Take-Over and Issuer Bids

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

432

CHAPTER 10

TAKE-OVER AND

ISSUERBIDS

A. INTRODUCTION

Canadian securities laws are intended, among other things, to protect

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

objectives have been pursued primarily by regulating the activities of

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

eral decades it has become clear that in some circumstances it is the

purchasers of securities, rather than the 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 purchasing a sig-

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

some of its own outstanding shares from its existing shareholders.

The securities law implications of both of these types of trans-

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Bids433

B. TAKE-OVER BIDS

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

Ontario securities laws following a recommendation by the Kimber

Committee in 1965.2 The Kimber Committee’s recommendation came

in the wake of public criticism concerning various signif‌icant acquisi-

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

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

tee’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 oeree (or the “target” company).3

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

adequate time,4 adequate information,5 and equal 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 acquiring 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 members 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 RITIES 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 principal change of control transactions

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

b) Overview of Canadian Take-Over 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 securities regulators working through the Canadian Secur-

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

than Ontario 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 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 changes to

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

erning 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 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, Canadian 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 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 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 shareholders of the target company

with reasonable time, adequate information about the bid, and fair and

equal treatment, or (2)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 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.