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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.

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