July 5, 2013

Canadian takeover regime

IGOPP submits comment to AMF and CSA

On March 13, 2013, the Autorité des marchés financiers and the Canadian Securities Administrators published, for comment, proposed amendments and changes to Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids, National Policy 62-203 Take-Over Bids and Issuer Bids, and National Instrument 62-103 Early Warning System and Related Take-Over Bid and Insider Reporting Issues. On March 14, 2013, the CSA issued an invitation to comment on the proposed National Instrument 62-105 Security Holder Rights Plans, which would establish a comprehensive regulatory framework for the treatment of rights plans in Canada.

The Institute for Governance (IGOPP) today has submitted his comments to AMF and CSA.

In its document, the IGOPP point out that the time has come to change/modernize the antiquated, obsolete regulations of takeovers in Canada. The provincial securities commissions, coordinated through the Canadian Securities Administrators, must bring forth a framework for takeover regulation that complies with Canadian laws and jurisprudence.

  • Canadian corporate governance already complies with what the activist investors are fighting for in the United States; elimination of staggered boards and separation of power between the chair of the board and the CEO, both governance principles which make it easier to carry out a hostile takeover; combined with the widespread practice of majority voting for board members, these features of Canadian corporate governance provide shareholders with the means and tools to punish an errant board.
  • The changes in shareholding since 1987 have been remarkable; as soon as a takeover offer is made public, the financial calculus of present shareholders coupled with the actions of specialized funds transform radically and swiftly the shareholder base of the target company; to consider these new shareholders as the “owners” of the corporation, the sole “deciders” of its fate, needing the benevolent protection of securities commissions against malevolent, conflicted management, seems like an imaginative scenario of times past.
  • That concept of the role of securities commissions flies in the face of the Canadian Business Corporation Act and Supreme court jurisprudence; it is high time that the CSA align their regulations with what is Canadian law; securities commissions cannot, should not, thwart the authority and responsibility of directors to act in the long-term interest of the corporation in the case of takeovers, the quintessential decision about the long-term interest of the corporation and of all its stakeholders.
  • The quaint notion that management is, ipso facto, against the takeover of their company because of inherent conflicts of interest must be updated; because of the changes in compensation system for executives and board members, the concern has become that management and boards may be too receptive to a takeover offer that may not be in the interest of the corporation and its stakeholders. The potential conflict of interest has switched side. Securities commissions should be alert to the appearance of that phenomenon and assess measures to limit this sort of conflict of interest.

For all these reasons, IGOPP and its board of directors(*) strongly support the proposals put forth by the AMF and urge other provincial securities commissions to join in this crucial effort to modernize the regulation of takeovers in Canada.

(*) However, as per the policy of the AMF, Mr. Louis Morisset of the Autorité des marchés financiers abstained