The Ontario and British Columbia Securities Commissions (the Commissions) issued orders on July 22, 2016 allowing junior B.C.-based miner, Dolly Varden Silver Corp. (Dolly Varden), the target of a hostile takeover bid from Idaho-based Hecla Mining Co. (Hecla), to proceed with a proposed private placement, which was announced shortly after Hecla launched its hostile bid. While the Commissions have not yet published written reasons for the orders, their decision is notable in Canada's new takeover bid regime.

As discussed in a previous post, Canadian securities regulators enacted harmonized amendments to Canada's takeover bid regime earlier this year under Multilateral Instrument 62-104 – Take-Over Bids and Issuer Bids, including the requirement for a bid to remain open for a minimum deposit period of 105 days, which in practice has reduced the effectiveness of shareholders' rights plans as a defensive measure for targets. The Dolly Varden and Hecla case was thought by many to be a test case as to whether private placements would become the new "poison pill", with issuers using a private placement as a tactical mechanism to make a hostile bid more difficult and more expensive for an acquirer.

On June 27, 2016, Hecla announced its intention to acquire all of the outstanding shares of Dolly Varden not already owned by it and formally commenced its bid on July 8, 2016 with the filing of its offer and bid circular. Shortly after the Hecla bid was announced, Dolly Varden announced on July 5, 2016 a proposed private placement financing to raise up to $6 million (the Private Placement). On July 8 and 14, 2016, Hecla filed applications with the British Columbia Securities Commission (BCSC) and the Ontario Securities Commission, respectively, seeking an order to cease trading the Private Placement. On July 14, 2016 Dolly Varden signed an undertaking to the BCSC that it would not issue any securities under the Private Placement until the BCSC had rendered its decision. A joint hearing on the applications was held with the Commissions over two days on July 20 and 21, 2016.

The orders issued by the Commissions dismissed Hecla's applications and in doing so, allowed Dolly Varden to proceed with the Private Placement, with the effect of diluting the target's share capital and making it more costly for Hecla to complete its bid. Hecla had previously announced when filing its offer and bid circular that it would not proceed with the bid if the private placement was completed and accordingly withdrew its bid shortly after the orders were issued, on July 25, 2016.

Without detailed reasons from the Commissions, it is not yet known to what extent the Commissions will provide guidance on private placements in the context of hostile bids more generally. Acquirers and targets can expect that Canada's regulators will evaluate so-called "tactical" private placements on a case by case basis, however an argument can be made that the Dolly Varden and Hecla case has, at the very least, given targets a signal they may proceed with caution in using the private placement as a tool in their defensive arsenal in Canada's new takeover bid regime.

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