Shareholder rights plan cannot be attacked by a former bidder
February 28, 2007
Edward P. Kerwin
(Imperial Metals Corporation, CAT – Gold Corporation, and bcMetals Corporation, (British Columbia Securities Commission, November 10, 2006 and December 4, 2006)
Imperial commenced a take-over bid to purchase all of the issued and outstanding common shares of bcMetals. bcMetals adopted a shareholder rights plan. Imperial applied to the British Columbia Securities Commission under section 161(1) of the Securities Act for an order cease trading bcMetals’ shareholder rights plan. bcMetals applied to the Commission under section 114 of the Securities Act for an order restraining Imperial from taking up and paying for the common shares deposited under Imperial’s offer and not withdrawn and requiring Imperial to provide additional disclosure and withdrawal rights. The Commission determined that Imperial did not have standing to bring its application and denied bcMetals’ application
Imperial Metals Corporation and its subsidiary CAT-Gold Corporation (together “Imperial”) issued a press release on September 8, 2006 announcing its intention to make an offer to purchase for cash all of the issued and outstanding common shares of bcMetals Corporation (“bcMetals”). Imperial mailed and filed its formal take-over bid and related take-over bid circular on September 27, 2006, with an expiry date of November 2, 2006.
On October 19, 2006, bcMetals adopted a shareholder rights plan, which precluded Imperial from acquiring more than 20% of bcMetals shares other than in compliance with the plan that required an offer to be open for acceptance for 60 days in order to qualify as a permitted bid.
Prior to the expiry of Imperial’s bid, another company announced its intention to make a bid for bcMetals at a higher price per share than the price offered by Imperial. Imperial waived the conditions to its bid and took up about 10% of bcMetals shares that had been deposited and not withdrawn, thereby increasing its ownership to 18.09% of bcMetals shares. After the take-up on November 2, Imperial extended its bid to November 14, 2006.
On November 3, 2006, Imperial applied to the British Columbia Securities Commission under section 161(1) of the Securities Act, RSBC 1996, c.418 (the “Act”) for an order to cease trade the shareholder rights plan of bcMetals so that Imperial could take up additional bcMetals shares under its extended bid without triggering the rights plan.
On November 6, 2006, bcMetals applied to the Commission under section 114 of the Act for an order that Imperial comply with the Act and give holders of bcMetals shares taken up by Imperial the right to withdraw from the bid.
On November 8, 2006, Imperial announced the termination of its bid due to certain risks and uncertainties arising from the enactment by bcMetals of the rights plan.
The issues were:
Whether Imperial had standing, having terminated its bid, to apply for an order under section 161(1) of the Act to cease trade the bcMetals rights plan.
Whether Imperial should be restrained by the Commission from taking up and paying for bcMetals shares that were deposited and not withdrawn before Imperial extended its offer; whether Imperial should be directed to deliver to the shareholders of bcMetals, who had deposited and not withdrawn their shares, notices of change and variation of its bid after the waiver of conditions and extension of its bid; and whether Imperial should be directed to grant rights of withdrawal to bcMetals shareholders whose shares had been taken up under Part 13 of the Act.
Having terminated its bid, Imperial did not have standing to apply for an order under section 161(1) of the Act to cease trade the bcMetals rights plan. On an application, the question for the Commission is whether the plan has served its purpose (to give the target’s directors time to fulfill their duty to maximize shareholder value) and it is therefore time for the plan to go. Once Imperial had terminated its bid, it could not be said that its interests as a bidder continued to be affected by the rights plan. The Commission also observed that it will rarely be “in the public interest” to allow a shareholder who is not making a take-over bid to ask the Commission to cease-trade a rights plan.
The Commission found that Imperial had complied with the Act at each of three stages. The Commission refused the application of bcMetals.
On the waiver of all conditions that had not been met prior to expiry of the bid, Imperial was required to deliver a notice of variation under section 108(4) of the Act to every person to whom the take over bid circular was required to be delivered and whose shares had not been taken up at the date of variation.
As the Imperial offer was an all-cash bid, due to section 108(6), the requirement to deliver a notice of variation under section 108(4) did not trigger the requirement in section 108(5) to extend the period for deposit of securities.
Under section 105(c) of the Act, the prescribed period of 35 days having expired, Imperial had the right to take up the shares deposited and not withdrawn, after the waiver of conditions. There was no right of withdrawal under section 105(d)(ii) because there was no prescribed period of extension from the date of the notice of variation.
Before extending its bid, Imperial took up the deposited shares as was required under section 105(l) of the Act. Imperial then delivered a notice of extension and variation, as required.
The Commission also rejected bcMetals’ submissions that Imperial should have informed shareholders what it intended to do with respect to any matter that might flow from triggering the rights plan and found that Imperial had no obligation under the Act to deliver a notice of change because of the rights plan.
Post-Note: Imperial mailed and filed a formal take-over bid circular dated January 3, 2007 for a new offer to purchase for cash all of the issued and outstanding common shares of bcMetals at a slightly higher price. This new offer was supported by bcMetals and was recommended by the board of directors of bcMetals for acceptance by the shareholders.
Securities Regulation & Investment Products