On February 25, 2016, the CSA released the final version of the long-awaited changes to the Canadian take-over bid regime. While the final rules are largely in line with the proposal that was released for comment almost a year ago, it is notable that the statutory minimum bid period has been shortened from 120 days to 105 days. To summarize, the new bid regime will now require:
- a 50% minimum tender requirement for all formal bids;
- a ten-day extension of the bid once the minimum tender requirement is satisfied and all other conditions of the bid have been satisfied or waived; and
- a minimum bid period of 105 days, subject to the target board’s ability to shorten the period.
The amendments will, for now, conclude the lengthy debate over striking the right balance between bidders and boards; however, it remains to be seen whether a 105 day minimum bid period will deter bidders from launching hostile bids in the first place.
As revealed in our 2015 Canadian Hostile Take-Over Bid Study, under the current regime, first-mover hostile bids succeeded almost 55% of the time, with that success rate materially impacted by the emergence of competition; first-mover bids succeeded only one-third of the time when competition emerged. To the extent that the increased minimum bid period enhances the ability of a target board to find alternatives and thereby increase competition, bidders may determine that the time and expense of launching a first-mover bid is not justified given their more limited odds of success.
We also note that the CSA have elected not to amend their policy on defensive tactics to include any commentary on whether the use of shareholder rights plans in the new regime is per se an improper defensive tactic. In that regard, it is not a stretch of the imagination to envision circumstances in which a board, in the exercise of its business judgment, adopts a rights plan with a permitted bid period lengthier than the new statutory minimum period. Given that the amendments have been designed for the express purpose of providing a board with more time, one might expect a securities regulator to conclude that the minimum bid period is also a sufficient period and therefore cease-trade the plan. However, the fact that the CSA chose not to foreclose the possibility that a board could treat the minimum bid period as a floor rather than a ceiling suggests that the outcome of a rights plan hearing in such circumstances is uncertain.
One of the CSA’s stated objectives in adopting the new rules is to “rebalance the current dynamics” among bidders, boards and shareholders. On that front, there can be no doubt that the board’s hand has been strengthened — how much this additional leverage will impact hostile bid activity and M&A more generally remains to be seen. We will be following this closely.