On February 25, 2016, the Canadian Securities Administrators (CSA) published the amendments to:

  • Multilateral Instrument 62-104 Take-Over Bids and Issuer Bid (MI 62-104);
  • National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues (NI 62-103); and
  • National Policy 62-203 Take-Over Bids and Issuer Bids (NP 62-203).

Changes to the Early Warning Regime

Amendments were made to the early warning reporting regime as set out in MI 62-104, NI 62-103 and NP 62-203. In Ontario, amendments were also made to Part XX of the Securities Act (Ontario) respecting the early warning regime and OSC Rule 62-504 Take-over and Issuer Bids (OSC Rule 62-504) (together the Early Warning Amendments).

The Early Warning Amendments came into effect on May 9th, 2016. Ontario has adopted the NI 62-104 and OSC Rule 62-504 has been repealed.

According to the CSA, the Early Warning Amendments provide greater transparency about significant holdings of reporting issuers’ holdings under the early warning system and address growing concerns regarding hidden ownership and empty voting.

The Early Warning Amendments:

  • require disclosure of decreases in ownership, control or direction of 2% or more;
  • require disclosure when ownership, control or discretion falls below the 10% threshold;  
  • exempt lenders from including securities lent or transferred for the purposes of determining the early warning reporting threshold trigger if they lend securities pursuant to a specified securities lending arrangement;
  • require disclosure regarding the material terms of any related financial instruments, any securities lending arrangements, and other arrangements or agreements involving securities;
  • make the alternative monthly reporting system unavailable to eligible institutional investors who solicit proxies from securityholders in order to contest director elections, reorganizations, amalgamations, merger arrangements or similar corporate actions involving the securities of the reporting issuer;
  • require disclosure in the early warning report of an interest in a related financial instrument, a securities lending arrangement, and other agreement, arrangement or understanding in respect of a security of the class of securities for which disclosure is required;
  • enhance the disclosure in the early warning report by requiring more detailed information regarding the intentions of the acquiror and the purpose of the transaction;
  • require the early warning report to be certified and signed;
  • clarify the timeframe to issue and file a news release and an early warning report (to be issued no later than the opening of trading on the next business day); and
  • further streamline the information required in a news release filed in connection with the early warning reporting requirements.

The Early Warning Amendments also clarify the application of early warning reporting requirements to certain derivative arrangements and to securities lending arrangements. The CSA opted to retain the 10% reporting threshold (rather than reducing it to 5% as was earlier proposed.)

The forms setting out the required disclosure have also changed. Please see new forms 62-103F1, 62-013F2 and 62-103F3.

Changes to the Take-Over Bid Regime

The CSA adopted amendments to the regime governing the conduct of take-over bids set out in MI 62-104 and changes to NP 62-203 which governs take-over bids and issuer bids. In Ontario, amendments will also be made to Part XX the Securities Act (Ontario) and OSC Rule 62-504 (together the Take-Over Bid Amendments). The Take-over Bid Amendments came into effect on May 9th, 2016.

According to the CSA, the Take-over Bid Amendments will 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 Take-over Bid Amendments will require that all non-exempt take-over bids:

  • 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);
  • 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); and
  • remain open for a minimum deposit period of 105 days unless

(a) the offeree board states in a news release a shorter deposit period for the bid of not less than 35 days, 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 intends to effect, pursuant to an agreement or otherwise, a specified alternative transaction, in which case all contemporaneous take-over bids must remain open for a deposit period of at least 35 days.

There are certain exceptions to the 105 day deposit requirement including where the target announces that it has agreed to be acquired pursuant to a plan of arrangement or similar corporate transaction and bids outstanding at the time of the announcement and future bids commenced before the completion of the transaction or the expiry of any other previous bid will be subjct to a 35 day deposit period. Under the previous regime non exempt take-over bids only remained open for 35 days and there were no minimum tender requirements or an extension requirement once the bidder had taken up deposited securities.

No amendments are being made to National Policy 62-202 Defensive Tactics which will continue to apply. The CSA noted that “Securities regulatory authorities will be prepared to examine the actions of the offeree boards in specific cases, and in light of the amended bid regime, to determine whether they are abusive of security holders rights.” 

For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.

This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.