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Securities Law

NIN 96/28 - Report of the IDA Committee on Take-Over Bid Time Limits [NIN - Rescinded]

Published Date: 1996-08-23
Effective Date: 1996-08-22
On January 11, 1996, the Commission issued NIN#96/4, which discussed the formation of the IDA Committee on Take-Over Bid Time Limits (the "IDA Committee"), chaired by Adam Zimmerman, the retired chairman of Noranda Forest Inc., and which attached the IDA Committee's "Request for Submissions". The IDA Committee's primary purpose, and the subject of its Request for Submissions, was the consideration of whether the statutory minimum deposit period for formal take-over bids and related time limits properly balance the interests of target company shareholders and the interests of acquirors and, if necessary, the determination of what time periods would be more suitable.

The comment period expired on February 16, 1996, and, on July 30, 1996, the IDA Committee released a report entitled the "Report of the IDA Committee on Take-Over Bid Time Limits" (the "Report"), which is attached to this Notice. The Request for Submissions is reproduced as Appendix A of the Report and a summary of the submissions received is reproduced as Appendix B of the Report.

After extensive deliberations, which included a review of the formal submissions received during the comment period and an examination of recent take-over contests, the IDA Committee arrived at 14 recommendations, which are set out in the Report. The key recommendations are as follows:

(a) that the minimum deposit period be extended from 21 days to 35 days; and
(b) that the time periods for unsolicited bids begin when an advertisement summarizing the offer and details of the bid are placed in financial newspapers of wide circulation.

The Commission appreciates the work done by the IDA Committee on this important aspect of take-over bid regulation. The Commission, together with other members of the Canadian Securities Administrators, will be considering the recommendations contained in the Report.

DATED at Vancouver, British Columbia, on August 22, 1996

Adrienne R. Wanstall


to review



CHAIRMANTony Melman,
Vice President,
Adam Zimmerman, O.C., F.C.A.,Onex Corporation
Retired Chairman,
Noranda Forest Inc.David Mills,
Canadian Investor Relations Institute
Thomas Allen, Q.C.,Michel Plessis-Belair,
Counsel,Executive Vice President,
Davies, Ward & BeckChief Financial Officer & Director,
Power Corporation of Canada
Jamie Anderson,
Vice President & Director,
William Riedl,
RBC Dominion Securities Inc.President,
Tullio Cedraschi,Fairvest Securities Corporation
President & Chief Executive Officer,Norman Robertson,
CN Investment Division,President & Chief Executive Officer,
Canadian National Railway Co.ATCO Enterprises Inc.
Ira Gluskin,
President & Chief Investment Officer,
Paul Spafford,
Vice President & Director,
Gluskin Scheff & Associates Inc.CIBC Wood Gundy Securities Inc.
Stephen Holinski,George Taylor,
Senior Vice President & Chief FinancialPresident,
Moore Corporation Limited
Transvaal Partners
David Ward,
Verne Johnson,Vice Chairman and Managing Director,
President & Chief Executive Officer,Mergers & Acquisitions,
ELAN Energy Inc.Nesbitt Burns Inc.
Michael Lang,Michael Wiggan,
Partner,President & Chief Executive Officer,
Borden & Elliot (Committee counsel)Sceptre Investment Counsel Limited

We are very pleased to submit the report of a committee (the "Committee") that was sponsored by the Investment Dealers Association of Canada (the "IDA") and ably chaired by Mr. Adam Zimmerman, the retired Chairman of Noranda Forest Inc. The Committee's objective was to consider whether take-over bid time limits appropriately balance the interests of target companies and their shareholders with those of acquiring companies. Recommendations on this subject and on certain related matters are provided in the enclosed report.

The effort to build take-over bid rules which promote efficient and fair corporate transactions has gone on for some time. During 1989, the Canadian Securities Administrators ("CSA") formed a Sub-Committee to examine whether the statutory 21-day minimum deposit period for take-over bids was appropriate. The CSA Sub-Committee reported on its investigations in June of 1990, recommending that the minimum deposit period be extended from 21 days to 35 days to give the directors of target companies adequate time to communicate with their shareholders and encourage alternative bids to come forward. The recommendations of this particular report were not acted upon, apparently due to limited resources and competing priorities at the time, as well as other factors.

In the ensuing years, numerous Canadian companies have introduced shareholder rights plans (colloquially known as "poison pills"). These plans were generally proposed with the stated objective of extending the time period for take-over bids to remain outstanding in order to allow company directors an appropriate period in which to evaluate bids and to solicit, consider and negotiate alternatives.

