CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
4.3 Hurdles to Stakebuilding Unlike in the USA, structural defences to stake- building in constating documents or by-laws are not common in Canada because they are not required or would be ineffective under Canadian law. Early Warning Standstill An acquiror that is obligated to file an early warn - ing report may not acquire any more securities of that class (or securities convertible into such securities) until the expiry of one business day after the early warning report is filed. Takeover Bid Rules Once an acquiror has beneficial ownership of, or control or direction over, 20% or more of the outstanding voting or equity securities of a class, any further acquisitions of outstanding securities of that class would constitute a takeover bid that requires an offer to be made to all security hold - ers unless an exemption is available. Rights Plans Before the 2016 takeover bid regime amend - ments, the primary structural defence mecha- nism for an issuer in Canada was a shareholder rights plan (commonly known as “poison pill” ). Rights plans are still in use, albeit with some dif- ferences to pre-2016 plans. Typical features of a rights plan include the following: • Upon an acquiror’s acquisition of, or announcement of its intent to acquire, benefi - cial ownership of (typically) 20% or more of the company’s shares, all other shareholders will be given the right to purchase shares at a significant discount to the market price, sub - stantially diluting the acquiror. See also Riot Platforms v Bitfarms in 3.1 Significant Court Decisions or Legal Developments .
• Rights plans may allow for “permitted bid” , which typically now means one that is required to stay open for at least 105 days and includes a minimum tender condition. The primary value of a tactical rights plan adopt- ed following the emergence of a bid traditionally has been to buy time for a board and sharehold- ers to consider an offer and (where appropriate) seek alternatives to the bid. As takeover bid offers must remain open for at least 105 days, it is generally expected that regulators will cease-trade a rights plan after that timeframe. Even where a regulator permits a rights plan to remain in place, certain Canadian stock exchanges may refuse a plan if it does not receive shareholder approval within six months of being implemented, which often functions as a de facto termination date for tactical rights plans. Other Hurdles to Stakebuilding Acquisitions of shares generally cannot be made if a person is in a special relationship with an issuer and possesses inside information (infor- mation that has not been generally disclosed and could reasonably be expected to significant - ly affect the market price or value of a security of the issuer). Most private companies have restrictions on share transfers in their articles or in unanimous shareholder agreements that would prevent a third party from acquiring shares without board or shareholder approval. For reporting issuers with a public float, it would not be possible to restrict share transfers in the articles or by-laws, but individual shareholders may agree to a standstill as part of a negotiated transaction.
14
CHAMBERS.COM
Made with FlippingBook Ebook Creator