Public Tender Offers

Question 1

What are the principles and goals of the Securities Act ?

Answer 1

1. Disclosure (access to adequate info for informed decision)
2. Fairness (all S/H be treated fairly)
3. Time (S/H have sufficient time to seek best possible offer and make good decision)

Its here to block creeping takeovers (buying shares dscretly till 20%)

Question 2

What is a take-over bid ?

Answer 2

-People wanting to buy shares amounting to 20% of the company to take control of the company.

Question 3

What are the rules of control for takeovers ?

Answer 3

Rule 1: 10% = Alert

• publish a press release, with another after each 2%
• owners with 10% must disclose their intentions clearly

Rule 2: 20% Take Over Bid
-anyone buying more than 20% must make a public offer to all S/H

Rule 3: Trigger

• an offer triggers S/H protection mechanisms
• documentation (circular) must be prepared for S/H

Question 4

What is the director’s circular ?

Answer 4

• Written by target company
• Contains recommandation of the board
• Contains reasons for recomm.

Question 5

What are the defences against takeovers ?

Answer 5

• Poison pill: allows current S/H to double their shares (usually ends up in court)
• White knight: finding another competing buyer to save the company

Question 6

What is fairness opinion ?

Answer 6

• Independent directors form a Committee of the Board
• They hire advisors who provide a fairness opinion
• Possibility of competing bids
• Withdrawal rights (if they change their mind, or accept another offer)
• Other recourses (cancel, compensation, price readjustment, etc…)

Question 7

Ways to takeover stocks from dissenting S/H ?

Answer 7

1. Acquire 90% of issued and outstanding shares
2. Acquire 66% or more of shares. Then call a meeting for a merger with a company he owns. Vote at 66% yes. Offer preferred shares to the remaining s/h. When the merger is done, buy back the shares –> 100%.

Question 8

What is a tender offer ?

Answer 8

Offering s/h of company to buy their shares for a fixed priced, placed at a premium compared to the market price of a share.

Question 9

What is a proxy fight ?

Answer 9

Lobbying with shareholders to convince other s/h to vote out management, for another one willing to accept a take over.

Question 10

What is the problem with Insider bids ?

Answer 10

• An insider that has 10% of stocks
• May have access to insider information
• Need independant evaluation of the offer (not the Board) required by Regulation 61-101

Question 11

What are the 6 benefits of allowing Public Tender Offers ?

Answer 11

1. Legitimate right of shareholder to do an OPA
2. Let S/H investments realize their value
3. All S/h can receive a part of the premium
4. Can bring drastic change to a company (discipline)
5. Elimnates inneficient companies. Ensures Optimal allocation ressources
6. Maximize wealth and productivity in economy (the threat makes management more responsible)

Question 12

What are the 6 bad sides of allowing PTO ?

Answer 12

1. Not in the interest of all shareholders
2. Removes future growth potential of companies
3. Forces management to focus on short-term goals
4. Put management in conflict of interest situation
5. Favorable hostile takeover situations depend on external factors
6. Forces board to act solely on the price offered