LEXPERT MAGAZINE
|
MARCH 2016 55
| CONTESTED M&A |
it is the case that the BC Securities Com-
mission refused to extend CB's rights plan
beyond the date of the Commission's order.
Still, the decision appears to reflect the gen-
eral mindset of policymakers.
"e Commission would not give ef-
fect to forward-looking arguments about
extending the rights plan that would have
affected the potential auction between the
competing bidders who had already come
forward," says David Brown of Stikeman
Elliott LLP in Vancouver, who represented
CB Gold. "In that way, Red Eagle is consis-
tent with the relatively non-interventionist,
hands-off philosophy behind the proposed
new rules, and the COS decision was ren-
dered in the same spirit."
Indeed, although the BC Securities
Commission was clear in Re Red Eagle that
it was "not bound" by the proposed amend-
ments, it did not rule out that proposition
that unenacted proposals could be adopted
in different circumstances.
"We were mindful of the policy issues
raised by these proposals; however, we
elected not to follow the proposed amend-
ments for the reasons that follow," the
Commission explained.
ose reasons included Red Eagle's rep-
resentation that, if the rights plan was cease
traded, it would proffer a secondary 10-day
offering period in the event that it took up
any shares under its initial bid — a repre-
sentation that, somewhat ironically, mir-
rored another important provision of the
proposed amendments that would require
the 10-day extension in all cases in which
the minimum tender requirement had
been met.
"Considering this representation, the
length of time that the Red Eagle Offer
had been open, the evidence that Red Ea-
gle would not extend its bid, there being no
reasonable possibility (let alone likelihood)
of other alternative transactions and no le-
gitimate purpose for continuing the Plan,
we granted Red Eagle's application and
ordered that the Plan be cease traded im-
mediately from the date of our order," the
Commission stated.
SKEPTICS MIGHT ARGUE that both the
BCSC and the ASC tried to have the CSA
proposal cake and eat it too. e less polite
might say that both decisions smack of
being mealy-mouthed. ey might be right,
and it doesn't augur well for stakeholders in
a market in which continuing uncertainty
can only undermine efficacy.
On the one hand, the BC Securities
Commission shot down a rights plan aer
72 days but at the same time suggested that
regulatory proposals supporting a 120-day
plan could be applied in other circum-
stances. For its part, the ASC allowed a
rights plan to exist for 91 days in the face
of a bid that was open for 60 days and a
regulatory scheme that mandated a 35-day
minimum, at the same time blithely and
impliedly insisting that the proposal hadn't
influenced the decision because the 120-
day amendment wasn't in force.
It is not, aer all, an exaggeration to sug-
gest that securities regulators are there to
inspire confidence, a state of mind that cer-
tainty surely promotes. It would be a shame
if, aer creating the chaos that necessitated
the amendments, the Canadian Securi-
ties Administrators didn't hasten to bring
some order back into the
M&A world.
Julius Melnitzer is a freelance
legal-affairs writer in Toronto.
INVESTMENT CANADA
ACT RULES ANOTHER WRINKLE
QUITE APART FROM the Canadian Securities Administrators' proposed changes to Canada's
take-over regime, changes made in 2015 to the method calculating the threshold for determining
whether net benefit review under the Investment Canada Act is required could add some strategic
wrinkles to take-over tactics.
"There's definitely room for manoeuvring in public bids, both in the planning stages and
in deciding when to make the ICA filing," says Michelle Lally of Osler, Hoskin & Harcourt LLP
in Toronto. "These rules could also create a first-to-file advantage in auction scenarios."
The new regulations change the basis for calculating the threshold for mandatory net benefit
review from "book value," readily ascertained from financial statements, to "enterprise value"
in the hope that it will attach a more current market value to the target.
What's important from a strategic perspective, however, is that for the purposes of the ICA,
enterprise value is calculated as of the date of the ICA filing.
"Because enterprise value is effectively linked to the share price of a company, we could have
situations where share fluctuations change the ICA status in the sense that the target might meet
the net benefit threshold at one point in time but not at another," says Omar Wakil in the Toronto
office of Torys LLP.
Enterprise value is frozen at the date of the ICA filing – but only for the bidder filing – so potential
acquirers' reviewability status could differ.
"The ICA process is now more than ever a material risk factor for consideration, and could
certainly affect the valuation of targets," says Subrata Bhattacharjee in the Toronto office of Borden
Ladner Gervais LLP.
Auction scenarios are perhaps most likely to be affected, particularly where there are multiple
bidders involved.
"Where the announcement of a first bid has the effect of increasing the target's share price,
it may result in an uneven playing field amongst foreign bidders," Lally explains. "While the first
bidder would not be subject to ICA review, if there is a significant time gap in between bids such
that enterprise value has increased as a result of the first offer, the subsequent bidders may
be subject to ICA review if the enterprise value threshold is exceeded."
Arguably, if the CSA proposal for a minimum 120-day bid period is adopted, the likelihood
of a "significant time gap in between bids" could well increase, aggravating this anomaly in the ICA.
As well, if the bidding goes up beyond the threshold, bidders who upgrade their offer beyond
the threshold will still maintain the exempt status proffered by their original below-the-threshold bid.
On the bright side, it's not as if day-to-day fluctuations in share price will be determinative.
"Enterprise value is calculated using a market cap based on the last 20 days of the month
preceding the month of the ICA filing, so an April filing would look to the end of February," Wakil says.
