Shareholder Rights in Takeover Bids

• Author: Anita Indira Anand
• Pages: 149-158

149

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Shareholder Rights in Takeover Bids

There are two main types of changes of control that allow for the

sale of a business: asset sales and share sales. The Magna transaction,

examined in Chapter 15, is an example of one kind of share sale, but

one of the most well-known share sales is called a “takeover bid.”

In a takeover bid, one company (the bidder) decides to take control

of another company (the target). Takeover bids can be friendly or

hostile. In a friendly bid, the bidder’s approach is welcomed by the

target board, while in a hostile bid the opposite is true. As this chap-

ter will examine, takeover bids raise challenging questions for law

and for investor welfare, because they require a complex balancing

of interests between the bidder corporation, the target corporation,

and the shareholders of each.

Hostile Takeovers and Poison Pills

A takeover begins with the bidder going to the shareholders and

oering to buy their equity shares at a price that is usually above

market value. Securities law requires the takeover bidder to make its

oer to all of the shareholders at once. The bidder’s aim is to acquire

enough voting power to take control of the corporation. Many will

argue about what the threshold that denes “control” should be: 10,

1 Under Canadian securities law, takeover bid rules are triggered once the bidder

crosses the 20 percent shareholding threshold: Multilateral Instrument 62-104, s 1.1.