CANADA: CSA consultation on hostile Canada takeovers

Thursday March 14 2013

CSA consultation on hostile Canada takeovers. The Canadian Securities Administrators have published for comment proposed National Instrument 62-105 Security Holder Rights Plans, on the treatment of rights plans in Canada that would provide a target company’s board and shareholders with greater discretion in the use of such plans.

The proposed rule addresses concerns about the ability of a company’s board to respond to an unsolicited Canada take-over bid by implementing a rights plan, while ensuring that shareholders support the use of the rights plan. The proposed framework would allow a rights plan adopted by a board to remain in place provided majority shareholder approval of the rights plan is subsequently obtained within specified time frames. Shareholders would also be able to terminate a rights plan at any time by majority vote.

A rights plan deters a bidder from taking up and paying for target shares by granting shareholders of the target company, other than the bidder, the right to purchase additional shares at a significant discount if an acquirer exceeds a specified share ownership threshold.

The CSA proposes that regulators do not intervene to cease trade a rights plan that has complied with the proposed framework. Under the existing rules, securities regulators generally cease trade a shareholder rights plan after a limited period of time once the rights plan has given the target board sufficient time to respond to the bid.

The comment period is open until June 12, 2013.

Click on the above link for the consultation. Click here for the CSA press release.