Structural Defences – Structural defences generally consist of defensive provisions contained in a target company’s articles and bylaws and shareholder rights plans (poison pills). Generally, structural defences do not work as well in Canada as they do in the United States. SHAREHOLDER RIGHTS PLAN – The shareholder rights plan is the primary structural defence used in Canada, and many Canadian companies have shareholder rights plans. – Canadian rights plans adopted otherwise than in response to a specific bid tend to be very uniform and relatively benign compared to some U.S. rights plans as a result of the TSX requirement for shareholder approval of rights plans, the formal review process conducted by ISS on rights plans proposed by Canadian companies and the tendency of Canadian institutional shareholders to follow ISS recommendations. – Rights plans in Canada are not designed, and will not operate, to block an unsolicited bid; rather, they are intended to encourage the fair treatment of shareholders in connection with a bid and to provide sufficient time for the board and shareholders to properly consider and respond to an offer, and for the board to determine whether there are alternatives available to enhance shareholder value. – In a typical Canadian rights plan, the plan would be triggered by the acquisition by any person or group of beneficial ownership of 20% or more of the company’s common shares, calculated on a partially diluted basis. – If the plan is triggered, all shareholders other than the triggering shareholder and certain related parties have the right to acquire additional common shares of the company from treasury at a substantial discount to market price, theoretically resulting in substantial dilution to the hostile bidder. – Canadian rights plans, unlike U.S. rights plans, typically include a “permitted bid” concept. – Prior to 2016, when the bid rules were amended to extend the minimum bid period to 105 days, poison pills were almost always cease-traded by a securities commission after a certain period of time. Poison pills could not be used by a target to shield itself indefinitely from a hostile bid; rather, they could be used only to secure additional time for the target board to evaluate alternatives and attempt to pursue other transactions. – Given the significant extension of the statutory minimum bid period to 105 days under the takeover bid rules, it is likely that the use of a rights plan to further postpone take-up by a hostile bidder will be subject to challenge before a securities commission.
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Canadian Mergers & Acquisitions
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