CHAPTER 06 Directors’ Duties and Defensive Mechanisms
– Advance identification, analysis and planning, as well as negotiation with the seller, would be required. An acquisition can be extremely difficult to implement in the face of a bid, absent significant advance work. – Again, there must be a demonstrable business purpose, and the acquisition must be undertaken by the directors with a view to the best interests of the company, not primarily for the purpose of fending off the bid. STRATEGIC INVESTOR OR ALLIANCE – Such an investment or alliance could be in respect of all or any of the businesses owned by the target. – The transaction could be implemented through a private placement for cash or assets or through a private placement share exchange with a compatible company, resulting in interlocking shareholdings (with standstills). – TSX will require majority shareholder approval in the following circumstances: > More than 25% of the outstanding shares are issued at a price lower than the market price; > More than 25% of the outstanding shares are issued in exchange for assets or shares; > The transaction results in a new holding of more than 20% of the voting securities, or otherwise “materially affects control”; or > More than 10% of the outstanding shares are issued to insiders as a group. – Early identification of possible parties and analysis of the strategic rationale for any transaction would be important in demonstrating a proper business purpose. DEFENSIVE PRIVATE PLACEMENTS – A private placement of securities made in the face of an actual or impending takeover bid can be challenged before the Canadian securities regulators as an improper defensive tactic, as the issuance of shares by the target may make it difficult for the bidder to satisfy the 50% minimum tender condition. – In the 2016 decision of the Ontario and British Columbia securities commissions in Re Hecla Mining Company , the commissions established an analytical framework for determining when they will intervene to cease-trade a private placement. In summary, if the effect of the private placement is to impair the bid and the intention of the target in making the private placement was to alter the dynamics of the bid process, securities regulators will intervene if investor protection concerns outweigh the board’s business judgment in deciding to issue shares in the face of the bid. A more recent decision of the Ontario Capital Markets Tribunal, Mithaq Canada Inc (Re) , established that the bar for regulatory intervention is very high.
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