TORONTO, Feb 26 (Reuters) – Canadian securities regulators want to change the rules on takeover defenses to make it more difficult for hostile bidders to buy Canadian companies, according to officials and lawyers briefed on the matter.
The plan, due to be published in draft form on March 14, is designed to bring more coherence to Canada’s regulatory regime after conflicting provincial rulings on so-called “poison pill” defenses to fend off unwanted suitors, the sources said.
“There has been some criticism over the years that Canada is too bidder-friendly and that companies should have more tools at their disposal to fight hostile bids,” said Ralph Shay who heads the securities law group at Fraser Milner Casgrain in Toronto.
Poison pills effectively raise the price of a hostile bid by giving all existing shareholders, excluding the hostile bidder, the right to buy additional stock in the target company at a discount.
In Canada, boards of companies that are targets of a hostile bid typically have limited time in which to bring an alternate proposal before shareholders, as provincial regulators usually quash poison pills 45 to 60 days after a bid is launched.
In recent years, regulators allowed poison pills to stay in place indefinitely in certain cases, since a majority of the shareholders of the target companies had ratified them.
“We did have divergent decisions, which created a bit of uncertainty for market participants,” said John Emanoilidis, a partner with Torys, a Toronto law firm.
In 2010, the British Columbia securities regulator quashed a poison pill defense initiated by Lions Gate Entertainment, while it was being eyed by corporate raider Carl Icahn, ignoring a planned shareholder vote on the matter.
In contrast, Ontario’s regulator ruled in 2009 that a poison pill set up by former rare earth processor Neo Materials could stay in place indefinitely as a majority of shareholders backed it.
The new rules are being proposed by the Canadian Securities Administrators (CSA), an umbrella group representing provincial authorities. There is no single national watchdog overseeing securities regulation in Canada.
While foreign takeover bids are not specifically targeted by the plan, a string of recent bids have stirred anxieties in Canada about the vulnerability of domestic companies, experts say.
One of the most controversial was BHP Billiton’s $39 billion hostile bid for Potash Corp, the world’s largest fertilizer maker, in 2010. The Canadian government blocked the deal on the grounds it would bring no “net benefit” to the country.
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