The Alberta Securities Commission (ASC) has ruled that Canadian Oil Sands’ (COS) second shareholder plan, a response to an unsolicited bid by Suncor Energy, is valid for 90 days.
It's longer than the typical 45-60 days but shorter than new proposals for 120 days, and comes at a time when local regulators are considering the future of hostile bids.
Canada is considered a bidder-friendly jurisdiction. While hostile bids are a fairly rare event in Canada, they are often successful as boards have little time to react to unsolicited bids.
But changes are underway. In March the Canadian Securities Administrators (CSA) proposed amendments to the rules on hostile bids, including extending the minimum bid period from 35 to 120 days. The proposals are expected to come on stream mid-2016 and would allow target companies more time to find alternative bidders.
Suncor made its C$4.7 billion bid in October, and gave COS shareholders 60 days to accept its offer. According to a press release of November 12, COS advised shareholders to reject Suncor’s bid. Suncor, in turn, wrote to shareholders and also asked the ASC to strike down COS’s second shareholder rights plan in response to its bid. Suncor argued the company had sufficient time to study other bids. COS, however, argued that other bids would emerge if the regulator approved an extension. On November 30, the regulator did just that.
Counsel are now digesting the implications for Canada’s changing hostile bid regime.
“It was unclear to the market in the case of Suncor and COS whether the ASC was influenced by proposals to lengthen the minimum bid period,” said Bradley Freelan, partner at Fasken Martineau.
That’s because the ASC allowed 90 days, a period is longer than the 60 days Suncor offered COS shareholders, but less than the 120 day period COS wanted, and which regulators propose. In reaching the 90 day figure, it seems a sense of fairness was at play.
“In effect, the ASC split the difference between the parties’ requests,” said Freelan.
KEY TAKEAWAYS
The Alberta Securities Commission has ruled Canadian Oil Sands’ second shareholder plan, a response to an unsolicited bid by Suncor Energy, is valid for 90 days;
That is longer than the typical 45-60 days, but shorter than new proposals for 120;
The ruling comes at a time counsel and regulators are considering the future of hostile bids in Canada;
Canadian regulators' proposals could swing the pendulum away from the advantage enjoyed today by bidders.
Bidder’s delight
Canada’s framework for contested deals varies from its neighbour to the south. In the US, Delaware courts leave shareholder rights plans, or poison pills, in place. That makes it easier for target boards to reject bids.No such luxury exists in Canada. There, securities regulators have consistently rendered rights plans inoperable, after a period of time, and so enabled bidders to bypass boards.
“Typically in Canada, a target board can adopt a rights plan, but after some limited period of time the rights plan will be cease-traded by the target’s principal securities regulator,” said Freelan.
In this context, while Canada’s proposed changes are clear, they are not yet implemented. That makes it hard to gauge the life-expectancy of rights plans, and meant Suncor’s bid for COS, and the ASC’s ruling, were significant.
“We seem to be caught between two possible regulatory regimes, so we have all been watching what our regulators were going to do in this case very carefully,” said Jeffrey Singer, partner at Stikeman Elliott.
Uncertainty affects counsel, and causes disruption.
“The Canadian M&A playbook has had to toggle between the old assumption that a pill would be cease traded within 45 to 90 days of a bid being launched, and the proposed rule,” said Singer.
Instead, securities regulators in Canada have generally seen rights plan as time-limited, although that’s the approach that’s now set to change.
“In many respects, Canadian regulators are proposing to get out of the business of deciding when a pill must go,” said Singer.
Changing regime
Freelan and Aaron Atkinson, also partner at Fasken Martineau, have studied hostile deals in Canada. They authored the firm’s 2015 Hostile Canadian Take-Over Bid Study, which studies the potential impact of the upcoming reforms. According to the report, the proposed reforms will introduce the most significant changes to Canadian hostile bid regime in years.
'The new regime, if enacted as proposed, will strengthen the board’s hand, fundamentally altering the dynamics of future take-over negotiations,' said the report.
Meaning the changes are not to a bidder’s advantage.
“Once a rights plan is in place, the bidder is effectively prevented from taking up shares tendered under its bid. So the time limit on rights plans works to bidders’ advantage,” said Freelan.
Under the proposed changes, however, a bidder will have to expose its bid to the market for 120 days. That will allow further competition to emerge, and a bidder also won’t have recourse to securities regulators to expedite the bid. In short, CSA proposals could swing the pendulum away from so clear an advantage for bidders.
Eyes on 2016
But there’s a limit to how far Canada will change its regime. Canadian regulators are not proposing to abolish the time-limited nature of rights plans, just to extend their validity from 35 to 120 days. And counsel expect that new period to be strict.
“The legal community expects that, as the new rules come into force, securities regulators are unlikely to allow a rights plan to remain in force beyond 120 days,” said Freelan.
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"We seem to be caught between two possible regulatory regimes" |
As a result until the changes are made counsel in Canada aren’t expecting anything too dramatic.
“The Canadian regulators seem to be saying that until the rules are in place, it is going to be business as usual in Canada,” said Singer.
That status quo must include ongoing uncertainty. But as frustrating as that is, local counsel have long been aware of changes now afoot.
“In Canada, the question has long been not if but when a pill must go,” said Singer.
COS responded to IFLR's request for comment by directing us to the company’s recent press releases. Suncor Energy did the same, but added: “We’re reviewing the decision to determine our next steps.”
See also
Canadian reforms to make poison pills redundant
US M&A sentiment strong despite antitrust concerns
Private equity brings new tactics to M&A
