Lexpert US Guides

Corporate 2016

The Lexpert Guides to the Leading US/Canada Cross-Border Corporate and Litigation Lawyers in Canada profiles leading business lawyers and features articles for attorneys and in-house counsel in the US about business law issues in Canada.

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www.lexpert.ca/usguide-corporate/ | LEXPERT • June 2016 | 25 AFTER A NUMBER OF YEARS OF REVIEW and discussion, and after considering several different proposals, on February 25, 2016, the Canadian Securities Administrators (CSA) released the final version of new harmonized take-over bid rules. These new rules represent the most significant changes to the take-over bid landscape in Canada since the original adoption of the current take-over bid regime in 1966. This article reviews the background to the amendments, outlines the fundamental changes reflected in the new rules and considers a number of implications and issues that we anticipate will result from their adoption. MOTIVATING PRINCIPLES AND BACKGROUND TO THE NEW RULES The take-over bid landscape in Canada is shaped by the principle espoused by securities regulators that shareholders should be the ul- timate decision makers in determining whether to accept a take-over bid or not. That principle is, and continues to be, set out in National Policy 62-202 Take-Over Bids – Defensive Tactics ("NP 62-202") the predecessor of which (National Policy 38 – Take-Over Bids – Defen- sive Tactics ("NP 38")) was first adopted in 1986. The policies outlined in NP 62-202 form the basis for the well-es- tablished proposition that shareholder rights plans (poison pills) and other defensive tactics cannot be used to prevent shareholders from ultimately having the opportunity to tender to a take-over bid. NP 38 represented an "attempt by the provincial securities com- missions to regulate, but not to prohibit, target company defensive tactics. And it attempt[ed] to regulate in such a way that the inter- ests of the target shareholders are maximized," according to Stanley M. Beck and Rob Wildeboer in "National Policy 38 as a Regulator of Defensive Tactics," from the Meredith Memorial Lectures, 1987, Faculty of Law, McGill University. In other words, NP 38 was pri- marily focused on protecting the bona fide interests of target share- holders. This was consistent with the conclusion of the 1965 Ontario government-commissioned Kimber Report, which held that "the pri- mary objective of any recommendations for legislation with respect to the take-over bid transaction should be the protection of the bona fide interests of the shareholders of the offeree company." This shareholder-centric perspective of NP 38 and NP 62-202 has informed numerous decisions of Canadian securities commissions over the past decades that have, with few exceptions, cease-traded shareholder rights plans after a certain time period (generally 45 to 70 days) to allow a hostile bid to proceed. The old regime, girded by this regulatory approach, clearly favored bidders and significantly limited a target's ability to defend against hostile bids. In most cases, once a hostile bid was launched, some form of change of control transaction would become almost inevitable. After the destabilizing decisions of the securities commissions in Re Pulse Data Inc., 2007 ABASC 895 and in Re Neo Material Tech- nologies Inc. 2009 LNONOSC 638, which seemed to provide more power to the target board of directors, and the seminal decision of the Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, which confirmed that the fiduciary duty of di- rectors of Canadian companies is to act in the best interest of the com- pany (and not any one stakeholder group, including shareholders), a number of capital markets participants began to question whether the shareholder-centric approach to take-over bids unduly restricted the ability of boards to defend against hostile bids. These concerns were amplified by persistent concerns that the bidder-friendly nature of Canadian securities and corporate laws were contributing to the "hollowing out" of corporate Canada. In response, the CSA embarked upon a detailed review of the take- over bid rules to determine if any changes were needed to rebalance the competing interests of targets, their directors and bidders. Following this review, in March 2013 the CSA and the Québec Autorité des marchés financiers (AMF) published competing pro- posals to strengthen a target board's ability to respond effectively to a hostile bid. The new harmonized take-over rules have been released by the Canadian Securities Administrators. The new rules are an attempt to enhance the quality and integrity of the take-over bid regime and rebalance the dynamic between all bidders, target boards and target shareholders BY GESTA ABOLS, GRANT MCGLAUGHLIN AND MICHAEL PARTRIDGE; GOODMANS LLP TAKE-OVERS GET A MAKEOVER: A GUIDE TO THE NEW TAKE-OVER BID REGIME IN CANADA TAKE-OVER BID REGIME

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