Take-over and issuer bids

• Author: Christopher Nicholls
• Pages: 359-426

359

CH AP TER 10

TAKE-OVER AND

ISSUERBIDS

A. INTRODUCTION

Canadian sec urities laws are intended to protect investors and foster

fair and eff‌icient capital ma rkets. Historically, these objectives have

been pursued primarily by regulating t he activities of those who seek

to sell securitie s to investors; however, in the past several decades it ha s

become clear that sometimes it is t he purchasers of securit ies, rather

than the sellers, whose actions must be regulated to achieve the tw in

goals of our securities laws. Such is often the case when (a) one com-

pany seeks to acquire control of another by purcha sing 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 type s of trans-

actions — take-over bids and issuer bids, respectively — are the princi-

pal subjects of this chapter. Closely related to take-over and issuer bids

are transact ions undertaken to tran sform a publicly traded corpora-

tion to a private or closely held corporation. The law relating to such

“going-private transactions” (or “business combinations”) is also can-

vassed here.

SECU RITIE S LAW360

B. TA KE‑OVER BIDS

Take-over bid rules were introduced into Ontario secu rities laws follow-

ing a recommendation by the Kimber Committee in 1965.1 The Kim-

ber Committee’s recommendation came in the wake of public crit icism

concerning various sign if‌icant acquisition tran sactions 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 pr inciples:

• The primary objective of take-over legi slation 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 in formation,4 and equal treatment5 from

any bidder.

As discus sed below, although the mechanics of Canadi an take-over law

have evolved since 1966, these principles continue to lie at the heart of

the modern take-over regime along with a regulatory awareness of the

need to achieve a “level playing f‌ield” that does not unduly favour the

interests of either acquiring or target companies.

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 memb ers of the media or other non-lawyers as

“take-overs.” Canadian take-over bid law, however, deals with only one

specif‌ic typ e of control transaction: the purch ase of outstanding voting

or equity shares of one company (the “offeree issuer” or, colloquially,

1 The Report of the Atto rney General’s Committee on Securit ies Legislation in Ontario

(Toronto: Queen’s Printer, 1965) [Kimber Report].

2 Ibid at para 3.10.

3 Ibid at para 3.15.

4 Ibid.

5 The Kimber Report d id not expressly articul ate equal treatment as a goa l of take-

over law, but it is implicit in its re commendations of pro rat a acceptance of bids

(which would end “f‌irst-come–f‌i rst-served” bids) and of payments of i ncreased

bid prices to all of feree shareholders (ibid at paras 3.15–3.17 and 3.22).

6 For a discussion of some of thes e alternative methods, s ee Christopher C Nicholls,

Mergers, Acquisitio ns and Other Changes of Corporate Control, 2d ed (Toro nto:

Irwin L aw, 2012) at 17ff [Nicholls, Mergers, Acquisitions].

Take-Over and Iss uer Bids 361

the “target”) by another person (the “offeror” or, colloquially, the “bid-

der”). This narrow legislative focus ref‌lects a deliberate policy decision.

The Kimber Committee, in proposing Ontario’s f‌irst modern take-over

rules, found that the other pri ncipal change of control transactions “do

not seem to require any particular legislative reform.”7

b) Overview of Canadian Take-O ver Bid Provisions

Since about 2008, the securities law rules governing take-over bids have

been uniform throughout Canada thanks to the cooperative efforts of

Canadian securities regulators working through the Canadian Securities

Administrators. In 2008, Canadian provinces and territories other than

Ontario adopted Multilateral Instrument 62-104, which set out detailed

rules governing the conduct of a formal take-over bid and prescribed

detailed exemptions. Although Ontario did not adopt Multilateral

Instrument 62-104, the Ontario take-over bid rules were nevertheless

identical in substance to those of the other provinces and territories.

Ontario chose to embody those rules in Part XX of the OSA itself and in

OSC Rule 62-504. Then, in 2016, following a series of important chan-

ges to the Canadian take-over bid regime, a new national instrument

governing take-over bids was adopted by all provinces and territories,

including Ontario. That instrument, National Instrument (NI) 62-104,

is now the principal source of take-over bid regulation in Canada. Can-

adian securities regulators have also issued some important policy state-

ments touching on take-over bids, and they are also referred to in this

chapter.

In the most general sense, Can adian take-over provisions operate

as follows. NI 62-104 adopts a broad def‌inition of “take-over bid.” That

def‌inition, as discu ssed below, includes not only purchases of suff‌icient

shares to give the bidder legal control of the target (i.e., more than 50

percent of the voting securities), but also purchases of much smaller

numbers of shares intended to catch virtually all t ransactions 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 from these rules or persuade the

appropriate securities regulatory authority that it ought to grant the

bidder a special exemption from the rule s for sound policy reasons.

A detailed series of specif‌ic rules, exemptions, exceptions, and exclu-

sions implements this scheme. These deta iled provisions maintain the

7 Kimber Repor t, above note 1 at para 3.2.