NIN 96/44 - Proposed National Policy 62-202 and Rescission of National Policy Statement No. 38 Take-Over Bids - Defensive Tactics [NIN - Rescinded]

Purpose of Proposed National Policy

The purpose of the proposed National Policy is to set out the views of the Canadian securities regulatory authorities on take-over bid defensive tactics. The Canadian securities regulatory authorities are prepared to examine target company tactics in specific cases to determine whether they are abusive of shareholder rights. If the Canadian securities regulatory authorities become aware of defensive tactics that are likely to deny or limit severely the ability of shareholders to respond to a take-over bid or a competing bid, they will take appropriate action.

The proposed National Policy is an initiative of the Canadian Securities Administrators (the "CSA") and is expected to be adopted as a policy in all the jurisdictions represented by the CSA. The proposed National Policy is substantially similar to National Policy Statement No. 38 - Take-Over Bids - Defensive Tactics, which it replaces. No material substantive changes have been made to National Policy Statement No. 38.

Terms used in the proposed National Policy that are defined or interpreted in securities legislation of the jurisdiction should be read in accordance with that securities legislation, unless the context otherwise requires.

Background

In March 1984, the Ontario Securities Commission published for comment a position paper in which it indicated that it was considering a policy statement that would regulate the use of defensive tactics by the board of directors of a target company.

As a result of comments received, including comments from other CSA members, the Ontario Securities Commission published a draft policy in December, 1984 setting out its views on the use of defensive tactics, and a further substantially revised draft in February of 1986.

In August, 1986 the CSA confirmed their support for the principles in the February, 1986 draft policy of the Ontario Securities Commission and adopted National Policy Statement No. 38.

Summary of Proposed National Policy

The proposed National Policy sets out the view of the Canadian securities regulatory authorities on take-over bid defensive tactics. The Canadian securities regulatory authorities are of the view that the take-over bid provisions of Canadian securities legislation should favour neither the offeror nor the management of the target company, and should leave the shareholders of the target company free to make a fully informed decision. The Canadian securities regulatory authorities are prepared to examine target company tactics in specific cases to determine whether they are abusive of shareholder rights and, if they become aware of defensive tactics that are likely to deny or limit severely the ability of shareholders to respond to a take-over bid or to a competing bid, they will take appropriate action. The proposed National Policy also provides that prior shareholder approval of corporate action would, in appropriate cases, allay the concerns of the Canadian securities regulatory authorities.

Recent Developments

Since National Policy Statement No. 38 was adopted, new types of defensive tactics such as shareholder rights plans (also known as poison pills) have become more widespread. As a result, defensive tactics have been the subject of considerable public attention in recent years.

In respect of shareholder rights plans, certain Canadian securities regulatory authorities and courts have rendered a number of decisions on the use of shareholder rights plans during a bid. The Ontario Teachers Pension Plan Board has suggested that shareholder rights plans should, in conjunction with a lengthening of take-over bid minimum time periods, be made illegal. The Committee commissioned by the Investment Dealers Association of Canada to review take-over bid time limits recently recommended the extension of minimum deposit periods for bids but also indicated that in its view, shareholder rights plans are a matter of private contract between a company and its shareholders. In the Committee's view, the market should 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, Canadian securities regulatory authorities and the courts.

In respect of defensive tactics generally, in a paper published in February, 1996 discussing reforming the take-over bid provisions of the Canada Business Corporations Act, Industry Canada, while not proposing express statutory changes to directors' fiduciary duties, recommended amending that Act to specifically regulate what are referred to as "anticipatory defensive measures" (by requiring initial and annual approval by shareholders) as well as defensive measures taken in respect of a bid (by requiring independent director approval and subsequent shareholder approval). In each case, the resolution put to the shareholders could not be linked to another measure (such as a special dividend). In addition, there have recently been suggestions from various persons that it may be appropriate for the Canadian securities regulatory authorities to expressly regulate such matters as fees paid to bidders, as well as confidentiality agreements containing "stand-still" provisions that restrict a person from making a bid or acquiring shares without the consent of the target company.

While the above issues reflect current developments in this area, they are not being dealt with as part of the Policy Reformulation process. The CSA may consider these issues further in the future.

Unpublished Materials

In proposing the National Policy, the CSA have not relied on any significant unpublished study, report, decision or other written materials.

Comments

Interested parties are invited to make written submissions with respect to the proposed National Policy. Submissions received by January 24, 1997 will be considered.

Submissions should be addressed to all of the Canadian securities regulatory authorities listed below in care of the Ontario Securities Commission, in duplicate, as indicated below:

British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Securities Commission of Newfoundland
Securities Registry, Government of the Northwest Territories
Registrar of Securities, Government of the Yukon Territory

c/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8

Submissions should also be addressed to the Commission des valeurs mobilières du Québec as follows:

Jacques Labelle, General Secretary
Commission des valeurs mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O. Box 246, 17th Floor
Montréal, Québec H4Z 1G3

A diskette containing an electronic copy of the submission (in DOS or Windows format, preferably WordPerfect) should also be submitted. As securities legislation in certain provinces requires that a summary of written comments received during the comment period be published, confidentiality of submissions cannot be maintained.

Questions may be referred to any of:

Nora Lee
Policy Advisor
British Columbia Securities Commission
604-660-3844

Joan Pitfield
Secretary
Alberta Securities Commission
403-422-1497

Barbara Shourounis
Director
Saskatchewan Securities Commission
306-787-5645

Joanne Peters
Senior Legal Counsel
Ontario Securities Commission
416-593-8134

Antoni Dandonneau
Conseiller juridique
Commission des valeurs mobilières du Québec
514-873-5326

Documents Published for Comment

The Commission is publishing for comment the text of the proposed National Policy, together with footnotes that are not part of the National Policy but have been included to provide background and explanation. National Policy Statement No. 38 will be replaced by the proposed National Policy and will be rescinded.

DATED at Vancouver, British Columbia, on November 27, 1996.

Douglas M. Hyndman
Chair