New takeover rules would give boards more time to fight back

Canadian regulators have proposed new rules on hostile takeover bids that will give company directors more time to find alternatives to an unwanted takeover.

The new rules proposed by the Canadian Securities Administrators would require that takeover offers stand for a minimum of 120 days, rather than the current minimum of 35 days.

That would give boards more time to search for alternative bids or try to convince shareholders that the deal is not acceptable.

Other rules proposed by the CSA, which represents provincial and territorial securities administrators, include:

- Requiring hostile bidders to gain support from holders of 50 per cent of a target company's shares.

- Offering a 10-day grace period after the 50 per cent is met for shareholders to select an option.

These last two proposals seem reasonable in an effort to "reduce the coercive pressure" on shareholders who fear if they don't accept an offer, they may miss out altogether, said Aaron J. Atkinson, a partner at Fasken Martineau DuMoulin LLP.

But he questions lengthening the time to keep an offer on the table to 120 days.

35 days 'insufficient'

"Everyone could agree that the 35-day period was insufficient," Atkinson told CBC News.

But earlier proposals had suggested 60 or 90 days, rather than 120 days to keep a hostile bid open. Atkinson said bidders might be scared off because they'd have less chance of succeeding.

"One of the reasons to extend the time period is to give the board time to get an alternative bid," he said.

Getting a new bidder is time-consuming because they must have a chance to do due diligence and reach a new prices.

A study by Fasken Martineau of 143 hostile takeover bids for control of Canadian-listed companies over a 10-year period found more than half were successful.

But if an alternative bidder for the company could be found, hostile bidders were likely to lose out in most cases. The average time for a new offer to be teased out was 41 days, the study found.

Bidders face increased costs and increased risk during the bidding process because of the 120-day rule, said Bradley Freelan, a corporate and securities lawyer with Fasken Martineau.

Decrease in mergers?

"We could see a decrease in the number of unsolicited bids, and perhaps of merger activity as a result of this rule," he said.

Hostile bids have the effect of keeping boards and management on their toes and can increase value for shareholders, he pointed out.

The new rules have been developed by securities administrators over the past year, since Quebec unveiled its own rules on hostile takeovers in wake of the fight for mining company Osisko.

Freelan said he believed the proposal was a compromise between the Quebec proposal, which would have given boards of directors a final say, and securities administrators from other provinces.

Interested parties have 90 days to respond to the new rules.