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11.6.1 Takeover Bids

Comprehensive guide to understanding takeover bids, related legislation, and early warning disclosure requirements in the Canadian financial markets.

11.6.1 Takeover Bids

What is a Takeover Bid?

A takeover bid is an offer to purchase from a company’s shareholders more than 20% of the outstanding voting securities of the company, or a number of shares that, when combined with the offeror’s existing shares, exceeds 20%.

Outstanding voting securities are those voting shares that are owned by shareholders and are available for trading. In a takeover, if the bid is successful, the entity or individual making the offer gains enough shares to achieve control over the targeted company. A comprehensive definition of a takeover bid includes an offer to purchase, an acceptance of an offer to sell, and a combination of both.

Compliance with Provincial Legislation

Takeover bids need to adhere to provincial legislation unless otherwise exempted under the relevant act. Different provinces may have specific requirements that bidders must follow to ensure legal compliance.

Early Warning Disclosure

Most provincial securities acts mandate that any person or entity accumulating 10% or more of the outstanding voting securities of any class of a reporting issuer, or securities convertible into such securities, must issue a public press release immediately. The press release and report must include:

  • A statement of the purpose of the acquisition.

  • Any future intentions to increase ownership or control.

Reporting Requirements for Formal Bids

Once a formal bid is initiated for the voting securities of a reporting issuer, and before the termination of the bid, anyone acquiring 5% or more of the class of securities being pursued (excluding the offeror) must issue a press release revealing this information.

Key Takeaways

  • Takeover Bid Definition: An offer to acquire more than 20% of a company’s outstanding voting securities.

  • Legislation Compliance: Takeover bids must comply with provincial laws but can be exempted per relevant acts.

  • Early Warning Requirements: A press release must be issued upon accumulating 10% or more of voting securities, detailing the acquisition’s purpose.

  • Formal Bid Disclosures: A separate press release is required when acquiring 5% or more of the securities under formal bid, excluding the main offeror.

Frequently Asked Questions (FAQs)

1. What happens if a takeover bid fails?

  • If a takeover bid fails, the offeror may opt to revise the bid or pursue other strategic options such as selling existing shares or collaborating with other stakeholders for future attempts.

2. Are there any exceptions to the early warning disclosure requirements?

  • Yes, specific circumstances might qualify for exemptions, dictated by provincial legislation or securities regulatory authorities.

3. What are the implications of acquiring more than 20% shares in a company?

  • Acquiring more than 20% of shares generally means gaining significant control and influence over the company’s governance and decision-making processes.


  • Takeover Bid: An attempt by an individual or company to purchase a sufficient quantity of a company’s shares to gain control.

  • Outstanding Voting Securities: Shares available for trade and possess voting rights.

  • Early Warning Disclosure: Legal requirement to announce ownership when reaching significant levels.

  • Reporting Issuer: A company registered to provide regular public disclosures.

Charts and Diagrams

Here’s a simple diagram showing the timeline for early warning disclosure:

	    Investor->>Press Release: Acquire 10% or more shares
	    press Release->>Public: Disclose acquisition purpose
	    Formal Bid->>Press Release: Additional 5% purchase disclosure

📚✨ Quiz Time! ✨📚

🧐 Assess and Solidify Your Understanding

Welcome to the Knowledge Checkpoint! You’ll find 10 carefully curated quizzes designed to reinforce the key concepts covered. These questions will help you gauge your grasp of the material, identify areas that need further review, and ensure you’re on the right track towards mastering the content for the Canadian Securities certification exams. Take your time, think critically, and use these quizzes as a tool to enhance your learning journey. 📘✨

Good luck! 🍀💪

## Which of the following best describes a takeover bid? - [ ] An offer to purchase less than 10% of the company's outstanding voting securities - [ ] An offer to purchase any number of non-voting shares of the company - [x] An offer to purchase, directly or indirectly, over 20% of the company’s outstanding voting securities - [ ] A proposal to merge two companies without involving shareholders > **Explanation:** A takeover bid is defined as an offer to purchase from a company’s shareholders more than 20% of the outstanding voting securities or a number that, in combination with existing shares, exceeds 20%. ## Early warning disclosure is required when a person or company accumulates what percentage of outstanding voting securities? - [ ] 5% - [x] 10% - [ ] 15% - [ ] 20% > **Explanation:** Most provincial acts require that any person or company accumulating 10% or more of the outstanding voting securities must issue a press release immediately. ## When a formal takeover bid is made, what percentage of securities acquisition triggers the requirement to issue a press release? - [x] 5% - [ ] 10% - [ ] 15% - [ ] 20% > **Explanation:** After a formal bid is made and before its expiry, any person or company acquiring 5% or more of the securities of the class subject to the bid must issue a press release. ## Which of the following must happen when a person or company accumulates 10% or more of the outstanding voting securities of a reporting issuer? - [ ] Halt trading for that stock - [ ] Notify the company’s board of directors - [x] Issue a press release immediately - [ ] File a lawsuit > **Explanation:** Accumulating 10% or more requires issuing a press release stating the purpose and intentions of such acquisition. ## Who is required to comply with provincial legislation regarding takeover bids? - [x] Any company or individual making the takeover offer - [ ] Only the target company - [ ] Only the company's management team - [ ] Any international bidders > **Explanation:** Provincial legislation must be complied with by the company or individual making the takeover offer unless exempted. ## For a takeover bid to occur, which type of securities are targeted? - [ ] Non-voting securities - [x] Voting securities - [ ] Convertible bonds - [ ] Preferred stock > **Explanation:** A takeover bid targets the outstanding voting securities of the company. ## What is included in the report and press release for early warning disclosure? - [x] A statement of purpose for the acquisition and future intentions - [ ] Financial forecasts - [ ] Information on competitors - [ ] Detailed earnings reports > **Explanation:** The press release must include the purpose and any future plans of increasing ownership or control. ## After a formal bid is made for voting securities, what is the purpose of the press release when acquiring additional securities? - [ ] To inform shareholders of dividend changes - [ ] To notify competitors - [ ] To comply with international laws - [x] To report any additions in securities of 5% or more > **Explanation:** The press release serves to report acquisitions of 5% or more of the class subject to the bid. ## When is a takeover bid exempt from provincial legislation? - [ ] When fewer than 100 shares are involved - [x] When exempted under the relevant act - [ ] When it involves international bidders - [ ] When it's a hostile bid > **Explanation:** A takeover bid must comply with provincial legislation unless it is exempted under the relevant act. ## Which of the following scenarios does not describe a takeover bid according to the definition provided? - [ ] An offer to purchase 25% of voting securities - [ ] Acceptance of an offer to sell enough shares to exceed 20% - [x] Purchase of a non-controlling interest below 10% - [ ] A combined offer and acceptance exceeding 20% > **Explanation:** A purchase of a non-controlling interest below 10% does not constitute a takeover bid.

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Saturday, July 13, 2024