07. Poison Pills Many Canadian and U.S. public companies have adopted poison pills (also known as shareholder rights plans), which provide that if an “acquiring person” exceeds a specified level of ownership (typically 20%), all shareholders other than the acquiring person can purchase stock at a substantial discount to the market price of the shares, resulting in significant dilution to the acquiring person. Canadian poison pills, like their U.S. counterparts, treat an acquiring person as the beneficial owner of shares owned by it and its joint actors. However, Canadian pills have evolved differently from U.S. pills, given the TSX requirement that pills be approved by a shareholder vote. This requirement has given shareholders, and ultimately ISS, considerable influence over the terms of poison pills. One way in which Canadian pills differ from U.S. pills is that typically the definition of “joint actor” will not include persons with whom the acquiring person has an agreement to jointly vote shares, but rather only persons with whom the acquiring person has an agreement with respect to the acquisition of shares. Attempts to include provisions, sometimes seen in U.S. pills, that expand definitions of “beneficial ownership” or “acting jointly or in concert” to capture agreements among investors to vote together or campaign to change or influence the control of an issuer have not gained ground in Canada. Commentary by Canadian securities regulators that echoes the voting guidelines of proxy advisory firms in Canada has made clear that rights plans should be effective only against takeover bids and should not apply to transactions or circumstances involving a shareholder vote such as contested director elections. Securities commissions in Canada are divided on the question of whether poison pills can impose on shareholders restrictions more onerous than those under the statutory takeover bid rules. In Aurora Cannabis Inc. , 15 the Ontario Securities Commission (OSC) sent a clear message to the market that it will not tolerate poison pills with unusual terms that interfere with the established features of the takeover bid rules. In ruling that the rights plan at issue should be cease-traded for public interest reasons, the OSC stated that poison pills that vary the requirements of the takeover bid regime would confuse the market and serve “no useful purpose.” In the ASC's 2021 decision in Re Bison , the ASC implicitly rejected this principle. The ASC supported the target company’s amendment to its poison pill in the face of competing bids to include a shareholder’s economic exposure under cash-settled swaps in determining the shareholder’s “beneficial ownership” under the pill. The ASC concluded that the pill amendments preserved “shareholder choice” in the context of competing bids by preventing one bidder from acquiring “negative control” by increasing its ownership position, and thereby facilitated an open and even-handed auction for the target. The ASC’s determination seemed to be driven by an assumption that the bidder would have the ability to acquire, or influence the voting of, the shares underlying the cash-settled swaps and a concern that, whether or not the underlying shares were voted against an alternative transaction or not voted at all, the swaps had the potential to unfairly distort the outcome of the auction.
15 2018 ONSEC 10.
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