Canada: TSX Proposes Security Holder Approval Requirement For Acquisitions Of Public Companies

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Mergers & Acquisitions, April 2009

The Toronto Stock Exchange (TSX) has published for comment proposed changes to its Company Manual that would require security holder approval for the issuance of securities by a TSX-listed issuer as purchase price for an acquisition of a public company if the dilution exceeds 50% of the issued and outstanding securities of the TSX-listed issuer calculated on a non-diluted basis.

Currently, the TSX does not require security holder approval for a TSX-listed issuer's issuance of securities as full or partial consideration for an acquisition of a public company.

In response to views expressed by certain market participants, the TSX initially requested comments in October 2007 regarding its security holder approval requirements for acquisitions of public companies. This matter recently gained importance as a result of HudBay Mineral Inc.'s proposed acquisition of Lundin Mining Corporation. In that transaction, HudBay proposed to issue shares as consideration that exceeded 100% of its issued and outstanding shares without obtaining approval from its shareholders. The TSX approved the listing of the shares without requiring shareholder approval. In January 2009, the Ontario Securities Commission ordered that HudBay could not proceed with the share issuance without obtaining approval from its shareholders. In so ordering, the Commission noted that, in its view, the proposed dilution without shareholder approval was "extreme". See our January 2009 Blakes Bulletin on Mergers & Acquisitions: Ontario Securities Commission Determines Fair Treatment of Shareholders Requires Purchaser to Obtain Shareholder Approval for Dilutive Acquisition.

The TSX has asked a series of questions in connection with the proposed changes to its Company Manual, including whether the 50% dilution threshold for requiring shareholder approval should be amended to a different threshold, such as 25%, 30%, 40%, 75% or 100%.

The comment period expires on May 4, 2009. The TSX has advised that upon completion of the comment period, it may adopt the proposed changes without further comment, even if it modifies the proposed 50% dilution threshold.

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