Lexpert Magazine

Nov/Dec 2017

Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.

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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."

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