New Take-Over Bid Rules Come into Effect
April 1, 2001
Significant changes to the procedures for take-over bids in Canada came into force on March31, 2001. These changes give effect to the recommendations of the committee of the Investment Dealers Association of Canada released on May13, 1996 (often referred to as the “Zimmerman Committee”).
In some provinces, the securities legislation has been amended to bring about the changes. In others, blanket orders are being issued as an interim step until the statutes can be updated. The new rules came into effect on March31 in all of the provinces except Quebec, where it will be necessary to either comply with the old rules or obtain an exemption until the securities legislation in Quebec catches up.
The following is a summary of the principal changes.
Minimum Deposit Period
The minimum deposit period under a take-over bid has been extended from 21 days to 35 days and bidders are prohibited from purchasing securities deposited to a bid until the 35 day period has expired. It remains to be seen whether the securities regulators will apply this time period strictly and dissolve a shareholders’ rights plan or “poison pill” 35 days following the launch of a hostile take-over bid. In 1999, the British Columbia, Alberta and Ontario securities commissions decided in the context of the offer by the Royal Host Real Estate Investment Trust for all the units of the Canadian Hotel Income Properties Real Estate Investment Trust that the shareholders’ rights plan adopted by CHIP REIT would be allowed to remain in effect for only 35 days following the making of the bid, in part, on the basis of this proposed legislative change.
Nevertheless, we expect that securities commissions will, as they did in the Royal Host case, continue to look at a range of factors in determining whether it is time to dissolve a pill. Companies considering an acquisition should not assume that a poison pill will necessarily be dissolved 35 days following the making of a hostile bid.
Commencing a Take-Over Bid
In addition to commencing a bid by the delivery of a take-over bid circular, a bidder is now allowed to commence its offer by publishing an advertisement containing a brief summary of the offer in at least one national daily newspaper. The bidder must, on or before the date of first publication of the advertisement, file the bid documents with the securities commission, deliver the documents to the target company and ask for a list of the target’s security holders. The offer must then be mailed to those securityholders within two business days after receipt of the list. This bid will be considered to have been commenced as of the date of first publication of the advertisement.
Under the old rules, a hostile bidder typically would have to wait 10 days before it would be provided with a list of the target company’s securityholders. There would then be a day or two while the bidder organized the mailing of its offer circular, and then the 21 day deposit period would start to run. With the new rules, a bidder will not have to wait to receive the shareholder list before commencing its bid, but the period of the bid will be longer. The net effect will be that target companies taken by surprise will have approximately the same amount of time, both before and after these new rules come into effect, to respond to a hostile bid.
Under the new rules, securities deposited pursuant to a bid can be withdrawn by the depositing shareholder at any time before the securities are purchased by the offeror. Previously, securities deposited could be withdrawn at any time before the expiration of 21 days from the date of the bid or after 45 days. Between the 21st and 45th days, tendering shareholders cannot withdraw their shares under the current rules. This change brings Canada into line with the withdrawal rights available in U.S. take-over bids.
Payment for Securities Taken Up
Any securities taken up by the offeror must be paid for within three business days under the new rules, not three calendar days as under the old rules.
The directors of the target company are now provided with an additional five days to respond to a take-over bid. They must deliver the directors’ circular within 15 days after the date of the bid, instead of the 10-day period under the old rules.
The new rules apply to any bid commenced after March31, 2001. Bids commenced prior to that date continue to be subject to the old rules.
As indicated above, the take-over bid rules in Quebec have not yet changed to dove-tail with the rest of Canada. Bill 57, an act to amend the Securities Act (Quebec), has been introduced in the Quebec National Assembly and is expected to be law in Quebec within the next few months. That Bill contemplates regulations also being enacted, the full effect of which is expected to be a harmonization with legislation in the other Canadian provinces. Pending passage of the Bill and the making of the contemplated regulations, it will be necessary for bidders and targets to comply with both regimes. Where differences between the regimes exist, the more onerous rules must be complied with.
The Quebec Securities Commission recognizes the difficulties that bidders may encounter in trying to comply with two sets of take-over bid rules. Accordingly, it has indicated that it is willing to entertain exemption applications to minimize those difficulties. We understand that Quebec’s intention is to grant relief so that bids in Quebec may comply with the new rules only. The Quebec Securities Commission has stated that exemptions will be considered on a case by case basis.
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