Take-over bid defensive tactics

Most hostile acquisition transactions are structured as take-over bids because board approval of the target is not required for the transaction to proceed. However, the target board may take action in response to the bid. Those actions may be reviewed as defensive tactics by securities regulators under their public interest jurisdiction, or by the courts under corporate law as potential breaches of fiduciary duties.

National Policy 62-202 Take-Over Bids – Defensive Tactics (NP 62-202) sets out the general views of Canadian securities regulatory authorities on defensive tactics adopted by directors of target boards in response to unsolicited take-over bids. Generally, the regulatory approach to defensive tactics is to:

  • protect the interests of target security holders and their ability to decide whether to tender to a bid
  • provide an open and even-handed environment for bidders
  • allow target security holders to make fully informed decisions

NP 62-202 does not specify a fixed code of conduct for target directors, nor does it define proper or improper defensive tactics. However, it does set out examples of defensive tactics that may come under scrutiny by Canadian securities regulatory authorities if undertaken during or immediately before a bid (if the target board had reason to believe that a bid might be imminent), including:

  • issuing, granting an option on, or purchasing securities representing a significant percentage of the outstanding securities of the target
  • selling, acquiring, granting of an option on, or agreeing to sell or acquire material assets
  • entering into a contract or taking corporate action other than in the normal course of business