A number of participants in capital markets (institutional investors, issuing companies, legal counsel and investment dealers, among others) had expressed that they were uneasy about a growing number of companies taking actions to correct perceived deficiencies in securities legislation with shareholder rights plans. These plans vary in their terms (often significantly), and questions have been raised, in some cases, as to whether such plans appropriately balance shareholder interests with company desires. Active debate has, of course, ensued during the solicitation of proxies for certain shareholder rights plans.

Given the IDA's objective fostering capital formation and the efficient functioning of the capital markets, the IDA asked Mr. Adam Zimmerman to strike and chair the Committee, which drew its members from the major participant groups in the capital markets.

The IDA Board of Directors believes that the credibility of Mr. Zimmerman and his Committee will add momentum to efforts to amend existing securities regulations and to build a more efficient regulatory regime for corporate mergers and acquisitions.

Mr. Zimmerman and his Committee have done the IDA, and issuers and investors, a great service by submitting a report on this important aspect of corporate take-over bids. These recommendations were unanimously made by the 17-person Committee. The IDA Board of Directors believes that these recommendations deserve the careful attention of securities regulators in considering appropriate amendments to Canadian take-over bid rules to promote efficient and fair transactions in the corporate sector.

Yours truly,

Michael J. Tims John A. MacNaughton
Chairman, 1995-1996 Chairman, 1996-1997
Investment Dealers Association of Canada Investment Dealers Association of Canada


This is the Report of a Committee commissioned by the IDA to review Take-over Bid Time Limits. The Committee was established to consider if the present 21-day minimum deposit period and related time limits for formal take-over bids under Canadian securities laws properly balance the interests of acquirors and acquirees and, if not, to determine what minimum time limits would be more appropriate.

The Committee's Process
  • The Committee met formally four times and a steering group met on several other occasions.
  • Submissions were invited from the Canadian Securities Administrators, the Canadian stock exchanges, the Director under the Canada Business Corporations Act, the Canadian Shareowners Association, the Canadian Investor Relations Institute and the Investment Funds Institute of Canada.
  • A Request for Submissions document (set forth in Appendix A to this report) was also published in the weekly bulletins of the British Columbia, Alberta, Ontario and Quebec securities commissions.
  • The Committee received ten written submissions from interested parties (summarized in Appendix B to this report) and considered the comments and recommendations made therein.
  • The Committee examined the issues in the context of a number of recent take-over contests, considered the first hand experience of Committee members and the experience in the United States.
  • The Committee debated the issues at length and believes it considered the legal, strategic and practical implications of its recommendations. While members' preferences varied on certain details, the Committee was unanimous in endorsing this report.

Principal Observations
  • Although the submissions received varied widely, they lacked passion. Nevertheless, given the profusion of shareholder rights plans (SRPs) and resultant controversy, the Committee judges that a large number of market participants feel strongly about the issues.
  • The current statutory scheme appears to the Committee to accomplish its original objectives of (i) giving the acquiree company's board ample time to analyze a bid and inform shareholders, and (ii) providing the acquiree company's shareholders with a reasonable period of time to assess the information provided and make a considered decision on the bid. Further, no evidence has been brought to the Committee's attention that the current rules have precluded the development of auctions for corporate control. In fact, 11 of 13 hostile bids launched in Canada in 1994-95 either lost out to higher competing bids or succeeded only at a price higher than the initial bid price (although SRPs were in place in the majority of these cases).
  • The Committee believes nevertheless that the current statutory scheme has the potential to limit inappropriately the time available for acquiree company directors and shareholders to optimize shareholder value by whatever means. The current regime has also encouraged the development of SRPs, which are contentious.
  • The Committee recognizes that the rules must strike a balance between targets and bidders. Thus, the minimum deposit period must not be so long as to act as a deterrent nor so short as to impede maximization of value. Take-over bid rules must primarily serve the interests of shareholders, be they large institutional or small retail investors. In the Committee's view, shareholder interests can best be served by a statutory scheme which does not unduly deter initial unsolicited bids and which optimizes shareholder choice when a change of corporate control is proposed.
  • The Committee did not hear a compelling rationale for any particular deposit period length, but the weight of opinion certainly favoured some modest extension. The Committee believes that a modest extension will not deter serious bidders, but it might properly deter a bargain buyer whose bid would not offer fair value.
  • Further, the Committee believes that SRPs are a matter of private contract between a company and its shareholders. Accordingly, the market will provide whatever discipline may be necessary on the terms and uses of such devices based on the particular circumstances of the company, subject to the oversight of the Canadian stock exchanges, securities regulators and the courts.
  • The Committee also considered the current use and effect of the 10-day period that the corporate law allows for an acquiree company to deliver a shareholder list to a bidder. Currently, take-over bids are frequently delayed by acquiree companies deliberately utilizing the full 10 days available. This 10-day period was set in a pre-computer, pre-CDS era and consequently has little to do with today's reality. The Committee believes that it is inappropriate to allow this tactical delay in the process to acquiree companies and would be ultimately far better for shareholders if this period of non-public activity were converted into more time for the bid to be exposed to the market. The Committee, therefore, considered whether it would make sense to reduce this period to three business days so that bids could be launched earlier and directors could get on with their task. However, recognizing that it may be difficult to implement such a recommendation uniformly for all acquiree companies, the Committee has opted instead for a recommendation that permits bids to be launched by publication in the financial press.
  • Finally, except for payment rules, the Committee does not recommend any change in the computation of time limits from calendar to business days since provincial holidays are not uniform across Canada and this would unnecessarily complicate any change.


