CSA announces fundamental changes to take-over bid regime

The reforms are intended to “enhance the quality and integrity” of the take-over bid regime and to rebalance the existing positions of bidders, shareholders and the directors of target companies when take-over fights occur, says the CSA in a news release.

Under current rules, bids must only remain open for 35 days and there is no minimum tender requirement. The new regime expands the minimum bid period to 105 days, which is less than the 120-day period that the CSA initially proposed, but would still give reluctant sellers much more time to find a white knight or another alternative.

The new rules would also require deals to get at least 50% support from independent shareholders — excluding the shares already owned by the bidder and shareholders working with the bidder. Once that condition is reached, bids would automatically be extended for another 10 days to give shareholders that haven’t already supported the bid more time to change their minds.

“The new regime will enhance the ability of the security holders to make voluntary, informed and co-ordinated tender decisions while providing boards with additional time and discretion when responding to a take-over bid,” says Louis Morisset, the CSA’s chairman and president and CEO of the Autorité des marchés financiers (AMF), in a statement.

In addition to the new take-over rules, the CSA also published final amendments to the “early warning” system, which will require disclosure of decreases in control of 2% or more and when a shareholder’s ownership falls below the early warning threshold as well as require more detailed information in early warning reports.

However, regulators have decided not to go ahead with their initial plan to reduce the early warning reporting threshold to 5% from 10% after concluding that “the intended benefits of the enhanced transparency are outweighed by the potential negative impacts of implementing the lower reporting threshold.”

The regulators are also not going ahead with some of their proposals designed to revise disclosure requirements to deal with derivatives arrangements. Instead, the CSA is providing new guidance regarding derivative arrangements that may be captured under the early warning system.

The CSA is also not making any changes to its policy on the defensive tactics that target companies can use to respond to a hostile offer as part of their reforms to the take-over rules.

“These final amendments enhance the quality and integrity of the early warning reporting regime in a manner that is appropriate for the Canadian capital markets,” Morisset says. “By enhancing disclosure in early warning reports, the amendments intend to allow the market to review and assess the potential impact of changes in the ownership of, or control or direction over, a reporting issuer’s securities.”

The CSA and the AMF published competing proposals in 2013 as the regulators sought to reform the take-over rules in Canada. In 2015, they reached a consensus on a common approach to reforming those rules; now that they have finalized those changes, the new rules are slated to take effect on May 9.