The Code sets out (rules 56 and 57) the process for determining the consideration that must be paid under compulsory acquisition, and the role of independent advisers (rule 57)⁷. Previously, acceptances (of the takeover offer) for voting securities controlled by the offeror or held or controlled by associates of the offeror, were included in the rule 56 calculation of the percentage of acceptances received. In addition, copies of rule 57 independent advisers’ certificates were not required to be sent to the Panel or to the Exchange.

The technical amendments:

• provide that, where a dominant owner achieves that position by acceptances of an offer, its acquisition notice must be sent no later than 30 days after the end of the offer period (instead of 30 days after becoming a dominant owner);
• exclude voting rights controlled by the offeror or held or controlled by associates of the offeror from the calculation of the percentage of voting rights obtained through acceptances of an offer, to determine the compulsory acquisition consideration under rule 56(2). The calculation needs acceptances by over 50% of the offerees not associated with the offeror; and
• provide for independent advisers’ certificates under rule 57(1) or expert determinations under rule 57(3) to be more widely available.⁸

Consideration alternatives – election by outstanding security holders ⁹

The Code requires, if a person becomes a dominant owner through acceptances of an offer, and if acceptances were received for more than 50% of the class of securities under offer, that the consideration to compulsorily acquire the outstanding securities must be the same as the consideration that was provided under the offer for securities in the same class.

As well, the Code had required that if the offer provided alternative consideration options, the consideration payable under compulsory acquisition had to be the same as the consideration under the offer if an accepting offeree did not choose an alternative (i.e. the default consideration). If no such provision was included in the offer, the consideration had to be the option with the greatest cash component.

Under those rules, an offeror could include an unattractive or unfair default consideration in its offer, which could in effect force shareholders to accept a takeover offer rather than be compelled to take the unattractive default consideration under compulsory acquisition.¹⁰

The Code now addresses the potential for such coercion by enabling outstanding security holders to nominate a consideration alternative. Accordingly, where:

• dominant ownership is attained through acceptances of an offer; and
• the acceptances comprise more than 50% of the class of securities under offer; and
• the takeover offer included alternative consideration options;

• the outstanding security holder, when returning the instrument of transfer under rule 59, can choose to be paid any one of the consideration alternatives that were available under the offer and the dominant owner must pay that consideration;

• if the outstanding security holder does not nominate a consideration alternative when returning the instrument of transfer, then the usual default consideration rules apply (i.e. if a default consideration was specified in the takeover offer then that default consideration must be paid by the dominant owner; if no default consideration was specified the dominant owner must pay the consideration with the greatest cash component).

Consideration where 50% or less acceptances of takeover offer

When a person becomes a dominant owner through acceptances of an offer, rule 56 determines the price to be paid for compulsorily acquiring outstanding securities if acceptances were received for more than 50% of the securities under the offer. In this situation, the compulsory acquisition price is the consideration that was payable under the offer, whether this involved cash, scrip, or some other form of consideration.

Rule 57 determines the consideration that is to be paid under compulsory acquisition if rule 56 does not apply (i.e. because acceptances under a takeover offer were for 50% or less of the securities under offer or because a person became a dominant owner without making a takeover offer). In these circumstances, rule 57(1) has required an independent adviser to certify as fair and reasonable a cash sum to be paid by the dominant owner for compulsorily acquiring the outstanding securities.

Rule 57(1) no longer requires an independent adviser to certify the fairness and reasonableness of the compulsory acquisition consideration where a person becomes a dominant owner through a takeover offer that was for cash