A stock photo of a corporate boardroom.Arpad Benedek/Getty Images/iStockphoto
It's no longer going to be as easy for hostile bidders to snap up Canadian companies before the targets have time to find another option.
Securities regulators are set to make an important and long-sought-after change to the rules on takeovers that will give Canadian companies and their shareholders a much better negotiating position when an unwanted acquirer shows up.
The current rules on takeovers give a target company only a few weeks to try to find an alternative – usually somewhere between 35 and 60 days.
That quick timeline left the impression that, once a bid was made, the company was as good as sold.
In response, regulators in the 13 provinces and territories have banded together to revamp the rules. The key change is giving target companies much more time to find an alternative, negotiate a higher offer or simply convince shareholders that selling the company is a bad idea. The proposed new rules would give targets about four months, or roughly double the norm.
There are other rule changes that will have the effect of emboldening shareholders to say "no."
The rules "strike the balance between boards and shareholders," Ontario Securities Commission chairman Howard Wetston said in an interview. "We believe very sincerely that ownership has its rights, has its privileges, and shareholders do have an important role. We also recognize fully that boards must have the ability to address a bid and alternatives."
Takeover lawyers generally lauded the proposal. They said there was little risk that extending the timeline would chill the takeover market.
"Our view is this is a pretty sensible way of balancing out the issues" and to deal with "the criticism of our system being too friendly to hostiles," said Jamie Scarlett, a merger specialist at Torys LLP.
The rules could be in place in a year.
What's notable is that the proposal is for a single policy nationwide. Last year, the Quebec securities regulator broke with the rest of the regulators and offered its own proposal on how to address the issue of giving boards more options to deal with hostile bids.
This set of rules has Quebec's backing, and in many ways reflects what Quebec had put on the table. For example, Quebec was in favour of the idea of forcing hostile bidders to get to a minimum of 50 per cent support before their bid could go ahead. It also wanted a clause that would allow other shareholders 10 more days to sell into a bid once it became clear a bid would succeed. That would ensure no shareholder who said "no" at first would be left out, with no ability to change their mind.
Having a nationwide policy was crucial, Mr. Wetston said. In recent years, there had been a number of decisions in various provinces that set different timelines for takeovers. That introduced too much uncertainty.
"We wanted to do one thing, develop something harmonized," Mr. Wetston said. "It would not be a good thing for our market to have different policies."
The effect is to move the balance of power back toward the board of the target company.
"Before, when a 'For Sale' sign was hung around the neck of a company, you were put in play and odds are you were going to transact," said Jeremy Fraiberg, a merger specialist at Osler Hoskin & Harcourt LLP. "This probably re-balances things a little."
Still, the proposal does not go as far as Quebec had proposed in one area, allowing boards to simply say "no" to a hostile bidder. In this case, if a board has not found an alternative in four months, shareholders will be able to sell their shares to the bidder if they so choose.
Just saying "no" to hostile bids "was a bridge too far for the rest of Canada," said Stephen Halperin, a corporate law specialist from Goodmans LLP.