seeks to tweak rules on tender offers
by ensuring that investors are not coerced into tendering shares
into an offer. Currently, in some instances, a bidder can take
up shares tendered into an offer and win majority control,
leaving the investors who did not tender their shares stuck in
an ill-liquid stock with no takeover premium. The AMF is seeking
to alter this by forcing bidders to extend their bid, thus
giving shareholders the latitude to not tender shares for fear
of getting shut out.
A 90-day period of public consultation will begin now that
the CSA and Quebec proposals have been published. The CSA and
AMF both have indicated that they would like to see either idea,
or a blend of both, be implemented across Canada as competing
rules in different provinces would not be ideal.
"Our goal is to have a consistent harmonized regime across
Canada," said Naizam Kanji, who is deputy director of mergers
and acquisitions at the Ontario Securities Commission, the CSA's
most influential member. "This is not an area in which you'd
want to have differing rules across the country."
The implementation of either set of proposals would make
hostile takeovers tougher in Canada, but regulators will first
have to sift through the feedback and try to come to a consensus
before outlining the final rules, and lawyers warn that this may
take many months.
"This process does move slowly," said David Woollcombe, a
partner with McCarthy Tétrault in Toronto. "This could happen by
the end of the year, but given the competing proposals I would
expect there would be lots of commentary and submissions to both
sets of regulators."