Neo Material Technologies

The Ontario Securities Commission has long been averse to "poison pills." But in recent months it seems to have become somewhat less so, as evidenced by its handling of the case of Neo Material Technologies (TSX: NEM).

Securities regulatory hearings throughout Canada could become a good deal more interesting because of the uncertainty generated by NEM in September 2009. You can read that decision here.

NEM produces, processes, and develops neodymium-iron-boron magnetic powers and other engineered materials at plants in China and in Thailand.

The bidder, Pala Investments Holdings, asked the OSC to remove the impediment to shareholders’ ability to tender their shares to the Pala Offer posed by the Second Shareholder Rights Plan. As that commission noted, this plan "was adopted by Neo’s Board of Directors (the “Neo Board”) in the context of the Pala Offer, and can be seen as a tactical defensive pill. As well, in the context of the unsolicited Pala Offer, a significant majority of Neo’s shareholders recently voted to retain the Second Shareholder Rights Plan."

Given that statement of the issue, Pala had some reason for confidence. But the OSC denied that holding company its requested remedy, saying that a pill may be maintained. It derived this result through a bit of ad hoc balancing, weighing the duty of the directors of NEM to maximize shareholder value "in the manner they see fit" against the "right of the shareholders to decide whether to tender their shares to the bid."

One possible meaning of this ruling, going forward, is that target boards will be permitted to "just say no" to unsolicited bids that they (reasonably) consider to threaten the best interests of the corporation – at least when, as in this case, the continued deployment of the pill was properly ratified by the shareholders.