Having considered all the foregoing, the Committee recommends:

1. Minimum Deposit Period. The minimum deposit period for formal take-over bids should be extended from 21 to 35 days.

2.Prohibition Against Taking Up. The prohibition against taking up shares deposited under a bid should be extended from 21 to 35 days.

3.Withdrawal Rights. Shareholders should be entitled to withdraw shares deposited under a bid at any time up to the time the shares are taken up by the offeror, subject to the right of depositing shareholders to withdraw their shares if such shares have not been paid for within three business days after take up.

4.Directors' Circulars. The time period for delivery of a directors' circular to shareholders should be extended from 10 to 15 days after the mailing of the bid. No change is recommended in respect of the current rules for delivery of the target board's recommendation or decision in respect of the bid.

5.Bid Extensions. The minimum period that a bid must remain open for acceptance following an amendment or variation should remain unchanged at 10 days. However, the requirement that shares be paid for (as opposed to simply taken up) prior to an extension where all of the bid's conditions have either been satisfied or waived, should be deleted.

6. Payment. The time within which shares that are taken up under a bid must be paid for should be extended from three calendar days to three business days.

7.Issuer Bids. Equivalent changes should be made for the time periods for issuer bids.

8.Competing Bids. Competing bids should be treated no differently than initial bids, subject to the availability of discretionary relief from the securities regulatory authorities if the circumstances warrant.

9. Insider Bids. No recommendation is made with respect to the current valuation requirements for insider bids. The Committee believes that this subject is more appropriately dealt with in the context of the reformulation of OSC Policy Statement 9.1.

10.Dissemination of Information to Shareholders. The Committee has not been informed of any compelling reason to amend National Policy 41 to apply to take-over bid documents and, accordingly, no such recommendation is made.

11.Stock Exchange Bids. For consistency, the Canadian stock exchanges should increase the deposit period for stock exchange take-over bids and issuer bids to 35 days.

12.Jurisdictional Considerations. Due to ambiguity in the rule-making powers of certain of the Canadian Securities Administrators, the implementation of certain of the Committee's recommendations would require legislative amendment. In addition, the corresponding take-over bid rules in the Canada Business Corporations Act would need to be amended in order to implement the Committee's recommendations.

13. Other Business Combinations. The Committee is not recommending changes to the procedural rules for implementing other types of business combinations under Canadian corporations laws. The Committee does not believe that any of its recommendations would create significant timing advantages for other acquisition procedures.

14.Communication of Bids to Shareholders. A bidder should have the option of commencing a take-over bid by placing an advertisement containing its offer to purchase and an appropriate summary of its offering circular in financial newspapers of sufficiently wide circulation to ensure dissemination of the bid to shareholders in each jurisdiction in which the bid is made and contemporaneously delivering its take-over bid circular to the target company. The minimum deposit period and related time limits would commence to run from this date. In such circumstances, the take-over bid circular would be required to be mailed to shareholders within two business days of receipt of a shareholder list.

Due to the inter-dependence of many of these recommendations, the Committee would not support the selective implementation of recommendations contained in this Report. In particular, the Committee's recommendation in favour of a 35-day minimum deposit period is dependent upon implementing the further recommendation that bidders be allowed to expeditiously launch bids by publication without having to wait a further 10 days to obtain a shareholder list.

The Committee welcomes comments on the recommendations contained in this Report. Comments should be addressed to the Committee, in care of its Secretary, Ian Russell, Investment Dealers Association of Canada, Suite 1600, 121 King Street West, Toronto, Ontario, M5H 3T9.

May 31, 1996



The statutory 21-day minimum deposit period for formal take-over bids has been the subject of debate in Canada for some time. Indeed, many have suggested that the inadequacies of the current rules have been primarily responsible for the proliferation of shareholder rights plans throughout corporate Canada during the past eight years.

