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.
Issue link: https://digital.carswellmedia.com/i/641619
54 LEXPERT MAGAZINE | MARCH 2016 | CONTESTED M&A | CSA's latest proposal to amend the hostile take-over rules. In September 2015, less than three months aer the CSA's com- ment period for the proposed new regime closed, Canadian oilfield services provider Total Energy Services Inc. announced a take-over bid for its competitor Strad En- ergy Services Ltd. Strad responded two days later by adopting a pill that required a take-over bid to remain open for 120 days in order to qualify as a permitted bid. Al- most immediately, Total withdrew its bid, stating that a 120-day period exposed it to an unacceptable level of risk in existing market conditions. "Total decided not to go ahead because of the uncertainty over that length of time," says John Emanoilidis of Torys LLP in Toronto. e future had confronted the past in a confrontation over the present. On this oc- casion, the future won: although Total had not contested Strad's defensive measure before regulators, the dampening effect of a proposed extended minimum bid period on hostile acquirers had been tested and proven on the ground. UNFORTUNATELY FOR TARGETS, however, regulators seemed unimpressed. In sepa- rate findings in November 2015, both the BCSC in Re Red Eagle and the ASC in Canadian Oil Sands (cases that Fraiberg calls "the swan song of poison pill hearings in Canada") refused to allow targets to ben- efit from the new proposals — or at least to benefit fully. e Alberta case arose from Suncor Energy Inc.'s unsolicited $4.3-billion take- regulatory orders to cease trade the pills within 60 days, although regulators have in some cases upheld much lengthier periods. e high-water mark is the 156-day shelf life that the BCSC accorded in May 2014 to Augusta Resource Corporation's rights plan in the face of a hostile bid from Hud- Bay Minerals Inc. By contrast, an extended 120-day, "just say slow" minimum period during which bids must remain open would allow other interested bidders a longer period to inter- vene, creating uncertainty for initial bid- ders, especially if they are hostile. e ex- tended uncertainty could also give boards more negotiating leverage. "Targets perceive the new rules as fa- vourable to them, so they've been asking themselves whether to jump the gun and adopt 120-day pills or whether the regula- tors would strictly apply the existing rules," Staley says. Doubtless, targets were encouraged by the BCSC's approval in 2014 of the land- mark 156-day period in Augusta Resource. Although the current proposals were not then in place, the CSA had published an earlier version that would allow a pill to re- main in place where it had been approved by shareholders on an annual basis or within 90 days of a bid. e Commission stoutly denied that the proposed new rule had governed its decision. Indeed, on close analysis, it becomes clear that Augusta shareholders' approval of the pill in the face of the HudBay bid was at the heart of the tribunal's reasoning. However that may be, it didn't take long for targets to seek advantage from the over bid for Canadian Oil Sands Limited (COS). e company originally structured its bid as a permitted bid under a pre-exist- ing COS poison pill. e bid was open for 60 days and featured a minimum tender condition of over 50 per cent that, if met, would require Suncor to extend its bid for a further 10 days. Suncor then put in a new pill that would keep the bid open for 120 days while it sought white knights. COS applied to the ASC for a cease-trade order. e ASC refused to allow COS the benefit of a 120-day minimum period but it also refused to allow Suncor to take up tendered shares aer 60 days. Instead, the Commission came up with a middle ground of 91 days as the appropriate life of the rights plan. e panel relied almost entirely on existing jurisprudence and took pains to point out that the new proposals had not yet been enacted. By contrast, the BCSC in Re Red Eagle ordered the termination of CB Gold Inc.'s rights plan. e pill had been approved by shareholders before Red Eagle's bid and implemented in response to that bid. At the time of the decision, the plan had been outstanding for 72 days. e different results in the two cases, however, don't necessarily indicate dif- ferent approaches. To begin with, the evi- dence was markedly different. e testimony in Re Red Eagle, where two competing bidders had emerged, strongly supported the conclusion that no further bidders would emerge with the pas- sage of time. By contrast, the evidence in COS was that the target was in discussions with four credible buyers, so that the exten- sion to 91 days could well produce a better offer than the one proffered by Suncor. From a larger perspective, however, it's arguable that neither decision applied the principles of the proposed new regime. "e ASC made a point of noting that the proposed amendments are not yet in force," says Fraiberg, whose firm represented COS. at's not to say that things haven't changed. "Canada's securities policymak- ers have all indicated that the traditional 45‒60 days isn't sufficient and in effect the ASC acknowledged that by leaving COS's rights plan in place for 91 days," Fraiberg points out. In the Re Red Eagle example, however, "THERE'S DEFINITELY room for manoeuvring in public bids, both in the planning stages and in deciding when to make the Investment Canada Act filing. These rules could also create a first-to-file advantage in auction scenarios." MICHELLE LALLY OSLER, HOSKIN & HARCOURT LLP