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Amendments to Take-Over Bid Rules: Rebalancing the Current Dynamic

On May 9, 2016, certain amendments to the take-over bid rules in Canada are expected to come into force. The amendments, which were first proposed in March 2015, are intended to rebalance the current dynamic among bidders, target boards and target securityholders in the context of hostile take-over bids by giving target boards more time to consider alternatives and facilitating voluntary, collective decision-making by target securityholders.

In Ontario, the amendments will come into force on the later of May 9, 2016 and the date that certain provisions of the Budget Measures Act, 2015 come into force. Any take-over bids commenced prior to May 9, 2016 will be governed by the current take-over bid rules.

The key amendments to the take-over bid rules will:

•   require that all bids contain a minimum tender condition of more than 50% of the outstanding securities of the target, other than securities beneficially owned or controlled or directed by the bidder or any of its joint actors;

•   require that the bid remain open for at least 105 days unless (i) the target board agrees to a shorter period of not less than 35 days, in which case all other contemporaneous bids must remain open for at least the same period of time, or (ii) the target accepts an alternative transaction, in which case all other contemporaneous bids must remain open for at least 35 days; and

•   require that the bid be extended for an additional 10 days after the 50% minimum tender condition and all other terms and conditions have been satisfied or waived.

The amendments are expected to make hostile take-over bids more challenging for bidders by increasing the costs and risks involved in hostile bids. The mandatory 50% minimum tender condition will make partial bids more challenging, as any bid will need to be accepted by a majority of the securityholders. Bids for “any and all” of a target’s securities will no longer be possible under the new rules.

With the 105-day minimum tender period, shareholder rights plans are expected to play less significant of a role in hostile take-over bids, to the extent they are used by target boards to buy time to consider alternatives.