TSX approves new takeover votes

Janet McFarland

Friday, September 25, 2009

Toronto — The Toronto Stock Exchange has approved a new rule giving shareholders the right to vote on takeover deals if their ownership level will be diluted by more than 25 per cent as part of the transaction, bowing to a chorus of demands from institutional investors who have lobbied for a voice in deals that affect their ownership stakes.

The exchange had proposed a new rule this spring to give shareholders a vote when dilution would exceed 50 per cent, but faced a wall of opposition from shareholders who said the proposed threshold was too high. They complained that many other countries, including the United States and Britain, allowed shareholder votes on deals when the dilution was 20 per cent to 25 per cent.

In a notice published Friday, the TSX said it received 23 comment letters this spring on its proposal for a 50 per cent dilution threshold, and the “vast majority” were unhappy with the proposed threshold.

“TSX respects the public comment process and appreciates the value such public input provides,” the exchange said in its notice Friday.

The new requirement will take effect Nov. 24 and will not be retroactive. The exchange said that means a company will not have to hold a shareholder vote on any deal on which the TSX has been notified before that date, whether or not the deal has been approved.

Canadian shareholders have been urging reform on takeover deal voting since 2006 when Goldcorp Inc. shareholder Robert McEwen launched a court battle to try to force a shareholder vote on Goldcorp's proposed takeover of Glamis Gold Ltd.

Mr. McEwen objected to Goldcorp's plan to issue shares to fund the purchase, which diluted the shares outstanding by 67 per cent. His court challenge was unsuccessful, but the TSX said at the time it would review the issue in light of the debate.

The issue was resurrected this year when a shareholder of HudBay Minerals Inc. complained there should be a vote on HudBay's planned takeover of Lundin Mining Corp. because HudBay was proposing to pay for the purchase in shares, diluting its outstanding shares by 100 per cent.

The investor – Jaguar Financial Corp. – appealed to the Ontario Securities Commission to call a vote on the deal. Although there was no requirement to hold a vote, the OSC ruled “the quality of the marketplace” would be “significantly undermined” without one, a ruling that was expected to put pressure on the TSX to introduce a voting requirement.

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