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Quebec gets tough on hostile takeovers

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The Parti Québécois government plans to give Quebec-incorporated companies powerful weapons to fend off hostile takeovers.

The measures, should Quebec businesses choose to use them, would make it nearly impossible for a corporate predator to acquire a public company against the will of its board of directors.

"Being masters and prosperous in our own house also means protecting the head offices of Quebec businesses," Finance Minister Nicolas Marceau said in his speech for the province's budget, unveiled Thursday.

Marceau said he intends to "act rapidly" on some of the recommendations made by a task force on the protection of Quebec businesses. That much-anticipated report was released at the same time as the budget.

The task force was created in the spring of 2013 in the wake of the failed takeover attempt of hardware chain Rona Inc. by American retailer Lowe's Cos.

A former Rona (RON-T) CEO and a former Rona board member were among the task force's eight members.

Empowering boards so that they can reject an unsolicited takeover bid is a widely shared objective by Quebec Inc.

The objective is to give companies the ability to fend off acquisition attempts that may be seen as undervaluing companies, or opportunistically taking advantage of them during times of temporary weakness.

Marceau plans to amend the province's Business Corporations Act so that companies facing hostile takeovers could give additional voting rights to investors who have held their shares for two years or more. Quebec would also allow companies to put strict limitations on what an acquirer could do with the assets of the business it covets as a way to deter unsolicited transactions.

For instance, an unwanted acquirer could be forbidden from selling or spinning off assets representing 15 percent or more of the company for five years. It could be prevented from replacing board members before their term expires. It could also lose the voting rights attached to shares after the hostile takeover bid is launched.

It is unclear if Quebec companies would change their statutes and use the powers the government intends to put at their disposal, though. The task force, presided by CGI executive Claude Séguin, asked a LavalUniversity professor to look into the impact of anti-takeover measures, and his conclusions undermine the advisory committee's own recommendations.

Professor Jean-Marc Suret concluded those defensive measures were not particularly efficient. And companies that would adopt them would see a 10- to 20-per-cent decrease in their value.

A company interested in those defensive measures would have to change its statutes, an amendment that would need to be approved by a majority of its shareholders representing two-thirds of its shares.

The recommendations of the task force, which included former Liberal finance minister Monique-Jérôme Forget, are not tied to the minority PQ government. In a press conference, Liberal Leader Philippe Couillard said he favoured giving more leeway and powers to boards, so they can reject an unsolicited proposal.

Quebec's move wasn't welcomed by investors.

Stephen Erlichman, executive director of the Canadian Coalition for Good Governance, an advocacy group for Canada's largest institutional shareholders, said Thursday was "not a good day" for shareholder rights.

"It's quite sad," he said of the Quebec announcement.

The CCGG has been an opponent of proposals unveiled last year by Quebec's securities regulator to give boards of directors more scope to turn down shareholder takeover offers, and Erlichman said Marceau's latest announcement goes beyond the original proposals to give boards even broader scope to reject bids.

"As shareholders we don't believe this is a decision to be made by directors - it's a decision that should be made by shareholders," he said.

Of the 50 biggest Quebec corporations listed on a stock exchange, 24 are already shielded from hostile takeover bids, either because they are controlled by a small group of shareholders through dual-class voting shares, or because they operate in a protected industry such as banking or telecommunications.

Others, including Metro, SNC-Lavalin and Dollarama, are more vulnerable to an unwanted takeover offer.

Federally incorporated companies such as Osisko Mining Corp., which is currently facing an unsolicited offer from Goldcorp Inc., could not avail themselves of the protective measures Quebec is contemplating.

With files from The Globe and Mail's Janet McFarland

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