Falconbridge Rights Plan Upheld to Prevent Xstrata from Accumulating Blocking Position

By Philip Brown, Sharon Geraghty and Karrin Powys-Lybbe

On June 30, the Ontario Securities Commission (OSC) decided that Falconbridge Limited’s rights plan, adopted in March, can remain in place until bidder Xstrata takes up sufficient shares to meet its majority-of-the-minority condition or July 28, 2006, whichever is earlier (July 28 is two weeks after the current expiry of Inco’s competing bid). Although the OSC has not yet released its reasons, it confirms that rights plans can be used to prevent a bidder from accumulating a blocking position of target shares, either through market purchases or by waiving a minimum tender condition.

Despite increasing pressure from institutional shareholders in Canada and the United States to restrict the use of defensive tactics, a rights plan is a common defensive tactic used by companies to prevent creeping takeover bids and bids not supported by the target’s board. It is also common for a bidder whose bid is being blocked to seek a cease