By Euan Rocha
TORONTO, March 14 Canadian regulators unveiled
proposals on Thursday on the use of poison pills as a takeover
defense that are likely to make hostile corporate takeovers in
the country more difficult.
The two sets of proposals, laid out by provincial securities
regulators, aim to bring more coherence to Canada's regulatory
regime after conflicting rulings by some provincial regulators
on poison pills, which companies use to fend off unwanted
The plans will curb drastically the ability of regulators to
overturn a poison pill, and give companies more ammunition to
fight hostile bids through the use of the defensive maneuver.
"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
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.
Canadian provincial securities regulators typically quash
these pills within two months, giving companies only a narrow
window in which to look for an alternative proposal to the
But the lack of a single national securities watchdog has
muddied the waters in Canada as individual provincial regulators
have on occasion issued varied rulings on poison pills. Some
have allowed the pills to stand indefinitely, while others have
overturned them before shareholders have had a chance to vote on
The Canadian Securities Administrators (CSA), an umbrella
group representing provincial authorities, proposes removing a
regulator's ability to overturn a poison pill, provided a
majority of the target company's shareholders have ratified the
The Autorité des marchés financiers - the securities
regulator for the province of Quebec - outlined a separate
proposal 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 only intervene 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 implementation of either set of proposals would make
hostile takeovers tougher in Canada, which has long been viewed
as offering weak protection to companies in such situations.
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."