In a recent decision, the Ontario Securities Commission(OSC) "killed the pill" put in place by coffee shop chain Second Cup to block the hostile takeover bid by Cara Operations.
Shareholder rights plans or poison pills, which effectively buy time for target companies to solicit competing bids, continue to be a common feature in the arsenal of defensive tactics in Canada. In fact, from February 2001 (the eve of the Zimmerman Amendments which extended the minimum deposit period for takeover bids from 21 to 35 days and permitted the launch of takeover bids by advertisement) until November 2001, 25 Canadian companies adopted new poison pills and 23 Canadian companies renewed or amended their existing pills.
While the OSC commissioners did not provide reasons for their decision in the Second Cup case, they made it clear at the hearing that they were reluctant to allow the poison pill to remain in place and risk having Cara abandon its bid, when it appeared there was likely no alternative bidder in the wings. Second Cup had five months after the bid was launched to surface a white knight, without success, perhaps because of Cara's 39% toehold interest.
The Second Cup decision reaffirms the principles enunciated in the reported decision of the OSC earlier in the year in Trilogy Retail Enterprises' application to cease-trade bookseller Chapters's poison pill. To cite the reasoning in the Chapters case, the regulatory authorities will kill the pill where "there [is] no reasonable possibility that, given a reasonable period of time, the board would be able to increase shareholder choice or value."
Paul Fornazzari and Nicholas Dietrich
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