A new takeover bid regime outlined by Canadian regulators is set to dramatically extend the minimum offer period on hostile bids, potentially reducing hostile deal activity in a largely resource-driven Canadian market.
The new takeover rules, unveiled on Thursday by the Canadian Securities Administrators (CSA) an umbrella body made-up of all of Canada’s provincial securities regulators, will require that hostile bidders come in with fully financed bids and keep offers open for a minimum of 105 days, up from 35 days currently.
The existing regime does allow targets to buy time and extend the time period around hostile bids through the use of shareholder rights plans, or so-called poison pills. But lawyers have said the new rules could put a damper on hostile activity in the country, especially given that the majority of publicly listed companies in Canada are mining and energy companies, whose share prices fluctuate sharply with rapid moves in commodity markets.
“It will make hostile deals a little harder for sure,” said John Emanoilidis, co-head of law firm Torys‘ M&A practice. “This will motivate bidders to try to do a friendly deal, because with a friendly deal comes a shorter time period.”
Others contend the new regime, which will go into effect May 9, could lead to a pick-up in proxy battles.
“In a commodity driven jurisdiction, we believe a 105 day minimum will result in more bully M&A and proxy battles,” said Walied Soliman, a partner with Norton Rose and co-chair of the firm’s special situations team.
Soliman contends suitors, in these circumstances, may align themselves with groups of key investors in the target, and force the target’s board into negotiating, or risk a proxy battle.
Hostile bidders will also need a minimum of over 50 percent of the target’s shares, not already owned or controlled by them, to be tendered in favor of the offer, for a bidder to be able to close on the transaction.
The new regime does not give bidders the ability to walk away at the end of the 105 day period, if adequate shares have been tendered, but lawyers say hostile bidders can get around this issue by adding more conditions to their bids.
“If I was advising a hostile bidder under these new rules, I’d make sure they have enough conditions included to protect them and give them options,” said Krisztián Tóth, a partner with Fasken Martineau.
(Reporting by Euan Rocha; Editing by David Gregorio)
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