Echo Bay directors adopt rights protection plan

The directors of Echo Bay Mines (TSE) have adopted a shareholders’ rights protection plan, or “poison pill.”

The plan can be enacted if any person or group acquires more than 20% of the company’s common stock.

Chairman Robert Calman indicated that the plan is designed not to prevent a takeover but, rather, to ensure that anyone seeking control of the company negotiates with the board to reach a “permitted bid.”

A permitted bid is defined as a bid that complies with all applicable securities laws. Other criteria are that at least 5% of the common shares be owned by the bidder; that the bid be made to all shareholders; and that at least two-thirds of the outstanding shares be tendered. If these conditions are met, the plan would not be executed.

However, if a person or group acquires 20% of the outstanding shares without complying with the permitted bid conditions, the protection plan will be invoked. Once invoked, shareholders other than those making the bid will be entitled to exercise a right to buy one additional share at a price 50% less than the lowest share price on the Toronto Stock Exchange during the prior 90-day period.

Although the board said the plan was not adopted in anticipation of any effort to acquire control of the company, the move follows close on the heels of the recent battle for control of Lac Minerals (TSE).

The validity of a “poison pill” was recently brought into question by the ruling given by the Ontario Securities

Commission (OSC) on Lac’s shareholders’ rights plan.

The OSC conditionally prevented Lac from invoking the plan to fend off hostile takeover bids from two suitors. Reasons for the OSC decision have not been fully disclosed but will probably be revealed once the deal is completed.