Update on Take-over Bid Defensive Tactics Law and Regulation in Canada – The Securities and Corporate Disconnect Continues

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“… in our view, Neo does not stand for the proposition that the Commission will defer to the business judgment of a board of directors in considering whether to cease trade a rights plan, or that a board of directors in the exercise of its fiduciary duties may “just say no” to a take-over bid.”

the Ontario Securities Commission in Re Baffinland Iron Mines Corporation (December 2010)

“In Canada, it has been clear since Teck that where directors have carried out reasonable enquiries to inform themselves as to where their company’s best interests lie and are bona fide of the belief, based on reasonable grounds, that a proposed takeover will run contrary to those interests, they are entitled to use their powers to take defensive measures.”

the British Columbia Court of Appeal in Icahn Partners LP v. Lions Gate Entertainment Corp. (May 2011)

Introduction

In a two-day span in October 2011, two Canadian securities commissions released their written decisions to allow shareholder rights plans (poison pills), which had been challenged by hostile take-over bidders, to remain in place for a specified time period following which they would be cease traded. In both cases, Re Mosaid Technologies Incorporated in Ontario and Re Afexa Life Sciences Inc. in Alberta, the reasons for the decisions made no mention of the pronouncements on directors’ fiduciary duties contained in the reasons of the Supreme Court of Canada in the 2008 case of BCE Inc. v. 1976 Debentureholders. These omissions served, along with the earlier commentary of the Ontario ecurities Commission (OSC) in Baffinland quoted above, as additional confirmation that BCE would not play a role in the outcome of poison pill hearings, at least for the time being. his was the case despite an earlier, opposite indication from the OSC in Re Neo Material Technologies Inc. in 2009.

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