[Last updated: 1 January 2025, unless otherwise noted]

6.1 2016 amendments

Historically, the primary tactic used in defense of a hostile takeover bid was a shareholder rights plan or poison pill. Effective from May 2016, the CSA adopted a new takeover bid regime. The new bid regime attempts to rebalance the dynamics among Canadian bidders, target boards and target shareholders, particularly in relation to poison pills. The three key elements are:

(a) Extension of the minimum bid period to 105 days

All non-exempt takeover bids must remain open for a minimum of 105 days (rather than 35 days under the prior regime), subject to a target board's ability to reduce the bid period. The increase of the minimum bid period to 105 days addresses concerns that target boards did not have enough time to respond to hostile takeover bids.

A target board may reduce the bid period:

• by issuing a news release announcing a shorter bid period for a specific takeover bid (which cannot be less than 35 days), in which case all outstanding or subsequent takeover bids will also become subject to the shorter minimum bid period (a bidder can, of course, elect to keep its bid open for longer); or
• by issuing a news release indicating that it has agreed to enter into or determined to effect a specified alternative transaction (generally, a plan of arrangement or other change of control transaction requiring shareholder approval), in which case all outstanding or subsequent takeover bids must remain open for at least 35 days.

(b) Irrevocable minimum tender condition of more than 50%

All non-exempt takeover bids must be subject to a mandatory tender condition that a minimum of more than 50% of all outstanding target securities owned or held by persons other than the bidder and its joint actors be tendered and not withdrawn before the bidder can take up any securities under the takeover bid. The purpose of this requirement is to ensure that the acquisition of control of a target through a takeover bid will only occur if a majority of independent shareholders support the transaction.

(c) Mandatory 10-day bid extension

All non-exempt takeover bids must be extended by the bidder for at least 10 days after the bidder achieves the mandatory minimum tender condition and all other terms and conditions of the bid have been complied with or waived. This requirement is aimed at alleviating the concern that target shareholders will be coerced into tendering their shares before the initial expiry of the bid (for example, to avoid the risk of being left behind as a minority shareholder of an issuer with a controlling shareholder).

6.2 Rights plans and other defensive tactics

The extended minimum bid period provides the target board more time to evaluate a takeover bid, seek an alternative transaction or attempt to enhance the takeover bid. However, the target board must at all times exercise a duty of care and act honestly and in good faith with a view to the best interests of the corporation (see also 4.1(i)).

The CSA has reiterated its position, in accordance with NP 62-202, that securities regulators will examine the actions of target boards to determine whether they are abusive of security holder rights, and it may intervene where shareholders are deprived of their ability to respond to an unsolicited bid or a competing bid. The CSA are of the view that the takeover bid provisions should favor neither the offeror nor management of the target company and should leave the shareholders of the target company free to make a fully informed decision.

The utility of rights plans to block bids (by effectively restricting any person from acquiring more than a specified threshold of securities) or to extend their time is now limited due to the longer minimum bid period which gives target boards more time to respond to a bid (being the main justification for the existence of rights plans). Furthermore, a decision of the Ontario Securities Commission (OSC), has stated that it will be a rare case in which a tactical rights plan (implemented in the face of a bid) "will be permitted to interfere with established features of the takeover bid regime such as the opportunity for bidders and shareholders to make decisions in their own interests regarding whether to tender to a bid by entering into lock-up agreements of the kind under consideration in [that] case." A recent decision of the Ontario Capital Markets Tribunal (a new independent division of the OSC) confirmed the importance of a 20% (rather than 15%) triggering threshold for rights plans in light of the take-over bid regime’s fundamental principles of predictability, transparency and fair treatment of shareholders. It remains to be seen what types of rights plans will be accepted as enhancing shareholder choice, though it appears they could be used to prevent certain creeping takeover bids which are otherwise still possible using limited transactions that are exempt from the formal bid requirements.

Also, the extended minimum bid period, the power of the target board to reduce the minimum bid period to 35 days and the corresponding costs and uncertainty provide more incentive for bidders to enter into friendly transactions with target companies rather than to commence a hostile bid.