TORONTO (Reuters) – Canadian regulators unveiled proposals on Thursday on the use of poison pills as a takeover defense, introducing new guidelines that will make hostile corporate takeovers a lot harder.
Two sets of proposals, laid out by the umbrella group for provincial securities regulators, aim to bring more coherence to Canada’s regulatory regime after conflicting rulings by individual provincial regulators on the “poison pills”, which companies use to fend off unwanted suitors.
The plans will curb drastically the ability of regulators to overturn a poison pill, and give companies more ammunition to fight hostile bids through the use of the defensive maneuver.
Poison pills, or shareholder rights plans, effectively raise the price of a hostile bid by giving existing shareholders, excluding the hostile bidder, the right to buy more stock in the target company at a discount.
Canadian provincial securities regulators typically quash these pills within two months, giving companies only a narrow window to look for an alternative proposal to the hostile bid.
But the lack of a single national watchdog overseeing Canadian securities regulation has muddied the waters as provincial regulators have sometimes issued varied rulings on poison pills. Some have allowed pills to stand indefinitely, while others have overturned them before shareholders have had a chance to vote on them.
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