Take-Over and Issuer Bids

• Author: Christopher C. Nicholls
• Profession: Faculty of Law, Western University
• Pages: 432-508

432

CH AP TER 10

TAKE-OVER AND

ISSUERBIDS

A. INTRODUCTION

Canadian sec urities laws are intended, among other t hings, to protect

investors and foster fair and ecient capital m arkets.1 Historically, these

objectives have been pursued prim arily by regulat ing the activities of

those who seek to sell secur ities to investors; however, in the past sev-

eral decades it has become clea r that in some circumsta nces it is the

purchasers of secur ities, rather than t he sellers, whose actions must

be regulated to achieve the goals of our securities laws. Two important

contexts in which the actions of buyers, rather t han sellers, of securities

have attracted the scrut iny of regulators are: (1) cases in which one com-

pany seeks to acquire control of another company by purcha sing a sig-

nif‌icant block of shares, and (2) cases in which a company repurchases

some of its own outstanding shares from its existing sh areholders.

The securities law implications of both of t hese types of tr ans-

actions — take-over bids and issuer bids, re spectively — are the principal

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-pri-

vate transactions” (or “business combinations”) is also canvassed here.

1 For a discuss ion of the express purpos es of Canadian secur ities statutes, see

Chapter 3.

Take-Over and Iss uerBids 433

B. TA KE-OVER BIDS

Take-over bids are not new. Take-over bid rules were introduced into

Ontario secur ities laws following a recommendation by the K imber

Committee in 1965.2 The Kimber Committee’s recommendation c ame

in the wake of public criticism concerning various signif‌icant acquisi-

tion transactions in Ontario in the ea rly 1960s. The concerns raised by

such transactions are apparent from the nature of the Kimber Commit-

tee’s response, which advocated take-over rule s based on the following

fundamental principles:

• The prim ary objective of take-over legislation is to protect the inter-

ests of the shareholders of the oeree (or the “target” company).3

• The take-over rules should ensure that such shareholders receive

adequate time,4 adequate information,5 and equa l treatment6 from

any bidder.

As discus sed below, although the mechanics of Can adian take-over

bid law have evolved since 1966, these principles continue to lie at the

heart of the modern ta ke-over bid regime along with a regulatory aware-

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

favour the interests of either acquir ing or target companies.

1) The Statutory Framework

a) Introduction

There are many ways in which one company may eectively acquire

control of the business of another.7 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 trans action: the purchase of outstanding voting

or equity shares of one company (the “oeree issuer” or, colloquially,

2 The Report of the Attor ney General’s Committee on Securit ies Legislation in Ontario

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

3 Ibid at para 3.10.

4 Ibid at para 3.15.

5 Ibid.

6 The Kimber Repor t did not expressly artic ulate equal treatment a s a goal 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 oe ree shareholders (ibid at paras 3.15–3.17 and 3.22).

7 For a discuss ion of some of these alternative met hods, see Christopher CNichol ls,

Mergers, Acquisitio ns and Other Changes of Corporate Control, 3d ed (Toro nto:

Irwin L aw, 2020) at 17 [Nicholls, Mergers, Acquisitions].

SECU RITIE S LAW434

the “target”) by another person (the “oeror” or, colloquially, the “bid-

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

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

bid rules, found that the other principa l change of control transactions

“do not seem to require any particular legi slative reform.”8

b) Overview of Canadian Take-O ver Bid Provisions

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

been uniform throughout Canada thanks to the cooperative eorts of

Canadian sec urities regulators working through the Canadian Secur-

ities Admini strators. In 200 8, Canadian provinces and terr itories other

than Ontar io adopted Multilateral Instrument (MI) 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

MI 62-104, the Ontario t ake-over bid rules were nevertheless identical

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

chose to embody those rule s in Part XX of the OSA itself and in OSC

Rule 62-504. Then, in 2016, following a series of important changes to

the Canadian take-over bid regime, a new National Instrument gov-

erning take-over bids was adopted by all provinces and terr itories,

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

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

adian securit ies regulators have also issued some import ant policy state-

ments touching on take-over bids, notably National Policy (NP) 62-203.

NP 62-203 and NI 62-104 are together referred to as the “Bid Regime.”9

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

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

That def‌inition, as discussed below, includes not only purchases of suf-

f‌icient shares to give the bidder legal control of the ta rget (i.e., more

than 50 percent of the voting securities), but also purch ases of much

smaller numbers of shares intended to catch virtual ly all transactions

in which de facto control might change hands. Any bidder making a

“take-over bid” (as def‌ined) is required to either (1) follow a detailed

set of bidding rules that provide sha reholders of the target company

with reasonable ti me, adequate information about the bid, and fair and

equal treatment, or (2)f‌ind an available exemption from these rules or

persuade the appropriate secur ities regulatory authorit y that it ought

to grant the bidder a special exemption from the rules for sound policy

reasons. A detailed se ries of specif‌ic rules, exemptions, exceptions, and

exclusions i mplements this s cheme. These detai led provisions ma intain

8 Kimber Report, above note 2 at para 3.2.

9 See NP 62-203, s 1.1.