Regulating Issuer Bids: The Case of the Dutch Auction
22 Pages Posted: 27 May 2008
Under current securities legislation in Ontario, conventional issuer bids are subject to both "identical consideration" and "pro rata take-up" requirements. A variation of the conventional issuer bid, known as a "Dutch auction" issuer bid, has started to gain prominence in Canada as a mechanism of share acquisition used by issuers to repurchase a portion of their outstanding shares. While Dutch auction issuer bids are distinct in that they allow shareholders to choose a minimum bid price from a range of prices set by the issuer, they are currently subject to the same legislative requirements as conventional issuer bids.
In this article, the author examines the origin of and policy behind the identical consideration and pro rata takeup requirements. The author argues that the current regulation of Dutch auctions contains a bias in favour of tendering shareholders and that the identical consideration and pro rata take-up requirements should not apply to these kinds of issuer bids. Omitting these requirements for Dutch auction issuer bids would allow equality of opportunity to be achieved. According to the author, this latter notion of equality constitutes the fairest result for both tendering and non-tendering shareholders in a Dutch auction issuer bid.
Suggested Citation: Suggested Citation