Mining Shareholders’ Activism in Canada and the TSX Amendments on Dilutive Acquisitions

Abstract

Mergers and plans of arrangements where shareholders of the acquiror company were not afforded a vote used to be very common in Canada, in particular if the target were a public company. Corporate boards felt comfortable designing transactions without consulting their shareholders because neither corporate nor securities law required shareholders’ approval for such actions. Nevertheless, this scenario changed for transactions structured after November 24, 2009, when amendments to the Toronto Stock Exchange Company Manual (TSX Manual) became effective. The new rule requires shareholders’ approval when the number of securities issued as payment for an acquisition exceeds 25% of the buyer’s total outstanding securities on a non-diluted basis. The rule is applicable to acquisitions of both private and public companies. The rule was amended in large part due to mining shareholders’ activism, especially in relation to the acquisition of Glamis Gold Ltd. by Goldcorp Inc. in 2006 and the proposed acquisition of Lundin Mining Corporation by HudBay Minerals Inc. in 2008. Although the new regulation applies to all TSX-listed companies, it will have a greater impact on natural resource issuers, including mining companies, due to their particularities.