mpdanford, et al., thank you for all of your kind words. i can hardly wait :) !
there's all kinds of ways to build poison pills. a pretty good intro into the pills and other bits:
Poison Pills
“Poison pill” describes shareholder rights agreements or plans that, when triggered by an event such as a hostile tender offer or the accumulation of a specified percentage of shares by a potential acquirer, provide the shareholders of the target company with rights to purchase additional shares or to sell shares at very attractive prices. These rights, when triggered, impose significant economic penalties on a hostile acquirer.
Poison pills are intended to force hostile bidders to negotiate with the Board and thus to help shareholders to receive the best price for their stock. However, poison pill can also have the effect of discouraging potential offerors and entrenching incumbent boards and management.
Poison pills are among the most potent anti-takeover measures a company can adopt and are usually not in the best interest of shareholders.
OMERS will review poison pills on a case-by-case basis and oppose those that do not meet our guidelines. In general, OMERS will support poison pills that meet the general criteria listed below and do not negatively affect shareholder rights:
Partial bids should be permitted provided that they are made to all shareholders and they remain open for approximately 60 days.
OMERS will support only “new style” poison pills that fairly protect shareholders’ rights and which neither impede normal corporate governance activities, nor diminish in any way the shareholders’ right to decide who should own the company. Others will be opposed.
Poison Pills should include an exemption for lock-ups so that a bid is not prevented from going forward because of a lock-up agreement. Exemptions for investment managers, trust companies, pension funds and other fiduciary investors are important so that their day-to-day activities do not inadvertently trigger the poison pill.
Poison pills should have a renewable lifetime of not more than three years.
The takeover bid threshold should be at least 20 per cent to harmonize with provincial standards.
Voting Recommendation
OMERS will vote against poison pill plans unless, in our view, they are in the best interests of minority shareholders. If the poison pill is instituted without a vote of the shareholders, withhold votes for, or vote against the board of directors that introduced the pill. OMERS will vote against provisions that can permanently entrench the power of incumbent boards and can block positive change in poison pills by subsequent directors at the expense of shareholder interests.
Crown Jewel Defence
A “crown jewel defence” against a takeover, occurs when a company sells its most valuable assets to a friendly third party. This may undermine shareholders’ rights to determine the company’s future course and may devalue the shares.
Acquisitions by a company at risk of being in play, when executed on terms which do not add to shareholder value, can undermine long-term investor interests. OMERS is generally opposed to such transactions.
Voting Recommendation
OMERS will vote against crown jewel defence proposals unless there is evidence that shareholder interests are protected.
Going Private Purchase Transactions, Leveraged Buyouts and Other Purchase Transactions
In a “going private” transaction, minority shareholders sell their equity interest in the company at a price offered by the major shareholder, who assumes control. OMERS evaluates these transactions on a case-by-case basis.
In cases of leveraged buyouts, other potential bidders should have an opportunity to investigate the company and make competing bids
Voting Recommendation
OMERS will vote for Going Private transactions, Leveraged Buyouts, or Other Purchase Transactions only if the shareholders’ interests are protected.
Lock-Up Arrangements
Under a lock-up arrangement, certain shareholders agree to tender their shares to a bidder if a takeover offer is made. Often, especially when there is a major or controlling shareholder, a lockup agreement is required by a potential buyer before making a bid.
We support lock-up agreements that stimulate a fair initial bid for a company. We oppose such arrangements if they prevent a company from developing a competitive bidding process.
Voting Recommendation
Vote for Lock-up arrangements only if the shareholders’ interests are protected.
Takeover Transactions
When evaluating takeover transactions, we consider the following:
Break-up Fees
OMERS generally opposes break-up fees, especially those that are at or above 2.5% of the price payable under the lock-up bid. High break-up fees can detract from shareholder value by discouraging a competing takeover offer.
Shareholder Approval
Shareholder approval of a takeover proposal is paramount, although the board should be allowed to waive the plan in response to a takeover bid circular sent to all shareowners. Should the board wish to revoke the plan to allow for a control-affecting transaction of another type, shareholder approval must be obtained first. All plan amendments must be approved by the shareholders.
Reincorporation
OMERS will support reincorporation proposals in cases where management and the board can demonstrate sound financial or business reasons for the proposal. However, OMERS will generally not support reincorporation proposals that are made as part of an anti-takeover defense or solely to limit directors’ liability.
Unequal or Subordinate Voting Shares
Common stock traditionally carries one vote per share and there have been several moves to convert from dual class structures in Canada recently. However, it is not unusual for certain convertible securities or specifically-designated preferred stocks to carry more than one vote.
Shares with multiple-voting rights concentrate control among a few individuals and are restrictive for institutional holders. The issuance of such shares is not in the best interest of shareholders and is opposed by an increasing number of pension fund and other investment fiduciaries around the world.
In general, OMERS opposes the creation of shares with unequal or multiple-voting rights. However, under special circumstances, OMERS may support and invest in such structures. (For example, in start-up ventures where companies are undergoing restructuring, or in the case of senior securities where par value is significantly in excess of the common share price.) Where such dual class structures exist, it is important to OMERS that they contain “safety valves” to protect the less powerful class.
These include: a sunset provision that requires approval by a majority of the other class or classes of shareholders every three years at least for the continuation of the superior voting class, and a separate group of directors to be elected exclusively by the non‑controlling shareholders.