In response to interest expressed by the Canadian Securities Administrators, the Canadian stock exchanges, investment professionals and corporate executives to examine this issue and consider recommendations for reform, the Investment Dealers Association of Canada is sponsoring a committee (the "Committee") to investigate whether the 21-day bid period and related time limits properly balance the interests of shareholders of target companies and the interests of acquirors and, if not, to determine what time periods would be more appropriate. The Committee will also consider the impact of any recommended changes on the procedural rules for implementing other types of business combinations.

The Committee is chaired by Adam Zimmerman, F.C.A., Retired Chairman of Noranda Forest Inc. Other members of the Committee include:

-- Thomas Allen, Q.C., Counsel, Davies, Ward & Beck

-- Jamie Anderson, Vice President & Director, RBC Dominion Securities Inc.

-- Tullio Cedraschi, President & Chief Executive Officer, CN Investment Division, Canadian National Railway Co.

-- Ira Gluskin, President & Chief Investment Officer, Gluskin Scheff & Associates Inc.

-- Stephen Holinski, Senior Vice President & Chief Financial Officer, Moore Corporation Limited

-- Verne Johnson, President & Chief Executive Officer, ELAN Energy Inc.

-- Michael Lang, Partner, Borden & Elliot (the Committee's counsel)

-- Tony Melman, Vice President, Onex Corporation

-- David Mills, President, Canadian Investor Relations Institute

-- Michel Plessis-Belair, Executive Vice President, Chief Financial Officer & Director, Power Corporation of Canada

-- William Riedl, President, Fairvest Securities Corporation

-- Norman Robertson, President & Chief Executive Officer, ATCO Enterprises Inc.

-- Paul Spafford, Vice President & Director, CIBC Wood Gundy Securities Inc.

-- George Taylor, President, Transvaal Partners

-- David Ward, Senior Vice President & Managing Director, Mergers & Acquisitions, Nesbitt Burns Inc.

-- Michael Wiggan, President & Chief Executive Officer, Sceptre Investment Counsel Limited

The Committee's objective is to produce an interim report following a process that will involve an examination of the issues in the context of recent take-over contests, including input from corporate executives, investors, acquirors, professional advisers and regulators, as well as consideration of the experience in other jurisdictions. The Committee will publish its interim recommendations for public comment and consider any comments received in preparing its final report.

Request for Submissions

As part of the process described above, the Committee is seeking submissions from interested parties on the issues outlined in this notice. Submissions should be in writing and addressed to:

Committee to review Take-over Bid Time Limits
c/o Investment Dealers Association of Canada
Suite 1600
121 King Street West
Toronto, Ontario
M5H 3T9

Attention: Ian C. W. Russell
Secretary to the Committee
Fax: (416) 364-0753

Questions may be referred to: Ian C. W. Russell
Vice President, Capital Markets
Investment Dealers Association of Canada
(416) 364-6133

Submissions should be made by February 16, 1996.

Issues on Which Comments are Requested

(i) Fulfilment of Target Directors' Fiduciary Obligations

The current procedural rules governing take-over bids made by way of take-over bid circular ("circular bids") contained in provincial securities acts and federal corporations legislation are largely based on the recommendations of the Attorney General's Committee on Securities Legislation in Ontario (the Kimber Committee) issued in 1965. These rules were intended to (i) give management of the target company an ample opportunity to inform shareholders of its analysis of a bid, and (ii) provide target company shareholders with a reasonable period of time within which to assess the information required to be provided to them.

With the growth of hostile take-overs and the developing body of jurisprudence on the legal duties of directors when faced with a take-over bid, a further rationale for the minimum bid period has evolved which the original 21-day period was not designed to address: i.e., to provide the target's directors with sufficient time to fulfil their fiduciary duties. Generally, directors have considered it their duty in a take-over context to take all reasonable steps to maximize shareholder value -- to obtain the best available transaction for shareholders in the circumstances. This often necessitates embarking on an intensive and time consuming process to solicit bids from other potential acquirors.

Does the 21-day minimum deposit period operate to constrain directors from discharging their legal duties when responding to an unsolicited take-over bid? The Committee particularly would like to know of any situations where the development of an auction for corporate control was seriously impeded by the statutory take-over bid time limits.

If the current minimum deposit period operates as a constraint, what is an adequate length of time for a target's board to assess a take-over bid and explore alternatives for increasing shareholder choice and maximizing shareholder value consistent with the fiduciary obligations of directors in these circumstances?

Should a longer minimum bid period be prescribed for certain types of bids: for example, partial bids, securities exchange bids or securities exchange bids that offer securities for which no established trading market exists? The Committee would like to know whether certain types of bids require a longer period for the target's directors to evaluate and appropriately respond.

