The Role of Private Placements in Canada's New Take-Over Bid Regime
|Lawyer||Jonathan Feldman, Matthew Prager, Chris Sunstrum|
|Area||Corporate Finance and Securities, Mergers and Acquisitions|
Article originally published in The M&A Lawyer, May 2016
Excerpt from "The Role of Private Placements in Canada's New Take-Over Bid Regime":
Meaningful changes to Canada’s take-over bid regime that took effect on May 9, 2016 are expected to significantly impact the way target boards respond to unsolicited or “hostile” take-over bids. Among other things, the new rules allow a majority of shareholders to determine (through their tender decisions) whether or not a hostile bid can proceed and provide target boards with substantially more time to persuade shareholders to reject a bid or implement alternatives to the bid. The amendments also render the primary tool historically used by target boards – the shareholder rights plan or “poison pill” – effectively irrelevant as a tactical response to a hostile bid.
Given these developments, there has been renewed discussion about the appropriate role of, and the tools available to, target boards in responding to hostile bids under the new regime. In particular, there has been an increased focus on the potential use of private placements as part of target boards’ responses to hostile bids. While a long line of decisions regarding shareholder rights plans provided a reasonable level of certainty regarding the regulatory approach to rights plans, the framework for these “tactical” private placements is less clear. This article seeks to clarify the relatively limited jurisprudence surrounding tactical private placements to date, and highlights considerations relevant to target boards considering this option as well as to bidders seeking to minimize execution risk.