Canada's largest shareholders say they will expect major public companies to immediately abide by new takeover rules unveiled yesterday by the Toronto Stock Exchange, even though the standards will not take effect for two months.
The TSX said it 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 new requirement will take effect Nov. 24 and will not be retroactive. That means a company will not have to hold a vote on any deal the TSX has been notified about prior to Nov. 24, whether or not the deal has been approved.
Stephen Griggs, executive director of the Canadian Coalition for Good Governance, which represents many institutional investors, said he is pleased Canada is adopting the same standard already in place in many other major countries. But he said he would have liked to see the rule in place immediately. "Any transaction that is sort of rushed through to take advantage of this temporary loophole would be looked on very unfavorably by investors," Mr. Griggs said.
The exchange had proposed a new rule in April to give shareholders a vote when a company planned to issue shares to pay for an acquisition if the dilution would have exceeded 50 per cent. That proposal faced a wall of opposition from shareholders who said the dilution level was too high.
Kevan Cowan, group head of equities at TMX Group Inc., which operates the TSX, said the comments were "near unanimous" in requesting a lower voting trigger, and said the new threshold will bring the TSX in line with those of most other global exchanges.
"We feel that when you have the investors speaking out this loudly, it is important for the future of our extremely successful public equity markets that they continue to have the confidence to invest," he said.
Mr. Cowan said the TSX has adopted a two-month implementation period for the rule in case companies are already in talks on a deal and had counted on having it approved under the current regime.
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 vote on Goldcorp's proposed takeover of Glamis Gold Ltd., which diluted Goldcorp's outstanding shares by 67 per cent.