If the minimum bid period is extended, should the target's directors and/or shareholders be allowed to consent to or authorize an abridgement of the minimum bid period (e.g., to facilitate a negotiated acquisition or where the target company has already been extensively "shopped") and, if so, under what conditions? What would be the likely impact of such an abridgement power on the development of a control auction? For example, would potential suitors be expected to demand that target boards invoke such an abridgement power as a pre-condition to making competing bids?

If a take-over bid is made by an insider (an "insider bid"), the insider-bidder must obtain an independent valuation of the target company's shares and include a summary of the valuation in its take-over bid circular. However, unless the bid is likely to be considered as hostile, the valuation must be prepared under the supervision of a special committee of the target's independent directors. In practice, this valuation requirement (rightly or wrongly) affords some leverage to the target's independent directors in price negotiations with the insider.

If the minimum bid period is sufficiently extended, should the obligation to furnish a valuation in the case of an insider bid be shifted from the insider-bidder to the target's board of directors?

(ii) Dissemination of Information to Shareholders

In assessing the adequacy of take-over bid time limits for the dissemination of information to the target's shareholders, it is recognized that shareholders are not a homogeneous group. For example, large institutional shareholders are typically better informed and capable of more sophisticated valuation analyses and, thus, may be expected to require less time than retail investors to make decisions in respect of take-over bids. Investment counsellors managing pension and other funds may need more time than other investors to notify custodians and, if necessary, consult with and obtain instructions from their portfolio clients with respect to take-over decisions. Further, an increasing number of securities are held in the book-based system of Canadian clearing agencies and take-over bid time limits must be sufficient to accommodate the delivery of take-over bid disclosure documents to non-registered shareholders of the target company.

Do take-over bid time limits need to be extended to ensure that shareholders have sufficient time to receive and assess the information required to be provided to them, to seek professional advice and/or instructions, as required, or to arrange for the timely deposit of their shares under a bid?

Should National Policy 41 (Shareholder Communication) be amended to mandate the delivery of take-over bid disclosure documents to non-registered shareholders of reporting issuers or do the dynamics of take-over bids (including the activities of arbitragers) make this impractical or unnecessary?

(iii) Considerations of the Acquiror

Although the primary purpose of take-over bid regulation is the protection of the target's shareholders, the procedural rules should not unduly impede potential bidders or disadvantage them vis-a-vis the target's management. From the bidder's perspective, the longer a bid is required to be left open the greater the risk that a competing bid will be made; that hostile management of the target company will embark on a course of action that may impact the bidder's perception of the target's value and, thus, its attractiveness; that market conditions may change thereby adversely affecting transaction values; or that the duration of the control contest will negatively impact both the target's and the bidder's operations. Delay may also result in increased financing costs, both in terms of larger standby charges for undrawn loan facilities and exposure to substantial "sunk" costs (e.g., up-front commitment fees) if the bid is unsuccessful.

How much weight should be given to the foregoing considerations in setting the minimum bid period?

Are the considerations different for different types of acquirors (e.g., financial versus industrial)?

What is a reasonable minimum period of time to require a bidder to leave its bid open for acceptance having regard to these considerations?

(iv) Directors' Circular and Recommendation

The current rules require the directors of a target company to send a directors' circular containing prescribed information to the target's shareholders not later than 10 days after the date of a take-over bid. The directors' circular need not contain the board's recommendation or other decision with respect to the bid; instead, the board may advise shareholders not to tender their shares until further communication is received from the board, in which case the directors must deliver their recommendation or decision not later than 7 days before the expiry of the deposit period of the bid. If the bid is open for the minimum required deposit period, this means that technically the target's directors may have just 14 days to evaluate and respond to the bid under the current rules.

Are the current time limits sufficient to enable directors to properly evaluate an unsolicited take-over bid and formulate a meaningful recommendation to shareholders with respect to such a bid?

If the minimum bid period is extended, when should the board be required to deliver its directors' circular and communicate its recommendation or decision to shareholders in respect of a bid?

Should an extension of the target board's response time merely be proportional to an extension of the minimum bid period or should the operative consideration be to inform the market of the target board's position as soon as possible after the terms of the bid are known?

What is a reasonable period of time to allow shareholders to receive and assess the information contained in the target board's directors' circular or subsequent notice(s) of change thereto?

(v) Shareholder Rights Plans

Canadian corporations have turned to shareholder rights plans as a private solution to deal with the inadequacy of the minimum bid period. While those corporations that have adopted rights plans cite a number of reasons for doing so, the primary justification given for their adoption has been the need to extend the minimum deposit period of an unsolicited bid.

