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28 | LEXPERT • June 2016 | www.lexpert.ca/usguide-corporate/ position may not represent the same kind of downside protection for a hostile bidder as it did under the old regime). RIGHTS PLANS WILL HAVE LIMITED UTILITY The new rules give all companies the benefit of what is effectively a statutory shareholder rights plan but subject to the 105 Day Require- ment instead of the 60-day bid period currently required for a "per- mitted bid" under most rights plans. There should therefore no lon- ger be any need for targets to adopt "tactical" rights plans in the face of a hostile bid and the securities regulators will no longer be regularly called upon to determine if the time has come for "the pill to go." Does this mean that poison pills will disappear from the Canadian landscape altogether? Probably not. At the very least, rights plans will still be used to prevent "creeping" take-over bids and could also po- tentially be used to prohibit partial bids. (The new rules did not ad- dress the ability of a bidder to use exemptions from the formal bid re- quirements to build a 20 per cent-plus ownership position in a target without making a formal bid to all shareholders.) For these reasons alone, we expect that issuers will continue to adopt and maintain rights plans, although the "permitted bid" provisions of rights plans (both existing and new) will likely need to be updated to make them consistent with the new rules. A more interesting question is whether, under the new rules, there is any room for a target to use a rights plan to extend the bid period beyond 105 days. For example, if after 105 days the target board be- lieves it is close to securing an alternative transaction but needs more time to complete negotiations, could it adopt a rights plan to hold the hostile bidder off for a bit longer? The new rules do not provide any guidance on the continued use of rights plans, leaving that possibility open, but we expect that the regulators will have very little or no toler- ance for the continued use of tactical rights plans except in highly un- usual circumstances. In particular, if a target adopts a tactical rights plan to extend the 105-day bid period and the bidder applies for a "cease-trade" order in respect of the plan, we do not expect that, in that context, the regulators would apply the traditional "Royal Host" analysis (i.e., has the time come for the pill to go?). Instead, we believe the target company would bear the burden of providing compelling evidence as to why the pill should be permitted, notwithstanding the significant protections already provided by the new rules. OTHER DEFENSIVE TACTICS Since tactical rights plans will be of limited use against hostile bids, we expect target boards to increasingly focus on deploying other de- fensive tactics against a hostile bid. In particular, the Minimum Tender Condition makes the "tactical private placement" a very effective response to a hostile bid. By plac- ing additional shares into the hands of a "friendly" shareholder, the target can make it more difficult for the hostile bid to succeed and the longer bid period will provide more opportunities for the target to structure and implement "defensive" financing transactions. We expect that considering these kinds of financings will become part of the standard defensive tactics playbook under the new rules. The new rules do not include any changes on defensive tactics generally and confirm that the shareholder-centric principles of NP 62-202 continue to apply. This suggests that regulators would inter- vene if a private placement prevented shareholders from tendering to a bid. Historically, however, regulators have generally been reluctant to interfere with private placements as long as the target can estab- lish a legitimate business purpose for the financing, which in practice has not been difficult to do. (See, for example, our December 1, 2015 Goodmans Update, BCSC Permits Private Placement in Face of a Hostile Bid.) It is possible that under the new rules the CSA may hold tactical private placements to a higher standard, though there are practical challenges to CSA intervention in that the "blunt instrument" of the cease-trade order may not be effective against a private placement that has already closed. This may mean that bidders are forced to look elsewhere – such as the TSX or the courts – if they wish to challenge a private placement by the target. TIMING ISSUES The new rules are not intended to address timing differences be- tween competing transactions. For example, as is currently the case, if the target secures a white-knight offer close to when a hos- tile bid is set to expire, the hostile bidder is permitted to maintain its timing advantage and target shareholders must choose between the bird in hand (the hostile bid) and the potential of two in the bush (the white knight). There are, however, some circumstances where the new rules can potentially create timing differences between two competing offers. For example, if a target company announces an "alternative transac- tion" (such as an arrangement), the 105-day bid period for a compet- ing take-over bid would be shortened to 35 days. If this were to occur in circumstances where, due to regulatory, financing or other reasons, a hostile bid could be completed faster than the white-knight trans- action, the hostile bidder may gain a timing advantage. In contrast, if the white-knight transaction is structured as a bid, the hostile bid period could never be shorter than the white-knight bid period (e.g., if the white-knight bid had a 90-day bid period, the hostile bid would have to be open for at least 90 days). Although we do not believe that timing considerations will drive transaction structures in most cases, there may be circumstances where a friendly transaction should be structured as a bid in order to reduce the chances that a subsequently announced competing bid gains a timing advantage. NEW RULES, SAME JURISDICTIONAL ISSUES? Although the new rules will be adopted across the country, they will – like all other securities laws – be applied and enforced at the provincial level. There is no guarantee that each provincial securities commission will implement the rules in the same manner in the same circumstances. For instance, certain jurisdictions may be more open to extending the 105-day bid period through the use of a poison pill in unique circumstances and may take different views on the use of other defensive tactics such as private placements. As discussed above, the AMF's original proposal would have given target boards much more freedom to resist hostile bids. This suggests that it may be some- what more open to allowing the continued use of tactical pills than other regulators. While we hope that this can be avoided, inconsistent decisions on issues arising under the new rules would create uncertainty for mar- ket participants much like the situation that evolved in the context of poison pill hearings. CONCLUSION The new rules will profoundly change the manner in which take- over bids are conducted in Canada and the securities regulators' role Although the new rules will be adopted across the country, they will – like all other securities laws – be applied and enforced at the provincial level. TAKE-OVER BID REGIME

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