CHAPTER 01 Takeover Bid Regulation: An Overview
> The acquisition of convertible securities, particularly in-the-money convertible securities, could constitute an “indirect” offer for the underlying security.
Equal Treatment Rules
OFFER TO ALL – The bid must be made to all holders of the class, but may be for less than all securities (i.e., a “partial bid”). – Take-up under partial bids must be pro rata. – The bid circular must be sent to all holders of the class and all holders of convertible securities (e.g., options). IDENTICAL CONSIDERATION – All holders must be offered identical consideration (or an identical choice of consideration). – If the bidder increases the price during a bid, all holders receive the new price, even holders whose shares have already been tendered and taken up. NO “SIDE DEALS” – No collateral agreements are permitted – that is, agreements or understandings between the bidder and a shareholder that have the effect of providing the shareholder with consideration of greater value. – Exceptions permit certain employee compensation and severance arrangements for management and other employees of the target. – Securities commission may provide exemptive relief to permit a collateral agreement when there is a clearly established business or financial purpose relating to the making of the bid or the ongoing operations of the target. PRE-BID INTEGRATION – The bidder cannot acquire securities in the 90 days preceding the bid unless the bidder offers the same consideration (amount and type, or cash equivalent) and acquires the same percentage from each holder under the bid. – Exceptions for normal course purchases on a stock exchange (pre-arranged trades are not normal course) and for purchase of newly issued shares from the issuer.
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