Canadian Update: Shareholder Value Enhanced Through Sufficient Time to Generate Alternative Transaction

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On April 2, 2014, Osisko Mining Corporation announced a superior alternative to Goldcorp Inc.’s unsolicited offer for Osisko in the form of a partnership with Yamana Gold Inc. resulting in Osisko’s shareholders receiving cash and share consideration with an implied value representing a 22% premium to Goldcorp’s offer. This transaction was announced 79 days after Goldcorp announced its intention to launch its unsolicited offer.

Osisko was able to afford itself time to complete its auction process and enter into a superior transaction by commencing a proceeding against Goldcorp alleging misuse of confidential information. This litigation was settled with Goldcorp agreeing not to take up shares until April 15, 2014 (92 days after the announcement of the offer) and with Osisko agreeing to waive its shareholder rights plan on the earlier of April 15, 2014 and the date Osisko entered into any third-party transaction.

In March 2013, the Canadian Securities Administrators proposed National Instrument 62-105, setting out a new regime for the regulation of shareholder rights plans in Canada. The proposed rule would shift decision making regarding rights plans from securities regulators to shareholders, to allow a rights plan adopted by a target board to stay in place, provided shareholder approval is obtained within specified periods. The principal implication of the proposed rule is that a target company will be able to forestall an unsolicited bid for 90 days or longer, if shareholder approval is obtained, which increases the amount of time available to seek out alternatives. Our summary and discussion of the proposed rule can be found here.

Proposed National Instrument 62-105 is reflective of a regulatory mindset that a significantly longer period than the statutory minimum 35-day bid period, or the 45- to 60-day period that has commonly resulted from hearings to cease trade rights plans, should be provided to the target board in order to allow it to run a process with the greatest prospect of maximizing value for the benefit of shareholders.

In the case of Osisko, it was able to afford itself sufficient time through tactical litigation, and the time paid off in a deal that appears to provide superior value to the initial Goldcorp offer. It remains to be seen whether Goldcorp will top the Yamana transaction.