Prescription Denied: Poison Pills and Defensive Tactics Considered in Re Greenfire Resources Ltd.

The Alberta Securities Commission’s (ASC) decision in Re Greenfire Resources Ltd., 2025 ABASC 104 (Greenfire) offers important guidance for mergers and acquisitions practitioners on when and why securities regulators will intervene in contested takeovers, and some takeaways for targets and acquirors.

Background and Context

Waterous Energy Fund (WEF), a Calgary-based oil and gas private equity fund, acquired approximately 43% of Greenfire’s shares from certain selling shareholders through private share purchase agreements (SPAs). Two of the shareholders were controlled by Greenfire directors who resigned prior to entering into the SPAs.

The acquisition was not a take-over bid as defined by securities laws, as the selling shareholders did not reside in Alberta. However, the transaction was also structured to comply with the “private agreement exemption” under National Instrument 62-104, which allows for a limited control premium to be paid without triggering the full takeover bid requirements, provided certain conditions are met. The transaction was designed to meet the exemption even though it was not strictly necessary.

At the time of the bids, Greenfire and WEF had previously had discussions wherein Greenfire was seeking to have WEF purchase all shares at a premium. WEF consistently said it was not interested in buying out the whole company, but entered into the deals with the selling shareholders without Greenfire’s authorization. At the time, Greenfire was in the early stages of a sale process.

Shortly after the transaction was announced, Greenfire’s board adopted a retroactive shareholder rights plan (or SRP, but more colourfully known as a “poison pill”) aiming to block WEF’s acquisition by significantly diluting its interest if the transaction closed. WEF and the selling shareholders applied to the ASC to cease trade the rights plan. Greenfire cross-applied to block the share transfer.

Regulatory Intervention: When and Why?

The ASC ultimately sided with WEF and against Greenfire. It cease traded the SRP and dismissed Greenfire’s cross application.

The ASC’s written reasons provide clarity on when securities regulators will intervene in M&A disputes:

• The Importance of Market Certainty and Predictability: A crucial factor for regulatory intervention is the need to protect market certainty. The ASC emphasized that sophisticated parties should be able to structure transactions under the specific provisions of securities law such as the private agreement exemption. Granting relief that would alter a structured bid regime would risk undermining predictability and confidence in the market.
• Public Interest Jurisdiction Does not Mean Interfering in Private Disputes: The ASC panel highlighted that its public interest mandate is not to interfere in market transactions under some vague notion of fairness, but rather to prevent conduct that is clearly abusive or contrary to the animating principles of securities law. The panel distinguished between the higher “clearly abusive” standard (specific acts of misconduct, which it found applied) and the “animating principles” standard (conduct contrary to underlying principles of securities regulation), but found that Greenfire’s SRP would have been problematic under either standard.
• The Private Agreement Exemption is Valid: The ASC reaffirmed the policy rationale behind the private agreement exemption, which balances the desire for equal treatment of shareholders with the ability of control block holders to receive a limited premium. The panel found that WEF’s transaction complied with both the letter and spirit of the exemption, and that market participants would reasonably expect such a transaction to be upheld. It was critical of the attempts by Greenfire and its experts, which it found in essence ignored the rule.

Key Takeaways for M&A Practitioners

1. Timing and Substance of Defensive Measures: The ASC was critical of Greenfire’s adoption of the SRP after the transaction was announced, and without shareholder approval. Defensive measures that target already-announced private transactions, especially those structured to comply with securities law exemptions, are much less likely to be upheld by regulators.
2. Directors’ Dual Roles: The panel rejected expert evidence suggesting that directors’ fiduciary duties as directors should override their rights as shareholders. Outside of obvious exceptions such as engaging in insider trading and misappropriating corporate opportunities, directors are free to structure their share transactions for their own benefits provided they comply with sound governance practices.
3. Market Expectations: Regulators will prioritize market certainty and reasonable reliance on established rules. Attempts to retroactively frustrate transactions that comply with securities law are likely to be viewed unfavorably.
4. Expert Evidence: As a matter of process, the ASC cautioned against the use of expert evidence that amounts to legal argument or policy recommendation, noting that such evidence is often unhelpful and may be given little or no weight. The ASC panel was also frustrated with what it saw as an excessive volume of expert evidence, which it found unhelpful.

Conclusion

Greenfire underscores that securities regulators will intervene in M&A disputes primarily to uphold market certainty and the underlying principles of securities law, rather than to enforce broad notions of fairness or intervene in private disputes amongst sophisticated parties. For practitioners, the case highlights the importance of structuring transactions in compliance with established exemptions, the risks of late-stage defensive tactics, and the limited scope of regulatory intervention in private share transfers among sophisticated parties.