Proposed New Framework For Rights Plans A Potential Game Changer For Hostile Bids

The Canadian Securities Administrators published for comment a proposed new regulatory framework for rights plans under proposed National Instrument 62-105 Security Holder Rights Plans and proposed Companion Policy 62-105CP Security Holder Rights Plans (collectively, "62-105"). If adopted, 62-105 would provide issuers with a game changing tool to respond to hostile take-over bids, where a target board will be able to use a rights plan as leverage to negotiate with a potential bidder.

What is a Rights Plan?

Rights plans, also known as poison pills, are defensive tactics which provide for the potential dilution of a bidder in response to a hostile take-over bid. A rights plan generally provides a mechanism which issues rights to shareholders to acquire more shares at a discount if a bidder acquires a certain percentage of the issuers' shares, typically 20%. As a result, a bidder can practically only take up shares under the bid if the target's board waives or