If the minimum deposit period is extended in a way that effectively addresses the inadequacies of the current rules, should rights plans and other process control devices be prohibited or should the appropriateness of their use be left to the courts and securities regulators to determine, based on the facts of each case, under existing legal and administrative remedies?

If rights plans are not to be banned, should the regulatory requirements for their adoption be changed, for example by requiring a shareholder approval level higher than a simple majority where the plan's "permitted bid" criteria go beyond the statutory take-over bid requirements?

If, in the event of an extension of the minimum deposit period, a corporation's board wishes to retain a rights plan in place, should the corporation be required to re-submit the plan for shareholder approval?

Securities regulators have clearly indicated that they will intervene to disarm rights plans that are being used in a manner that is likely to deny or severely limit the ability of shareholders to respond to a bid or competing bid. Given this regulatory position, should a corporation's board and its shareholders be allowed to choose the "rules of engagement" for a take-over of the corporation: for example, to choose between the status quo -- the current 21-day bid period plus whatever additional time a rights plan may afford -- and an extended minimum bid period but without the option of adopting a rights plan?

(vi) Incidental Considerations

1. Withdrawal Rights. For what periods of time, and under what circumstances, should shareholders have withdrawal rights? Should withdrawal rights be structured to take into account concerns about unreasonably exposing bidders to competing bids or should they extend up until the time that a depositing shareholder's shares are taken up under a bid?

2. Competing Bids. What is the appropriate treatment of competing bids? Should the procedural rules be structured so as to encourage competing bids or otherwise achieve neutrality between an initial bidder and competing offerors, or should the "first off the mark" always enjoy a timing advantage? If the target's board and/or shareholders are allowed to shorten the minimum bid period, should the abridged period apply to all competing bids as well?

3. Bid Extensions. Should the minimum 10-day extension period, or the circumstances in which an extension is required, be changed? If so, in what way?

4. Issuer Bids. If the minimum deposit period for take-over bids is extended, should the same extended period apply to issuer bids? For purposes of issuer bid time limits, is it appropriate to distinguish between issuer bids that are initiated in response to a take-over threat and those that are not? If the 21-day period is considered sufficient in the latter case, should the deposit period of an issuer bid be required to match the minimum deposit period applicable to take-over bids if a take-over bid is already in progress or if a competing take-over bid is subsequently made?

5. Jurisdictional Considerations. What are the implications of changes to the take-over bid time limits for Canadian-U.S. cross-border acquisitions? What are the implications for national take-over bids of a lack of provincial and/or federal uniformity in take-over bid time limits? The Committee would also like to know whether those securities commissions having rule-making authority are of the view that changes to their province's take-over bid procedures can be implemented through their rule-making power or whether amended legislation will be necessary.



NOVA Corporation

NOVA recommends that the current 21-day minimum bid period should be maintained for take-over bids which have been negotiated (by management and/or a significant shareholder) and approved by the target company's board of directors ("negotiated bids"). Once a negotiated bid has been made, any competing bid should similarly be open for the 21-day period provided it is accompanied by a financial adviser's opinion that the terms of the competing bid are at least financially equivalent to the negotiated bid.

NOVA is of the view that in the case of an unsolicited bid, 21 days is insufficient time for a target's board of directors to properly exercise its fiduciary duties. In such case, NOVA recommends a minimum bid period of between 45-90 days. The time frame and framework must be sufficiently flexible or appropriate to accommodate the interests of complex issuers (for which 90 days or more may be required) and those of less complex issuers (for which 45 days may be sufficient).

CI Mutual Funds

CI is of the view that the current 21-day minimum bid period is inadequate and acts as a constraint on the ability of directors to optimize shareholder value and interests. CI recommends extending the minimum bid period to at least 35 days. CI also recommends that securities legislation should recognize the ability of the target's directors and/or shareholders to consent to abridged time periods.

TransAlta Corporation

TransAlta does not make any specific recommendations. Rather TransAlta encourages the Committee to consider some of the reasons why shareholder rights plans are implemented to relieve against coercive elements of bids, such as to provide adequate time for the target to explore and solicit alternatives, and to provide for shareholders the right to oppose a weak bid but not be penalized financially if the bid goes ahead. TransAlta notes that shareholder rights plans have addressed the latter issue by requiring permitted bids to remain open for a further 10 days after the minimum acceptance condition has been satisfied, so as to allow shareholders who initially opposed the bid to tender.

ELAN Energy Inc. and Mark Resources Inc.

