In light of Elon Musk’s recent take-over bid of Twitter, many people may be wondering how someone can take control of a company when they do not own it in. Although there will be slight differences in American and Canadian securities law, we will review a take-over bid from the Canadian law Perspective.
Let’s begin by looking at the definition of a take-over bid according to NI 61-104. A take-over bid “means an offer to acquire outstanding voting securities or equity securities of a class made to one or more persons, any of whom is in the local jurisdiction or whose last address as shown on the books of the offeree issuer is in the local jurisdiction, where the securities subject to the offer to acquire, together with the offeror’s securities, constitute in the aggregate 20% or more of the outstanding securities of that class of securities at the date of the offer to acquire.” In more simplistic terms, a take-over bid is triggered once there has been an offer or purchase of securities which total 20% or more of the outstanding securities.
Now that we know that 20% or more of outstanding securities must be purchased to trigger a take-over, it is important to understand that the 20% threshold can be met by one person or multiple people acting as “joint actors.” Even the wealthiest man in the world (Musk) secured funding for his $44 billion Twitter acquisition, so for large take-overs, partnering with others will likely be an easier way to secure funding.
Once funding has been secured then it is time to make the bid. An offeror has a duty to make their bid to all shareholders of the class of securities subject to the bid. It is important to note that the bid made to shareholders of the same class must receive identical consideration. This will also apply in the situation where consideration has been increased prior to the expiry of the bid where each shareholder who agreed to a lower price, will then receive the newer increased consideration. Relating this to Musk’s take-over, he offered shareholders $54.20 per share which means that all shareholders in that class received $54.20 per share and if the offer had been increased before the bid expired, shareholders would receive the increased price per share.
Now that we have some knowledge of a take-over, the next question is how a take-over bid is communicated. There are two ways the commencement of a take-over bid can be communicated which are set out in NI 61-104 section 2.9(1). A take-over bid can be communicated through either publishing an advertisement containing a brief summary of the take-over bid in at least one major daily newspaper or through sending the bid to security holders. There are pros and cons to each but when a bid is sent to shareholders, this will require the offeror to obtain a list of shareholders which will tip off the target. Additionally, this delays the commencement of the bid and allows the target 10 days to provide a shareholder list whereas publishing a newspaper advertisement allows the bid to be commenced on the date of publication.
Once the take-over bid has been commenced, the offeror must allow a minimum of 105 days for the bid to be accepted. To aid shareholders in making their decision, the board of directors of the offeree must prepare and send a directors’ circular to every person to whom the bid was required to be sent not later than 15 days after the bid. The directors’ circular must evaluate the terms of the take-over bid and recommend to security holders whether they accept or reject the bid as well as state reasons for their recommendation. The directors’ circular can also state that they are unable to make a recommendation but must state reasons as to why. At this point, it is now up to the shareholders to weigh the information provided in the directors’ circular along with their personal opinions to decide whether to sell their shares to the offeror.
Written by Mark Pearlman (June 22, 2022)
 NI 61-104 s. 2.8.