CHAPTER 05 Public Mergers & Acquisitions
Unsolicited (or Hostile) Acquisition
to U.S. ones, remain unlikely to simply “just say no” in the face of an unsolicited offer. In light of the inability of Canadian target companies to utilize structural defences for an extended period of time, the success of an unsolicited bid will depend primarily on whether the target company is able to find a superior alternative transaction or to otherwise convince the shareholders to reject the bid. The most typical response of a Canadian company subject to an unsolicited takeover bid is to conduct an auction process or market check to seek superior alternatives. Less commonly, a target company may seek to enhance shareholder value through alternative means such as a recapitalization, spinoff or strategic alliance. Any defensive tactic that denies or materially limits the ability of shareholders to respond to a bid will likely be scrutinized by Canadian securities regulators. A shareholder rights plan or “poison pill” has traditionally been the primary defensive mechanism available to target companies in Canada. A rights plan may be pre-existing or it may be implemented as a tactical plan in the face of or in response to an unsolicited bid. An unsolicited bidder faced with a rights plan has usually asked Canadian securities regulators to nullify the rights plan in order to provide shareholders with the opportunity to consider the bid. The regulators have generally nullified rights plans in the range of 45 to 70 days from the start of the bid when these plans have outlived their legitimate purpose of permitting the target company to develop alternatives to the unsolicited bid. Therefore, in Canada (unlike in the United States) shareholder rights plans have not been used to completely shield target companies from bids. Now that the minimum bid period has been extended to 105 days, giving target companies more time than under the former regime to evaluate alternatives and attempt to pursue other transactions, and that bids must be extended for a minimum of 10 days thereafter, it is unlikely that plans will be allowed to be used to
Unsolicited, or hostile, takeover bids for Canadian public companies are not unusual. Unsolicited bids are made to bypass the board of directors of the target company and take the offer directly to the shareholders. A takeover bid is generally the only practical transaction structure available for an unsolicited acquisition since, absent the target board’s support, the bidder cannot apply to the court on behalf of the target company for a plan of arrangement, nor can it easily call a shareholder meeting to obtain shareholder approval for a plan of arrangement or amalgamation. Unlike in the case of a negotiated acquisition, the offeror in an unsolicited takeover bid does not have access to confidential due diligence information and does not receive the cooperation of the target company in seeking regulatory approvals for the acquisition. Statistically, when a Canadian public company is the target of a first-mover unsolicited takeover bid, a change of control is the result approximately 40% of the time. Of those transactions, the initial bidder (as opposed to a “white knight”) is the successful acquirer approximately 30% of the time. However, in many cases, while an offer may commence as an unsolicited takeover bid, the target company may later agree to a negotiated transaction – for example, if the bidder increases the offer price. In the past, Canadian unsolicited bids were considerably easier and took far less time than unsolicited transactions in the United States, because there were fewer structural and other takeover defences available in Canada than in the United States. However, changes made in 2016 to the takeover regime in Canada have made it more difficult to successfully complete a hostile takeover bid, mostly due to the increase to 105 days, from 35 days, in the period for which the bid must remain open. However, Canadian public companies, in contrast
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