Take-over and Issuer Bids
| Author | Christopher C. Nicholls, Jeffrey G. Macintosh |
| Pages | 295-344 |
CHAPTER
10
TAKE-OVER
AND
A.
INTRODUCTION
Canadian securities laws protect investors
and
foster
fair
and
efficient
capital
markets. Historically, these objectives have been pursued pri-
marily
by
regulating
the
activities
of
those
who
seek
to
sell
securities
to
investors; however,
in the
past several decades
it has
become clear that
sometimes
it is the
purchasers
of
securities, rather than
the
sellers,
whose actions must
be
regulated
to
achieve
the
twin goals
of our
secu-
rities laws. Such
is
often
the
case when
(a) one
company seeks
to
acquire control
of
another
by
purchasing
a
significant block
of
shares,
or (b) a
company wishes
to
repurchase some
of its own
outstanding
shares
from
its
existing shareholders.
The
securities
law
implications
of
both
of
these types
of
transac-
tions
—
take-over bids
and
issuer bids, respectively
— are the
princi-
pal
subjects
of
this chapter. Closely related
to
take-over
and
issuer
bids
are
transactions
undertaken
to
transform
a
publicly
traded
corporation
to
a
private
or
closely-held corporation.
The law
relating
to
such
"going-private transactions"
is
also canvassed here.
295
ISSUER
BIDS
296
SECURITIES
LAW
B.
TAKE-OVERBIDS
Take-over
bid
rules were introduced into Ontario securities laws fol-
lowing
a
recommendation
by the
Kimber Committee
in
1965.1
The
Kimber
Committee's recommendation came
in the
wake
of
public crit-
icism concerning various significant acquisition transactions
in
Ontario
in the
early
1960s.
The
concerns raised
by
such transactions
are
apparent
from
the
nature
of the
Kimber Committee's response,
which advocated take-over rules based
on the
following fundamental
principles:
The
primary objective
of
take-over legislation
is to
protect
the
inter-
ests
of the
shareholders
of the
offeree
(or the
"target"
company).2
The
take-over rules should ensure that such shareholders receive
adequate
time,3
adequate
information,4
and
equal
treatment5
from
any
bidder.
As
discussed below, although
the
mechanics
of
Ontario take-over
law
have
changed since 1966, these principles continue
to lie at the
heart
of
the
modern take-over regime.
1)
The
Statutory Framework
a)
Introduction
There
are
many ways
in
which
one
company
may
effectively
acquire
control
of the
business
of
another.6
Informally,
all of
these methods
might
be
described
by
members
of the
media
or
other non-lawyers
as
"take-overs."
Canadian take-over
bid
law, however,
deals
with
only
one
The
Report
of
the
Attorney
General's
Committee
on
Securities
Legislation
in
Ontario
(Toronto:
Queen's Printer, 1965)
[Kimber
Report].
Ibid,
at
para. 3.10.
Ibid,
at
para. 3.15
Ibid.
The
Kimber
Report
did not
expressly
articulate
equal treatment
as a
goal
of
take-
over
law,
but it is
implicit
in its
recommendations
of pro
rata
acceptance
of
bids
(which
would
end
"first-come-first-served" bids)
and of
payments
of
increased
bid
prices
to all
offeree
shareholders
(ibid,
at
paras.
3.15-3.17
and
3.22).
For a
discussion
of
some
of
these alternative methods,
see
Christopher
C.
Nicholls,
Corporate
Finance
and
Canadian
Law
(Toronto: Carswell, 2000)
at 308
ff;
J-P. Bisnaire
and
T.A. Smee, "Planning
a
Public
Merger"
in
Critical
Issues
in
Mergers
and
Acquisitions:
Domestic
and
International
Views.
Papers
Presented
at the
6th
Queen's
Annual
Business
Law
Symposium
(Kingston: Queen's University, 1999)
at
1.
1
2
3
4
5
6
Take-over
and
Issuer Bids
297
specific
type
of
control transaction:
the
purchase
of
outstanding shares
of
one
company (the
"offeree
issuer"
or,
colloquially,
the
"target")
by
another person (the
"offerer"
or,
colloquially,
the
"bidder").
This
nar-
row
legislative
focus
reflects
a
deliberate policy decision.
The
Kimber
Committee,
in
proposing Ontario's
first
modern take-over rules, found
that
the
other principal change
of
control transactions
"do not
seem
to
require
any
particular legislative
reform."7
b)
Overview
of the
OSA's
Take-over
Bid
Provisions
In the
most general sense,
the OSA
take-over provisions operate
as
fol-
lows.
The
legislation adopts
a
broad definition
of
"take-over bid" that,
as
discussed below, includes
not
only purchases
of
sufficient
shares
to
give
the
bidder
legal control
of the
target,
but
also purchases
of
much
smaller
numbers
of
shares intended
to
catch virtually
all
transactions
in
which
de
facto
control might change hands.
Any
bidder making
a
"take-over
bid"
(as
defined)
is
required
to
either
(a)
follow
a
detailed
set of
bidding rules that provide shareholders
of the
target company
with reasonable time, adequate information about
the
bid,
and
fair
and
equal
treatment,
or (b)
find
an
available exemption
in the OSA
from
these rules
or
persuade
the OSC
that
it
ought
to
grant
the
bidder
a
spe-
cial
exemption
from
the
rules
for
sound policy reasons.
A
detailed
series
of
specific
rules, exemptions, exceptions,
and
exclusions imple-
ments this basic statutory scheme. These detailed provisions maintain
the
integrity
of the
basic rules
and
principles,
and
prevent
the use of
avoidance
tactics
by
bidders. They also allow
for
exemptions where
rigid application
of the
take-over rules would impose unnecessary
costs with little
or no
benefit
to the
investors.
The
sections that
follow
attempt
to
navigate through this ocean
of
legislative complexity.
c)
Meaning
of
"Take-over Bid"
i)
The
Statutory
Definition
The
statutory
framework
regulating significant share acquisitions relies
extensively
on a
series
of
carefully
crafted
definitions.
The
most
funda-
mental
of
these
is the
definition
of
"take-over bid" itself.
The OSA
defines
"take-over bid"
as
follows:
an
offer
to
acquire
outstanding voting
or
equity
securities
of a
class
made
to any
person
or
company
who is in
Ontario
or to any
security
holder
of the
offeree
issuer whose last address
as
shown
on the
books
Kimber
Report, above note
1, at
para. 3.2.
7
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