Voting Recommendation
OMERS will vote against the authorization of any new issue of common stock that has unequal or subordinate voting shares.
OMERS will vote against multiple votes per share except in unusual circumstances as noted above.
OMERS will vote against the granting to, extension of, or restoration of any multiple voting privileges held by any officer or director of the corporation. Vote for the replacement of dual class shares with one vote per share, provided that the cost of such change is modest and in the non-controlling shareholders’ best interests.
Super-Majority Voting Rights
Super-majority voting rights in a company’s charter or bylaws require a level of shareholder approval above a simple majority. They may range as high as two-thirds or 80% of outstanding shares.
When the super-majority voting rights exceed the normal level of shareholder participation at a meeting, action that requires a super-majority is made all but impossible.
As super-majority requirements can be required on issues that may significantly impact a company’s future, they can limit long-term shareholder value. Shareholders are not often given a chance to vote on super-majority voting rights because such proposals are often bundled with other provisions.
Voting Recommendation
OMERS will vote against any super-majority voting right that exceeds two thirds (67 per cent) of the outstanding shares, unless it is in the best interests of shareholders.
Greenmail
“Greenmail” refers to the payment of a premium over the market value of shares to a raider who has accumulated a substantial block of shares. The premium is paid in exchange for the raider terminating a takeover bid. Although greenmail transactions have frequently occurred in the United States, issuer bid requirements under provincial securities legislation do not permit them in Canada.
A greenmail payment to a substantial shareholder discriminates against other shareholders because it is usually at a premium above the market price of the shares.
Voting Recommendation
OMERS will vote against greenmail transactions unless they can be shown to be in the best interest of shareholders. If no vote is offered on a greenmail transaction, OMERS will withhold votes from or vote against the director nominees.
Linked Proposals
Linked proposals are resolutions that link two issues together. This type of resolution should generally be discouraged, particularly when one of the linked proposals will likely have a negative impact on the shareholders.
For example, some proposals have linked corporate governance issues with the payment of a dividend or the granting of a right. Such proposals may coerce or “blackmail” shareholders into approving a proposal that they would not support if it were proposed alone.
Voting Recommendation
OMERS will generally vote against linked proposals except in the case where each individual issue contained in the proposal is in the best interests of shareholders.
Unlimited Share Issues
A company may ask shareholders to authorize additional common stock. OMERS generally will not support a proposal that seeks more than a 50 per cent increase in authorized common shares except in the case where management demonstrates an appropriate need.
Voting Recommendation
OMERS will vote against unlimited share issues. OMERS will vote for an issue only if the amount of stock to be issued is limited and the purpose of the issue is clearly in the shareholders’ interests.
“Blank Cheque” Preferred Shares
Blank cheque preferred shares carry a fixed dividend that is better secured by company assets than common shares and gives the board broad discretion (a “blank cheque”) to establish voting, dividend, conversion and other rights. Blank cheque preferred shares can provide corporations with the flexibility needed to meet changing financial conditions. They may also be used as a vehicle for a poison pill defense against hostile suitors, or may be placed in friendly hands to help block a takeover bid.
A concern for many shareholders is that once those shares have been authorized, the shareholders have no further power to determine how or when they will be allocated.
Voting Recommendation
OMERS will vote against blank cheque preferred shares that are not in shareholders’ interests.
Share Buybacks
Common share buybacks can sometimes enhance long-term shareholder value relative to making acquisitions. Share buybacks near or below book value can often be beneficial to shareholders, and have been supported by OMERS.
However, during periods of general market exuberance in the past, they have less long-term merit and can materially inflate option-driven compensation.
The use of surplus cash to make large share buybacks can also add to share price volatility. Unlike regular dividend increases, share buybacks do not provide enduring cash flow increases into shareholders’ hands and are less valuable to long-term holders.
Voting Recommendation
OMERS generally supports share buyback plans. Plan without an accompanying increase in the regular cash dividend will be given close scrutiny and may be opposed.
Dividend Policy
OMERS encourages corporate dividend payout guidelines which raise payments in line with long-term earnings growth. Executive compensation growth in excess of that in dividends per share is discouraged.
Voting Recommendation
OMERS will support dividend policies in line with shareholders’ interests.
Shareholder Proposals
In recent years OMERS has voted on a wide range of issues covered by various shareholder proposals. These include limitations to executive compensation, the expensing of options and a broad spectrum of other proposals with ethical components such as board composition, hiring and employment fairness and environmental concerns etc. Some deal with areas that are more appropriately decided by the board and management such as charitable donation and political contribution policy (particularly in the U.S). Other proposals attempt to press extreme viewpoints in areas of conduct already adequately covered by existing laws and regulations.
While OMERS agrees with the spirit of many of these proposals, an increasing number attempt to inflict arbitrary measures on management. In addition, many shareholder proposals require the preparation of reports that would be very time consuming and expensive and offer minimal or no tangible benefits to the company.
OMERS believes that management and boards must have the flexibility to conduct business freely provided they comply with applicable laws. OMERS is concerned that the artificial or arbitrary constraints included in many shareholder proposals put affected companies at a competitive disadvantage that will be harmful to the creation and maintenance of long term shareholder value.
Voting Recommendation
OMERS evaluates shareholder proposals on a case-by-case basis . OMERS generally supports proposals that embrace our guidelines in a fair way but we do not support proposals that are arbitrary, unduly expensive or could place the company at a competitive disadvantage.
