Canada Regulators Propose Rules Making Hostile Takeovers Harder

Canadian securities regulators are proposing rules for so-called poison pills that would allow companies to extend rights plans for a potentially indefinite length of time.

“Barring exceptional circumstances, the decision to adopt and maintain a rights plan would be a matter for company boards and shareholders, not securities regulators,” Bill Rice, chairman of the Canadian Securities Administrators, said today in a statement.

Poison pills are used to discourage takeover bids by diluting the stake of potential acquirers with new shares, making a buyout prohibitively expensive. Under the latest proposal, targeted companies will now have more time to seek a higher offer than the hostile bidder.

The proposed rule will allow a board to keep a rights plan in place “for an indefinite period of time and in the face of a hostile takeover bid” if the accord is approved by a targeted company’s shareholders, the CSA said.

Currently, a rights plan in Canada can only remain in effect for as long as 55 days after a takeover bid, leaving a targeted company with limited leverage to negotiate with a hostile bidder, the CSA said. That time frame has now been expanded to 90 days, under the proposal.

“The new rules mean we’re shifting away in a meaningful way from bidders to target companies,” Graham Gow, partner at McCarthy Tetrault LLP, said today in a telephone interview from Toronto.

The rule may discourage hostile takeover bids by making them more time consuming, more expensive and less certain, the CSA said.

To contact the reporters on this story: Sean B. Pasternak in Toronto at; Katia Dmitrieva in Toronto at

To contact the editors responsible for this story: David Scanlan at; David Scheer at

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