On February 25, 2016, the Canadian Securities Administrators (“CSA”) announced the adoption of National Instrument 62-104 – Take-Over Bids and Issuer Bids (“NI 62-104”). NI 62-104 is fully harmonized and will apply in all provinces and territories of Canada. The adoption of NI 62-104 follows an extensive consultation period and will come into force on May 9, 2016 (or in Ontario, the date of proclamation of regulations).
According to the CSA, the stated purpose of the changes set out in NI 62-104 is to enhance the quality and integrity of the take-over bid regime and rebalance the current dynamics among offerors, target boards and target security holders by: (i) facilitating the ability of target security holders to make voluntary, informed and co-ordinated tender decisions; and (ii) providing target boards with additional time and discretion when responding to a take-over bid.
NI 62-104 contains the following key changes from the current take-over bid regime in respect of all non-exempt take-over bids:
- Minimum 105-Day Deposit Period. The minimum deposit period for a take-over bid has been extended from the current 35-day period to a 105-day period. The 105-day period may be shortened in certain circumstances, including if: (i) a target board states in a news release that there shall be a shorter period for a bid (of not less than 35 days), in which case all outstanding or contemporaneous take-over bids must remain open for the shorter period; or (ii) the target issues a news release that it intends to effect a specified alternative transaction (such as an arrangement or amalgamation), in which case all outstanding or contemporaneous take-over bids must remain open for at least 35 days. The lengthening of the minimum deposit period will change the tactics applied in a hostile take-over bid in a number of ways: first, it will afford the target board more opportunity to consider a bid, while identifying and evaluating potential alternative transactions, which may in turn benefit security holders; second, it will bring more certainty and predictability with respect to timing for target boards and security holders in their decision-making process; and third, it is expected to lead to more negotiation between offerors and target boards and may ultimately lead to more friendly transactions. It should be noted that under the new minimum 105-day deposit period, offerors will still be able to rely on compulsory acquisition procedures in Canadian corporate statutes in order to squeeze out minority shareholders in the event that at least 90% of a target’s shares are deposited within 120 days of a bid.
- 50% Minimum Tender Requirement. All take-over bids will be subject to the condition that at least 50% of the outstanding shares of the target, other than shares held by the offeror and any joint actors, be tendered under a bid and not withdrawn before the offeror can take up any securities under a bid. This irrevocable condition will serve to prevent offerors from acquiring control of the target without the support of a majority of target shareholders under a bid.
- Mandatory 10-day Extension Period. Upon the 50% minimum tender condition being met and all other conditions to a bid being complied with or waived, the offeror will be required to extend a bid for a further 10-day period. This extension will provide those target shareholders that did not tender to a bid with the further opportunity to participate in a bid once it has become clear that the minimum tender condition and other conditions have been met. This provision should also reduce concerns that a shareholder may feel coerced to tender under a bid in order to avoid being left as a minority shareholder.
The current take-over bid regime will continue to apply to: (i) every take-over bid commenced before May 9, 2016; (ii) any take-over bid commenced on or after May 9, 2016 that relates to securities for which another take-over bid had been commenced prior to May 9, 2016, provided such prior bid had not expired before the second bid was commenced; and (iii) any take-over bid commenced on or after May 9, 2016 that relates to securities of a target that issued a news release before May 9, 2016 announcing that it intends to effect an alternative transaction (such as an arrangement or amalgamation), provided such alternative transaction has not been completed or abandoned before the bid was commenced.
Concurrently with the announcement of the implementation of NI 62-104, the CSA announced the implementation of changes to the early warning rules that govern the acquisition of large positions in reporting issuers. Investors and issuers should review these changes to consider how they may affect a potential take-over bid. Please refer to our separate article on this topic for more information. In addition, the CSA has not elected to implement further rules regarding shareholders rights plans and other defensive tactics at this time.