Tuesday, May 4, 2010
Apparently, there are limits to the use of poison pills in Canada. As you likely know, Carl Icahn has a tender offer pending for all of the outstanding stock of Lions Gate. In response to Icahn appearing, Lions Gate amended its shareholder rights plan. Icahn then brought an action with the British Columbia Securities Commission seeking to have the plan nullified. Last week, the British Columbia Securities Commission ordered a halt to any trading of securities to be issued to be issued pursuant to Lions Gate's pill. Notwithstanding the order, Lions Gate management is still scheduled to submit the plan to LGF shareholders for approval on May 12, 2010. To that end, management is still recommending shareholders vote in favor.
A couple of things worth noting with respect to shareholder rights plans in Canada. In general, the provincial securities commissions have the right to review such plans. In reviewing such plans, the commissions will apply their own version of intermediate scrutiny. In re Royal Host provides the Canadian framework for thinking about whether or not a board must pull a pill. In re Royal Host entails and examination of relevant factors, including: 1) when the plan was adopted; 2) whether shareholders had approved the plan; 3) whether there is broad support for the continued operation of the plan. This standard has been widely adopted by Canadian regulators - the provincial securities commissions. In a subsequent case, Falconbridge, the Ontario Securities Commission applied the Royal Host approach in nullifying a shareholder rights plan. The BC Securities Commission has also previously applied the Royal Host approach.
Although the Commission did not make its reasons for nullifying the Lions Gate pill known, one can guess that the BCSC applied the Royal Host factors to the facts (pill adopted in response to Icahn appearing; shareholders have not yet approved the plan; and there appears to be shareholder support for the Icahn offer) and decided that on balance, the shareholders would be better off without the pill in place.