CANADA Law and Practice Contributed by: Kevin West, Andrea Hill, Priya Ratti and Gabriel Potkidis, SkyLaw
Early Warning Standstill An acquiror that is obligated to file an early warning report may not acquire any more securities of that class (or securities convertible into such securities) until the expiry of one business day after the early warning report is filed. Takeover Bid Rules Once an acquiror has beneficial ownership of, or con - trol or direction over, 20% or more of the outstand - ing voting or equity securities of a class, any further acquisitions of outstanding securities of that class would constitute a takeover bid that requires an offer to be made to all security holders unless an exemp - tion is available. Rights Plans Before the 2016 takeover bid regime amendments, the primary structural defence mechanism for an issuer in Canada was a shareholder rights plan (commonly known as a “poison pill”). Rights plans are still in use, albeit with some differences from pre-2016 plans. Typical features of a rights plan include the following: • Upon an acquiror’s acquisition of, or announce - ment of its intent to acquire, beneficial ownership of (typically) 20% or more of the company’s shares, all other shareholders will be given the right to purchase shares at a significant discount to the market price, substantially diluting the acquiror. • Rights plans may allow for a “permitted bid”, which typically now means one that is required to stay open for at least 105 days and includes a minimum tender condition. The primary value of a tactical rights plan adopted fol - lowing the emergence of a bid traditionally has been to buy time for a board and shareholders to consider an offer and (where appropriate) seek alternatives to the bid. As takeover bid offers must remain open for at least 105 days, it is generally expected that regulators will cease-trade a rights plan after that timeframe. Even where a regulator permits a rights plan to remain in place, certain Canadian stock exchanges may refuse a plan if it does not receive shareholder approval within six months of being implemented, which often
Equity-equivalent derivatives, such as equity swaps, generally are not included in determining whether the 10% ownership threshold has been crossed, although interests in these and other related financial instru - ments must be disclosed in reporting required once the 10% ownership threshold has been crossed. The determination of whether parties are joint actors hinges on establishing the existence of a plan of action or a mutual understanding about how share - holders will vote their shares. Having a common goal or concern is insufficient to establish that the parties are acting jointly or in concert. Early Warning Disclosure Upon crossing the 10% ownership threshold, the acquiror is subject to the early warning regime and must file a press release and an early warning report (similar to a Schedule 13D in the USA). After the 10% threshold is met, an early warning report is required for the acquisition of or disposal of additional shares that results in a 2% or more change in total share ownership. Eligible institutional investors, which include passive financial institutions, pension funds, mutual funds, investment managers and Securities and Exchange Commission (SEC)-registered investment advisers, may file a less onerous alternative monthly report (similar to a Schedule 13G in the USA). Access to the alternative monthly report regime is contingent on, among other things, the institutional investor having no current intention of acquiring control of the report - ing issuer. Insider Reporting Directors, officers, 10% beneficial owners and other “reporting insiders” of reporting issuers must file insid - er reports disclosing any change to their beneficial ownership of, or control or direction over, the report - ing issuer’s securities or interest in a related financial instrument. 4.3 Hurdles to Stakebuilding Unlike in the USA, structural defences to stakebuilding in constating documents or by-laws are not common in Canada because they are not required or would be ineffective under Canadian law.
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