ELAN and Mark are jointly of the view that, in all but very limited circumstances, the 21-day minimum deposit period and the 10 days for the preparation and delivery of a directors' circular are inadequate given the extensive array of tasks which the board and management face following the announcement of a bid. These circumstances have led to the recent proliferation of shareholder rights plans; however, rights plans are a cumbersome, isolated and ad hoc means of dealing with the much broader corporate governance issue. ELAN and Mark point to the 1990 CSA proposal to extend take-over bid time limits and state that the reasons forming the basis of that proposal are even more compelling today. No specific recommendations were made but ELAN and Mark voice support for any initiative that addresses the problem.

Canadian Bankers Association

The CBA restricts its comments to the issue of the adequacy of the current time periods for the dissemination of information to shareholders. The CBA is of the view that the current time frames make it difficult for foreign clients to evaluate three critical elements in a take-over bid: (i) determination of the issues and prospects of the current situation; (ii) identification of the offeror and its qualifications, history, etc.; and (iii) the merits and future prospects of the proposal. The CBA points to several changes in the area of institutional custody that have created impediments for intermediaries and affected the timing of the communication process with international investors. The CBA recommends extending the minimum bid period to 35 days and expanding SEDAR to provide electronic delivery/access to take-over bid documentation as an ancillary service, supporting the current paper based processes. The CBA also advocates amending National Policy 41 or establishing a separate policy to ensure that materials are distributed by bidders to shareholders (both registered and beneficial) in a timely fashion.

Pope & Company

Pope is of the view that the current take-over bid rules are grossly unfair to offerors and often result in harm to shareholders. Pope argues that there is no difference in principle between a purchase and sale of shares privately or in the open market and a take-over bid. Buyers should be free to set their own conditions of purchase and potential sellers should be left to make their own sale decisions.

Thus, Pope is of the view that any minimum deposit period inflicts an undue hardship on the buyer. Pope also submits that the existing legislation works to the grievous disadvantage of the investing public by discouraging potential take-over bids, adding to the expenses of the bid and serving to perpetuate incompetent management and is disruptive to the free operation of the market place. Accordingly, Pope argues for the abandonment of any and all legal restrictions on take-over bids.

The Alberta Stock Exchange

The ASE is of the view that the primary concern of take-over bid regulation is protection of the target company's shareholders. The concerns of all other participants in the take-over process, while important, are secondary to the interests of shareholders and, thus, shareholder interests should be paramount in considering whether to amend the current time periods.

While the ASE does not make a specific recommendation to extend the minimum bid period, the ASE argues that because most shareholders hold their shares through clearing agencies, the time limits should be sufficient to allow for delivery of take-over documentation to, and its assessment by, unregistered beneficial shareholders. The ASE recommends that National Policy 41 be amended at the same time that the take-over bid time limits are amended to mandate delivery of take-over bid documentation in the same manner and within the same time frames as other shareholder communications.

Ontario Teachers' Pension Plan Board

Teachers believes that it is time to reconsider the underlying statutory framework for take-over bids rather than permitting target companies to continue to rely on the perceived regulatory inadequacies in order to implement shareholder rights plans. Changes are needed to address the cause of pressure on investors, target directors, securities regulators and the courts -- i.e., the current 21-day minimum deposit period. Reform of the minimum bid period is needed, in Teachers' view, in order to provide sufficient time (i) for target directors to fulfil their fiduciary duties to offeree shareholders, including time to canvass and assess alternative transactions with a view to maximizing shareholder value, and (ii) for offeree shareholders to make a fully informed, unpressured tender decision.

Teachers recommends extending the minimum bid period to 35 days. Teachers believes that the benefits of such a modest extension would outweigh any possible additional costs imposed thereby on bidders or others. However, in Teachers' view, the target's board of directors should be permitted, in its discretion, to shorten the minimum period to 21 days provided the reasons for doing so are disclosed in the directors' circular. This would accommodate the making of friendly or negotiated take-over bids in a shorter time frame where the same concerns with investor protection are not present as in the case of a hostile take-over bid. The directors' corporate law fiduciary duties would govern how and when they would exercise this discretion. Teachers also recommends that the withdrawal period for deposited securities should match the minimum deposit period of the bid (i.e., for 35 days, unless reduced by the target's board to 21 days). In addition, Teachers recommends that the time period for delivery of a directors' circular should be extended to 15 days following the date of the bid in order to give directors additional time to analyze and communicate their analysis of the bid to offeree shareholders.

Teachers is also of the view that once the problems of the current minimum bid period are addressed by legislation, shareholder rights plans should be prohibited. Teachers is of the view that rights plans substantially diminish management's incentive to maximize shareholder value, constitute an undue burden on shareholders considering a take-over bid, and are not justified as a deterrent to coercive take-over strategies. Accordingly, Teachers recommends that the OSC invoke its rule-making power (in s.143(1) of the Securities Act) to specifically make shareholder rights plans a prohibited defensive tactic.

