Canadian regulators seek more leeway for boards battling hostile takeovers

TORONTO – Provincial security regulators are proposing a new set of rules for corporate Canada that would allow so-called poison pills aimed at preventing hostile takeovers to remain in place as long as they are supported by a majority of shareholders.

Under current rules, regulators generally suspend a shareholder rights plan after a limited time.

However, the Canadian Securities Administrators, the body representing regulators in the provinces and territories, said the changes would mean that regulators wouldn’t intervene except under extraordinary circumstances.

The CSA said Thursday that the new proposed rules would allow a rights plan adopted by the board of a company to remain in place provided majority shareholder approval was obtained within a specified time.

Shareholders would also be able to terminate a plan at any time with a majority vote.

A typical shareholder rights plan gives a company’s board the ability to issue additional stock, usually at a cheap price and with conditions that make a hostile takeover too expensive or financially poisonous.

The plans are generally intended to give boards enough time to find another deal to compete with the hostile bid, rather than stop a takeover completely.

“The CSA believe that the proposed rule will modernize, harmonize and codify an appropriate regulatory approach to rights plans in Canada,” said Bill Rice, chairman of the Alberta Securities Commission and the CSA.

“Barring exceptional circumstances, the decision to adopt and maintain a rights plan would be a matter for company boards and shareholders, not securities regulators.”

Meanwhile, Quebec’s securities regulator has also proposed an alternative plan that would give a company’s board more power to defend against hostile takeovers.

In a consultation paper of its own, the Autorite des marches financiers said “appropriate deference should be given to directors of target corporations in the exercise of their fiduciary duty.”

Regulators or the courts could be called in if the directors were not living up to their obligations under the Quebec plan.