By Euan Rocha
TORONTO, March 14 Canadian regulators unveiled proposals on Thursday on the use of poison pills as a takeover defense that are likely to make hostile corporate takeovers in the country more difficult.
The two sets of proposals, laid out by provincial securities regulators, aim to bring more coherence to Canada's regulatory regime after conflicting rulings by some provincial regulators on poison pills, which companies use to fend off unwanted suitors.
The plans will curb drastically the ability of regulators to overturn a poison pill, and give companies more ammunition to fight hostile bids through the use of the defensive maneuver.
"This represents one of the most far-reaching debates about the acquisition of corporate control that we have had in this country in almost the last 50 years," said Richard Steinberg, who heads law firm Fasken Martineau's securities and mergers and acquisitions group.
Poison pills, or shareholder rights plans, effectively raise the price of a hostile bid by giving existing shareholders, excluding the hostile bidder, the right to buy more stock in the target company at a discount.
Canadian provincial securities regulators typically quash these pills within two months, giving companies only a narrow window in which to look for an alternative proposal to the hostile bid.
But the lack of a single national securities watchdog has muddied the waters in Canada as individual provincial regulators have on occasion issued varied rulings on poison pills. Some have allowed the pills to stand indefinitely, while others have overturned them before shareholders have had a chance to vote on them.
The Canadian Securities Administrators (CSA), an umbrella group representing provincial authorities, proposes removing a regulator's ability to overturn a poison pill, provided a majority of the target company's shareholders have ratified the gambit.
The Autorité des marchés financiers - the securities regulator for the province of Quebec - outlined a separate proposal on Thursday, which it hopes will win more support than the one being touted by the CSA.
Quebec's regulator wants to give more power to the boards of target companies, allowing a board to put in place a shareholder rights plan without shareholder consent. The Quebec regulator says it would only intervene if it believes a board is abusing its authority.
"Our view is that we should look at what has happened in Canada over the last 25 years and really change our approach to these matters," Louis Morisset, the superintendent of securities markets in Quebec, said in a phone interview. "The CSA approach does not change anything or really empower boards of directors in (hostile-takeover) situations."
The implementation of either set of proposals would make hostile takeovers tougher in Canada, which has long been viewed as offering weak protection to companies in such situations.
A 90-day period of public consultation will begin now that the CSA and Quebec proposals have been published. The CSA and AMF both have indicated that they would like to see either idea, or a blend of both, be implemented across Canada as competing rules in different provinces would not be ideal.
"Our goal is to have a consistent harmonized regime across Canada," said Naizam Kanji, who is deputy director of mergers and acquisitions at the Ontario Securities Commission, the CSA's most influential member. "This is not an area in which you'd want to have differing rules across the country."