Covert Defences:

Reassessing the Regulation of Private Placements in Canadian Takeover Bids

Abstract

This article examines the use of private placements as defensive tactics in the context of unsolicited takeover bids in Canada. While poison pills have traditionally been the main focus of regulatory scrutiny and academic debate, private placements have received little attention. Through a critical analysis of two key decisions involving private placements, the article argues that securities commissions have improperly deferred to target boards by assessing private placements through the lens of business judgment and fiduciary duties. This approach strays from the core tenet of National Policy 62-202 (NP 62-202), which prioritizes shareholder choice and seeks to prevent tactics that undermine a fair and open bid process.

The article contends that the proper focus of regulatory inquiry should be the effect of a measure on shareholders’ ability to respond to a bid, rather than the board’s stated intentions. It proposes a narrower and more precise framework: once it is established that the target company does not require financing to remain a going concern, securities commissions should assess whether a private placement was adopted during or in anticipation of a bid and whether its dilutive impact impairs shareholder choice. This effect-based standard aligns more closely with NP 62-202 and avoids entangling securities regulators in fiduciary duty inquiries more appropriately left to the courts. Reframing regulatory oversight in this manner would restore focus on the public interest, strengthen shareholder protections, and ensure that private placements do not serve as covert entrenchment tools in Canada’s takeover bid regime.