Business Corporations

Many alternatives regarding the way forward for troubled Bombardier Inc. have been proposed. The Quebec government has already committed $1.3 billion in aid and now some type of moral argument is being levelled at Ottawa to throw money into Bombardier’s cap also. This is a very bad idea from a governance perspective, as well as a taxpayer perspective.

Let’s be clear about Bombardier’s governance reality: The Bombardier/Beaudoin families hold almost 60 per cent of voting power in the corporation, despite holding an economic interest of just one-quarter of that figure. This is a dual-class-share firm that just isn’t flying.

A federal bailout would place a billion or more taxpayer dollars in the hands of family that is insulated from governance accountability because of the corporate structure that it has chosen. This insulation and lack of accountability have not been good for the company. Over the past five years, Bombardier’s stock price has declined more than 75 per cent. Why should Canadian taxpayers be on the hook for Bombardier’s poor corporate governance?

Financial Post

This week, the Canadian Securities Administrators (CSA) published draft rules under which a takeover bid would have an irrevocable 50 percent minimum tender condition. Once met, the rules would require an additional 10-day right to tender for undecided shareholders.

The bid, however, would also remain open for a minimum of 120 days. The 50 percent condition is laudable, because it offers effective decision-making capacity on the part of shareholders. The 120-day requirement, however, would cause uncertainty in the market, to the detriment of target shareholders, and of bidders.

The CSA proposal seeks to strike a balance that might lessen the prominence of litigation relating to shareholder rights plans or “poison pills.” The bidder must obtain a “majority of minority” approval before it can take up shares; securities of the bidder and its joint actors would not be counted in the 50 percent. The advantage is that a minority of shareholders cannot force the majority to sell control.

The proposal would therefore likely sound the death knell for some pills such as the “just say no” pill, whereby the bidder can remove the pill only via a proxy contest. But it would prevent bidders from being able to corner target shareholders into the undesirable choice of selling into an underpriced offer or being stuck with illiquid shares.