66 LEXPERT MAGAZINE
|
NOVEMBER/DECEMBER 2017
| TACTICAL PRIVATE PLACEMENTS |
For all intents and purposes, then, the
poison pill defence to unsolicited bids now
teeters on irrelevance. Indeed, not a single
poison pill dispute has featured in any
hostile-bid proceeding since the adoption
of the new regime. "With the exception,
perhaps, of using them to prevent creeping
takeovers [where a party loath to make a
hostile bid seeks to accumulate a position
by buying shares in the market over a per-
iod of time], poison pills are no longer an
effective strategy," says David Woollcombe
of McCarthy Tétrault LLP in Toronto.
The M&A community has generally
regarded the regime changes as favouring
targets. "Time is a target's best weapon,
and the extension of the minimum bid pe-
riod gives them just that without having to
resort to anything else," Woolcombe says.
Besides, it's not as if other defensive tactics
are not available. "Everyone predicted that
defensive tactics other than poison pills
would become common under the new re-
gime," Emanoilidis says.
e flavour of the day appears to be the
tactical private placement, a strategy that is
hardly new to Canada but eventually lost
favour as poison pills gained popularity.
For a number of reasons, however, tactical
private placements have re-emerged under
the new bid regime. "Among other things,
the 105-day minimum deposit period pro-
practical only in the case of small-cap issu-
ers, or where a small number of shares are
required to achieve a target's objectives.
"For a large cap, a private placement isn't
likely to amount to more than a round-
ing error in calculating the share capital,"
Woollcombe says.
ere is, however, another, bigger prob-
lem with private placements. ey are sub-
ject to scrutiny under securities regulators'
"public interest" jurisdiction. Whether any
such placement will pass muster is a diffi-
cult question. "Private placements, unlike
rights plans, can serve purposes — such
as the legitimate need for financing — be-
yond simply blocking a bid that may benefit
the target and its shareholders," Sunstrum
says. "So, for this and other reasons, secur-
ities regulators have expressed the need for
caution when intervening in private place-
ments on public interest grounds."
en there's the uncertainty created by
the fact that the various provincial secur-
ities regulators have been somewhat less
than consistent in their approaches to de-
fensive tactics and the parameters of their
respective public interest jurisdictions. For
example, the BC Securities Commission
decision in Re Red Eagle, 2015 BCSEC-
COM 401, and the Alberta Securities
Commission's ruling in Re ARC Equity
Management, 2009 ABASC 390, which
allowed private placements to proceed in
the context of contested bids, stand in con-
trast to the 2012 rulings in AbitibiBowater
v. Fibrek from in Québec, 2012 QCBDR
95, and Re Inmet Mining Corp. from BC,
2012 BCSECCOM 409, where the private
placements were cease-traded.
Fortunately, in Re Hecla Mining Co.
(2016 ONSEC 32) and Re Dolly Varden
Silver Corp. (2016 BCSECCOM 268), the
first decisions under the new regime, the
Ontario Securities Commission (OSC)
and the British Columbia Securities Com-
mission (BCSC) went some way to estab-
lishing greater certainty about how regula-
tors would approach private placements.
Because the new regime did not address
defensive measures other than poison pills,
the relatively small transaction, involv-
ing some $12 million, drew national at-
tention. It raised squarely the question of
whether private placements could serve a
more prominent tactical purpose as a de-
fensive tactic under the new regime than
vides significantly more time to execute a
private placement before a bid's expiry,"
says Chris Sunstrum, a partner in the To-
ronto office of Goodmans LLP.
"As well, the inability of bidders to waive
the 50-per-cent minimum tender condi-
tion may enhance the tactical effective-
ness of private placements that withstand
regulatory scrutiny," he says. "And, finally,
the extended timeline and increased uncer-
tainty in the outcome of a bid may make
boards more reluctant to risk deferring or
forgoing currently available opportunities
— which may involve private placements
— that they believe are in the corporation's
best interests."
Tactical private placements can achieve
a number of purposes. Here the manda-
tory majority tender requirement comes
into play. "What this threshold has done
is to put the decision in the hands of the
shareholders collectively because no one
shareholder can tender to the bid unless 50
per cent do," says Patricia Olasker in Davies
Ward Phillips & Vineberg LLP's Toronto
office. "at makes private placements very
attractive as a way of preventing the bidder
from reaching the threshold 50 per cent."
Private placements can also stand in the
way of a bidder's goal of privatizing a public
company. "Even if the bidder gets to 50 per
cent, an acquirer needs 66.67 per cent to be
assured of taking a company private," says
Jeremy Fraiberg in Osler, Hoskin & Har-
court LLP's Toronto office. ey can also
increase bidders' costs by forcing them to
buy the newly issued stock at what is likely
a premium to the market price. And, final-
ly, the increased financing could lure in a
superior proposal to the existing bid.
But private placements have their limita-
tions: investor demand for the placement
simply may not exist, and even if it does,
the placement may not advance a target's
goals. Moreover, private placements are
PATRICIA OLASKER
>
DAVIES WARD PHILLIPS & VINEBERG LLP
"Dolly Varden has resolved some of the confusion
that had developed in the jurisprudence. The decision knits
all the principles together in a way that makes them coherent
and sets out a protocol for approaching the issue."
