Canadian Lawyer

OPINION BaCk pagE by jiM MiddleMiSS New takeover rules good for business 54 august 2013 www.CANADIAN unfriendly M&A transactions. The changes, no doubt, are also unwelcome by parts of Bay Street and Wall Street, such as hedge funds looking to squeeze inept management and bring more discipline to the boardroom. They will have more bureaucracy to deal with. Fighting takeovers is lucrative for M&A practices, and that's in an environment where, according to the Institute of Corporate Directors, 86 per cent of target companies receiving an unsolicited bid between 2000 and May 2013 were subject to a change-of-control transaction. (The original bidder won 54 per cent of the time, and an alternate bidder won 32 per cent. Only 14 per cent of Canadian companies worth $100 million or more survived a bid.) Layer in new rules that bolster management's ability to fend off bids and costs for M&A will increase. Estimates suggest the recent fight by activist shareholder William Ackman for control of Canadian Pacific Railway Ltd. cost $32 million. Imagine what it would have cost if the proposed rules were in place and CP management was able to drag it out. By mid-June, few organizations had commented on the proposals and those that did generally supported them, arguing Canada is too takeover friendly. The ICD makes a strong argument why changes are needed to bring Canada in line with other countries, whose rules are more stringent. One argument is current rules are 21 years old and out of step with the Supreme Court of Canada's ruling involving BCE in its fight with its bondholders. The court ruled direc- L a w ye r m a g . c o m tors must act in the best interest of the corporation and can examine value maximization over the long term when considering the interests of all stakeholders. No doubt the rules will change, since there is widespread support among major players in the capital markets who stand to gain the most. However, it's not clear shareholders stand to gain much. The changes will further entrench management and make it harder for activist shareholders to effect change. How would Ackman's fight for CP have played out under these proposals? Would the TMX Group Inc. have been able to beat back Maple Group Acquisition Corp.'s hostile takeover if management had more tools at its disposal? Shareholders seemed happy with the premium Maple offered and rejected the TSX's favoured deal with the London Stock Exchange Group. The ICD says many hostile bids are "typically opportunistic" and "launched at times that are least optimal." Yes, but often inept management creates the "least optimal" moment. Management makes bad decisions — such as overpaying to buy a competitor or getting caught in a bribing scandal — which drive down share prices, create cranky shareholders, and spell opportunity for astute companies. Do we want to protect management in such situations? Canada's bidder-friendly environment has been around a long time. It has experienced both market highs and lows. Our companies and country survived better than most. The system seems to work fine. Do we really need these changes? It's interesting to note the proposals come at a time when shareholder activism is hitting its stride. Will the proposals facilitate that or simply create obstacles for company owners (shareholders) that want to effect change? That's hard to say, but one thing is certain, it will turn up the heat in the M&A fights and that's a good thing for law firms. Jim Middlemiss blogs about the legal profession at WebNewsManagement.com. sara tyson a s securities regulators study new rules that will provide added protections for Canadian companies facing takeovers, Bay Street law firms are likely salivating. If adopted, the proposals from the Canadian Securities Administrators in National Instruments 62-105 on security holders rights plans and 62-103 on updates to the early warning system and the proposal by Quebec's Autorité des marchés financiers on defensive tactics will create a wider moat around Canadian publicly traded companies. For example, they would create a "just-say-no defence" and impose greater disclosure on shareholders who acquire five per cent of a company, compared with 10 per cent under current rules. This is good news for most law firms. Why? Because these changes will generate tons of new work. Any time new rules or legislative changes are implemented, it means company management and boards must be advised and brought up to speed. That often translates into billable hours. The proposals will put new tools in the hands of M&A lawyers, who will create new strategies and tactics to fend off takeovers, which will then be tested in court, and lead to even higher billings in M&A dust-ups. Not only that, but the changes will entrench law firms in their relationships with corporate Canada. No doubt, most law firms are lining up behind the proposed changes. Transactional law firms that live by the deal might sweat the changes, since it will likely dissuade some merger activity. Nonetheless, they, too, will benefit by finding ways around the new rules and stand to earn higher fees from the jousting that will take place when takeover bids are launched. The new rules will probably dampen business development efforts by law firms that invest outside Canada and focus on attracting overseas companies to bid on Canadian assets. Theoretically, it will be harder, and likely more costly, for firms looking to enter Canada through

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