Staff of the Ontario Securities Commission

OSC staff is generally supportive of extending the minimum bid period. While no particular period was endorsed, the staff queried whether the 35 day period proposed by the CSA in 1990 was sufficient given the suggestions by some commentators that bid periods of 45 to 60 days may be appropriate. The staff, however, noted that the longer the period the greater the financing costs to the bidder and the more likely that a competing bid or transaction will occur, which may conceivably reduce the number of bids. Staff also supports giving a target board the discretion to reduce any new longer minimum period to a shorter period, 21 days or perhaps (for harmonization) the U.S. standard of 20 business days. However, the staff suggest that such a decision might require the support of a special committee of target company's independent directors in the case of an insider bid.

In the case of insider bids, the staff suggest that if the current valuation requirement creates timing difficulties for offerors, one solution might be require the target's board to include the valuation in the directors' circular. However, a 45 day minimum bid period or more (together with adjustments to the time period for delivery of directors' circulars) might be required to give the board sufficient time to obtain the valuation. The staff notes that this might give competing bids timing advantages unless they too were extended.

As for dissemination of information to shareholders, the staff believe it is appropriate to seek to ensure full dissemination to beneficial shareholders as much as possible and as quickly as possible.

The OSC staff see no need to extend the time period for directors to respond, given the current flexibility to tell shareholders to "wait and see" and await a final recommendation of the board. In addition, the staff note that it is unclear whether the OSC has the power to vary the timing of delivery of directors' circulars under the OSC's rule-making power (in s.143(1)28.iii of the Securities Act, which permits the OSC to make rules varying only the periods set out in s.95 of the Act). Thus, any such change may require legislative amendment.

Regarding shareholder rights plans, OSC staff are of the view that, on balance, there does not appear to be any compelling need for additional regulation or changes to the current approaches. The staff are also of the view that making poison pills illegal would cause major difficulties for inter-listed companies or companies with major U.S. shareholder constituencies and for foreign companies offering securities in Canada under the Multijurisdictional Disclosure System on proposed National Policy 53.

The staff are also of the view that (i) it would be preferable for withdrawal rights to survive throughout the bid; (ii) there is no compelling reason to remove the timing advantage that goes to the initial bidder; (iii) if the minimum bid period is shortened by the board, the reduced period should be applicable to all bidders, while preserving initial timing advantages; and (iv) issuer bids should be subject to the same time periods as take-over bids.

Tory Tory DesLauriers & Binnington

Torys are of the view that there is adequate time under the existing take-over bid regime to inform shareholders and to permit shareholders to form a reasoned judgment whether or not to sell their shares pursuant to a bid. However, in Torys' view the current regime may, in certain circumstances, fail to provide the target directors with adequate time to enhance shareholder value through soliciting or implementing higher value alternative transactions. The current 21 day minimum bid period, in Torys' experience, is often not sufficient time for boards to do so effectively.

Torys also point out that a take-over bid regime must take into account the goal of neutrality of take-over bid rules. The rules must not unduly discourage potential offerors from making bids in the first place.

Torys makes the following recommendations which, in their view, attempt to strike a balance between the aforementioned interests:

(i) The minimum deposit period for take-over bids and issuer bids should be increased to 20 business days. An issuer should be permitted to elect to increase the minimum bid period for a particular class of securities to 30 business days provided the issuer has obtained the prior approval of the holders of the affected class of securities by simple majority vote. Such election must be re-affirmed by shareholders every five years at the issuer's annual meeting and disclosed in the issuer's annual report and annual information form.

(ii) Securities regulators should not take any action to prohibit the use of shareholder rights plans. Torys expect that if their recommendation in (i) above is implemented, many Canadian issuers that would otherwise implement rights plans, would instead rely on the statutory scheme.

(iii) The sending of take-over bid materials should not be required to comply with National Policy 41. Under current practices, shareholders receive or have access to all relevant information in a timely manner.

(iv) Directors' circulars should be required to be sent to shareholders at least seven business days prior to the expiry of a bid. However, directors should not be allowed to trade in the targeted shares until the directors' circular has been sent to shareholders and the information is adequately disseminated in the market.

(v) Following an amendment or variation of a bid, the bid should remain open for a minimum of seven business days.

(vi) Shareholders should be given the right to withdraw shares deposited to a bid at any time up to the time the shares are taken up by the offeror under the bid, subject to the right to withdraw such shares if they have not been paid for within three business days after take up.

(vii) Any changes to the current take-over regime should be implemented through amendments to the Securities Act. Any proposed amendments should be agreed to by the CSA and the Director under the CBCA.