Recently Issued Reasons Provide Guidance On New Take­–Over Bid Regime

Updated: Jan 24, 2020

National Instrument 62-104 - Take-Over Bids and Issuer Bids
National Instrument 62-104 - Take-Over Bids and Issuer Bids

The Ontario Securities Commission ("OSC

") and the Financial and Consumer Affairs Authority of Saskatchewan ("FCAAS") have released their collective reasons regarding Re Aurora Cannabis Inc., 2018 ONSEC 10 (see here) with respect to orders granted in December, 2017 concerning an unsolicited take-over bid by Aurora Cannabis Inc. ("Aurora") for all the common shares of CanniMed Therapeutics Inc. ("CanniMed") that immediately cease traded a tactical shareholder rights plan adopted by CanniMed in the face of the hostile bid (the "Rights Plan") among several other matters raised by both Aurora and CanniMed.

After those orders were issued, CanniMed's previously announced friendly acquisition of all of the outstanding shares of Newstrike Resources Ltd. ("Newstrike") was terminated and Aurora and CanniMed reached an agreement in which Aurora would acquire CanniMed in what would be the largest M&A deals to date in Canada's cannabis sector.

The Re Aurora decision marks the first decision by securities regulators to consider both an application to cease trade a tactical shareholder rights plan and applications for exemptive relief under the new take-over bid regime set out in National Instrument 62-104 - Take-Over Bids and Issuer Bids ("NI 62-104") adopted across Canada in May, 2016. Canada's securities regulators had appeared to have been unable to find any significant consensus to proposed reforms on take-over defensive tactics, including shareholder rights plans. The regulator's involved have used this opportunity to make clear that the amendments to the new take-over bid regime are largely meant to ensure predictability of Canada's take-over regime and indicates a strong commitment by Canada's securities regulators to the new regime behind NI 62-104 and its requirements. Thus, the regulator's involved determined, among other matters, that new take-over bid regime set out in NI 62-104 (including the 105-day deposit period, the minimum 50 per cent tender condition and the mandatory 10-day extension following satisfaction of conditions) would facilitate, in most cases, sufficient opportunities for shareholders to make decisions in their own interests and that, except in rare cases, tactical shareholder rights plans will not be permitted to interfere with the new NI 62-104 take-over bid regime.

Further, the regulators noted that lock-up agreements are not only a "lawful and established feature of planning for M&A transactions in Canada," but have also become more a important feature under the new NI 62-104 take-over bid regime due to the bidder's risks to completion because of the longer the 105-day deposit period and the bidder's inability to waive the minimum tender condition. The regulators concluded that, except in rare case, tactical rights plans that seek the frustration of the use of lock-ups or the 5% exemption (CanniMed's shareholders rights plan deemed locked-up shares to be beneficially owned by Aurora, with the result that Aurora could not use the exemption to acquire up to 5% of CanniMed's shares in ordinary market transactions while the Aurora bid was outstanding without triggering the rights plan) risk being rapidly cease traded.

Given the broader Canada Securities Administrators ("CSA") general inability to previously reach a consensus on the regulation of defensive tactics even with the adoption of NI 620104, the Aurora decision's critique of the use of a tactical shareholder rights plans and the sufficiency of the new NI 62-104 regime may signal a new unified position with respect to the role that defensive tactics in an age of the new NI 62-104. The decision also likely means some new consideration on the structure of, and greater attention to constraints contained in, lock-up agreements in order that parties are not characterized as joint actors.

Endeavor Law can assist bidders, targets or boards with take-over bid compliance and disclosure matters. Endeavor Law will always seek to provide competitive pricing for any legal services requested and is pleased to discuss fee arrangements that suit any potential client.

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