March 18, 2013
Canadians reconsider the pill
There was news from up North late last week. The Canadians are considering some adjustments in their current approach to the poison pill. Presently, pills are permitted only as temporary devices that be held in place for only so long as to delay a hostile bid so that a target board can educate its shareholders and perhaps put together some sort of alternate strategy or transaction. Let's call the Canadian approach to rights plans the Interco pill. In general, Canadian approaches to takeover defenses are very much in line with Chancellor Allen approach in Interco. That is to say, in the face of an unwanted offer, the board should be motivated to either educate the shareholders of the correctness of the board's position or look to develop an acceptable alternative for shareholders. To the extent boards deploy takeover defenses they should facilitate the ability of the board to engage in either education or in increasing value for shareholders.
The draft amendments (here) to their rules on shareholder rights plans intend to make a number of subtle, but important changes in approach that nudge them closer to a US styled approach to poison pills. The amendment require approval of a majority of the disinterested shareholders withing 90 days of the pill being adopted. Any material amendments to the rights plan will require an additional shareholder vote. Then, in order for a board to keep a pill in place, the board will have to go back to shareholders annually to seek approval. Finally, a majority of disinterested shareholders could vote to terminate the rights plan at any time.
This new draft approach is a step back from the previous Canadian approach, which involved a regulator in the provincial securities regulator making a substantive determination about the reasonableness of director actions to keep a pill in place. Guided by their Interco-like principles, the question for Canadian regulators was not if a pill should remain in place, but when it should be pulled. Now, that may change. Of course, this isn't necessarily a bad thing. Nor should it necessarily be interpreted as moving towards an American (U.S.) styled approach to pills. Up in Canada undere the proposed pill regime, disinterested shareholders will have plenty to say about whether or not a pill is permitted to remain in place. Rather than make arguments to a regulator, boards will be required to make their case directly to the shareholders if they want to keep pills in place. That's not a bad thing.
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