Fiduciary Duty in the Context of Takeover Bid – Securities Regulation

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You can grab notes on other topic from here.

Policy for defensive: you can do w/e you want to fight bid, but if you deprive SH of choice, you’re dead (prob b/c conflict of interest between directors interests and SH’s interests). It’s good to have them, because you maximize value of the enterprise.

  1. Fiduciary Duty in the Context of Takeover Bid
  • Traditionally, directors’ actions evaluated under the “business judgment rule” (Smith v. Van Gorkom) and have fiduciary duties of care/loyalty under CBCA

However, in the context of defensive measures, a more stringent view emerges. Directors must show:

  • (a) They have reasonable grounds, based upon good faith and reasonable investigation, to believe that the takeover threat is harmful to the enterprise; and
  • (b) Actions taken in response to the threat are reasonable or “proportionate” in relation to the threat posed.

o This is Intended to address the potential conflict of interest between management and SHs (that directors will just act in their own best interests in a TOB situation to entrench themselves)

  1. NP 62-202: Tactics that will come under scrutiny Tactics that will come under scrutiny include:
  2. Issuance of grant on, option, or purchase of outstanding securities of target
  3. Sale or acquisition of asset of a material amount
  4. Entering into a contract other than in the normal course of business.
  5. Duty to Maximize SH Value

Competing goals of the directors: immediate maximization of SH value and pursuing the long-term best interests of the corporation.

You can grab notes on other topic from here.


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