On March 31, 2015, the Canadian Securities Administrators (“CSA”) published, for a 90 day comment period, proposed amendments to Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids (“MI 62-104”) and changes to National Policy 62-203 Take-Over Bids and Issuer Bids (“NP 62-203”) (“Proposed TOB Amendments”).
Currently, MI 62-104 governs take-over bids and issuer bids in all jurisdictions of Canada, except Ontario. In Ontario, substantively harmonized requirements for take-over bids and issuer bids are set out in Part XX of the Securities Act (Ontario) (“OSA”) and Ontario Securities Commission Rule 62-504 Take-Over Bids and Issuer Bids (“62-504”). NP 62-203 applies in all jurisdictions of Canada. MI 62-104, the OSA, 62-504 and NP 62-203 are referred to as the “take-over bid rules”.
The OSC intends to seek legislative amendments to the OSA to accommodate the adoption of the Proposed TOB Amendments in Ontario.
According to the CSA, the Proposed TOB Amendments are designed “to enhance the quality and integrity of the take-over bid regime and rebalance the current dynamics among offerors, offeree issuer boards of directors (“offeree boards”), and offeree issuer security holders by (i) facilitating the ability of offeree issuer security holders to make voluntary, informed and co-ordinated tender decisions, and (ii) providing the offeree board with additional time and discretion when responding to a take-over bid.
The following outlines the Proposed TOB Amendments for all non-exempt take-over bids:
Minimum Tender Requirement
Under the Proposed TOB Amendments, Offerors will be required to receive tenders of more than 50% of the outstanding securities of the class that are subject to the bid, excluding securities beneficially owned, or over which control or direction is exercised, by the offeror or by any person acting jointly or in concert with the offeror (“Minimum Tender Requirement”).
The Minimum Tender Requirement will establish a mandatory majority acceptance standard for all take-over bids, whether a bid is made for all or only a portion of the outstanding securities. The purpose of the majority standard is to address the current possibility that control of, or a controlling interest in, an offeree issuer can be acquired through a take-over bid without a majority of the independent security holders of the offeree issuer supporting the transaction if the offeror elects, at any time, to waive its minimum tender condition (if any) and end its bid by taking up a smaller number of securities.
10 Day Extension Requirement
The Proposed TOB Amendments require that the offer be extended by the offeror for an additional 10 days after the Minimum Tender Requirement has been achieved and all other terms and conditions of the bid have been complied with or waived (“10 Day Extension Requirement”);
Currently, offerors are not required to extend their bids after they have taken up offeree issuer securities and there is no formal mechanism for offeree issuer security holders to coordinate their actions in the bid context. As a result, offeree issuer security holders make tender decisions without knowing what other security holders will do and with the awareness that the offeror can always elect to waive its minimum tender condition (if any) and end its bid by taking up a smaller number of securities, thereby altering the future control of the offeree issuer. This situation creates “pressure to tender” or coercion concerns since security holders may tender to the take-over bid or sell in the market not because they support the bid but because they are afraid of being “left behind” if the offeror obtains sufficient tenders from other security holders.
The 10 Day Extension Requirement addresses the “pressure to tender” concern by protecting the security holder’s ability to tender whether or not it supports the bid in the first instance. As well, by mitigating coercive dynamics in the tender process, the 10 Day Extension Requirement enhances the quality and integrity of the collective majority security holder decision on whether or not to approve the bid.
120 Day Requirement
The Proposed TOB Amendments require that the offer remain open for a minimum deposit period of 120 days (“120 Day Requirement”) unless:
(a) the offeree board states in a news release a shorter deposit period for the bid of not less than 35 days that is acceptable to the offeree board, in which case all contemporaneous take-over bids must remain open for at least the stated shorter deposit period, or
(b) the issuer issues a news release that it has agreed to enter into, or determined to effect, a specified alternative transaction, in which case all contemporaneous take-over bids must remain open for a deposit period of at least 35 days.
The first exception is available where an offeree board issues a news release in respect of a proposed or commenced take-over bid stating a deposit period for the bid of not less than 35 days that is acceptable to the offeree board. In this circumstance, the bid regime would provide that the minimum deposit period for the subject bid must be at least the number of days from the date of the bid as stated in the news release, instead of 120 days from the date of the bid.
The second exception covers the situation where an issuer issues a news release announcing that it has agreed to enter into, or determined to effect, an “alternative transaction” (being, generally, a plan of arrangement or similar change of control transaction to be approved by security holders of the issuer). In this case, the minimum deposit period for any then-outstanding take-over bid or subsequent take-over bid commenced before the completion of the alternative transaction must be at least 35 days, rather than 120 days, from the date of the bid.
The 120 Day Requirement is intended to provide offeree boards with a longer, fixed period of time to consider and respond to a take-over bid. The current take-over bid regime mandates a minimum 35 day deposit period. Where a board has adopted a security holder rights plan (a Rights Plan) to prevent a bid from being completed after 35 days, securities regulators have typically cease-traded the Rights Plan approximately 45-60 days after the commencement of the bid. The 120 Day Requirement responds to the concern, that offeree boards do not have enough time to respond to unsolicited take-over bids with appropriate action, such as seeking value-maximizing alternatives or developing and articulating their views on the merits of the bid.
The comment period closed on June 30, 2015