* Change would better protect companies from hostile bids
* Proposal would bring Canada more in line with U.S. rules
* 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,
according to 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 conflicting provincial rulings on so-called "poison pill"
defenses to fend off unwanted suitors, the sources said.
"There has been some criticism over the years that Canada is
too bidder-friendly and that companies should have more tools at
their disposal to fight hostile bids," said Ralph Shay who heads
the securities law group at Fraser Milner Casgrain in Toronto.
Poison pills effectively raise the price of a hostile bid by
giving all existing shareholders, excluding the hostile bidder,
the right to buy additional stock in the target company at a
In Canada, boards of companies that are targets of a hostile
bid typically have limited time in which to bring an alternate
proposal before shareholders, as provincial regulators usually
quash poison pills 45 to 60 days after a bid is launched.
In recent years, regulators allowed poison pills to stay in
place indefinitely in certain cases, since a majority of the
shareholders of the target companies had ratified them.
"We did have divergent decisions, which created a bit of
uncertainty for market participants," said John Emanoilidis, a
partner with Torys, a Toronto law firm.
In 2010, the British Columbia securities regulator quashed a
poison pill defense initiated by Lions Gate Entertainment, while
it was being eyed by corporate raider Carl Icahn, ignoring a
planned shareholder vote on the matter.
In contrast, Ontario's regulator ruled in 2009 that a poison
pill set up by former rare earth processor Neo Materials could
stay in place indefinitely as a majority of shareholders backed
The new rules are being proposed by the Canadian Securities
Administrators (CSA), an umbrella group representing provincial
authorities. There is no single national watchdog overseeing
securities regulation in Canada.
While foreign takeover bids are not specifically targeted by
the plan, a string of recent bids have stirred anxieties in
Canada about the vulnerability of domestic companies, experts
One of the most controversial was BHP Billiton's
$39 billion hostile bid for Potash Corp, the
world's largest fertilizer maker, in 2010. The Canadian
government blocked the deal on the grounds it would bring no
"net benefit" to the country.
"The recent flurry of foreign buyouts has sparked a debate
over the sufficiency of tools that are available to the boards
of Canadian companies," said Emanoilidis, who co-chairs the M&A
practice at Torys. "By putting this proposal forward, the CSA is
providing more tools to directors."
Separately from the CSA initiative, 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 the ones being floated by the umbrella group.
The CSA 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 have the
backing of a majority of shareholders.
The Quebec regulator wants to go further, proposing to allow
a target company's board to impose the pill unilaterally, even
without shareholders' consent.
"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.
Last year, an unsolicited, C$1.8 billion ($1.75 billion) bid
for home improvement retailer and distributor Rona Inc
by U.S.-based Lowe's Cos, sparked a wave of political
opposition in Rona's home province of Quebec, forcing Lowe's to
withdraw its proposal.
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.
Quebec's ruling Parti Quebecois had pledged ahead of
provincial elections last year to do more to combat takeovers of
companies based in Quebec.
Morisset denied that the Quebec regulator's stance on the
poison pill issue was driven by political considerations, saying
instead "I presume our proposal will be well received ... by the
political authorities in Quebec."
A period of public consultation will begin after both the
Quebec and CSA proposals are published. The plans were first
reported by the Globe and Mail, which cited unnamed sources.
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