Are Private Placements The Next Poison Pill?

The recent amendments to Canada's takeover bid regime may have rendered the shareholder rights plan or "poison pill" – traditionally the most powerful weapon in a board's arsenal of defensive tactics – obsolete. The new amendments, which became effective on May 9, 2016, require a majority of shareholders to tender their shares before an unsolicited offer can be successful, thereby giving shareholders an effective veto over any hostile bid. The amendments also greatly extend the time a bid must remain open, eliminating the standard rationale for adopting a rights plan. With the poison pill out of play, could the tactical private placement take its place?

When defending against a hostile takeover bid, a board can use a tactical private placement to unilaterally assign a significant percentage of a company's outstanding equity to a party or parties that will not tender to the bidder. A recent article for The M&A Lawyer titled "The Role of Private Placements in Canada's