* Change would better protect companies from hostile bids
* Proposal would bring Canada more in line with U.S.
* Quebec plans a more far-reaching plan
By Alastair Sharp and Euan Rocha
TORONTO, Feb 26 Canadian securities regulators
want to change the rules on takeover defenses to make it more
difficult for hostile bidders to buy Canadian companies, aiming
to set up a national framework for dealing with corporate
raiders, according to regulatory officials and lawyers briefed
on the matter.
The plan, due to be published in draft form on March 14, is
designed to bring more coherence to Canada's regulatory regime
after provincial regulators have issued contrasting rulings on
so-called "poison pill" defenses in recent takeover bids, the
Even so, the regulator for the province of Quebec said it is
planning its own proposal that would give even more power to the
boards of target companies in Quebec than would the main
proposal from Canadian Securities Administrators, an umbrella
group representing provincial authorities. There is no national
watchdog for securities in Canada.
Poison pills effectively raise the price of a hostile
takeover by enabling existing shareholders to buy additional
stock in the target company at a discount. Current Canadian
rules limit their use to between 40 to 70 days, while the
company looks for a "white knight" to make a more acceptable
The plan, which would bring Canadian rules more in line with
those in the United States, would allow companies to keep poison
pills in place almost indefinitely once they are approved by
The new proposal comes as concerns about foreign control of
domestic companies are growing in Canada.
A prominent example was an unsolicited C$1.8 billion ($1.75
billion) bid for Rona Inc by U.S.-based Lowe's Cos Inc
. The proposal sparked a wave of political opposition in
Quebec, where the home improvement chain is based, and Lowe's
ended up withdrawing it.
The Quebec regulator wants to go further than the CSA in
protecting companies based there. Its proposal would not require
that shareholders approve a poison pill, enabling a target
company's board to impose the pill unilaterally.
"From a policy perspective, enabling boards to negotiate
with a bidder strikes me as a good proposal," Louis Morisset,
the superintendent of securities markets in Quebec, said in a
"We as regulators should recognize that boards of directors
have a fiduciary duty to the corporation and should limit our
intervention to clear cases of abuse," he said.
Morisset said the Quebec proposal was not a response to any
specific deal, and he did not expect it to impede future bids
for Canadian companies.
A period of public consultation will begin after both the
Quebec and national proposals are published. The plans were
first reported by the Globe and Mail, which cited sources it did
The CSA expects to present a draft policy in mid-March, said
Mark Dickey, a spokesman for the Alberta regulator, which
currently heads the rotating leadership of the CSA. He declined
In 2010, the British Columbia securities regulator quashed a
poison pill defense initiated by Lions Gate Entertainment Corp,
while it was being eyed by corporate raider Carl Icahn, ignoring
a planned shareholder vote on the matter. Icahn eventually
walked away from the proposal.
That ruling contrasted with the Ontario Securities
Commission's September 2009 decision in the Neo Materials case,
where the regulator ruled that because it had been ratified by
shareholders, a poison pill could remain in place for an
indeterminate time to fend off an unsolicited partial takeover