Second Cup serves up poison pill

Second Cup Ltd. has adopted a poison pill to ward off a takeover bid by minority shareholder Cara Operations Ltd.

The Globe and Mail
November 30, 2001

Second Cup serves up poison pill
Moves to thwart Cara takeover bid
Oliver Bertin

Second Cup Ltd. has adopted a poison pill to ward off a takeover bid by minority shareholder Cara Operations Ltd.

In a lengthy statement after markets closed yesterday, the directors of the coffee house chain said they had also voted to reject the Cara offer because it is about $2 a share less than they believe the company is worth.

"Cara's offer is an inadequately priced offer for too few common shares," said Robert Haft, a director of Second Cup and chairman of a special committee studying the offer. "Cara's offer should be rejected."

In the statement, Mr. Haft announced it has adopted a shareholder rights plan, or poison pill, whose purpose "is to stop a person or persons from acquiring control without paying an appropriate control premium."

Mr. Haft said the poison pill was directed specifically at Cara. "The partial bid by Cara is not a permitted bid" under the terms of the shareholder rights plan, he said.

The rejection and the poison pill were both approved unanimously by the Second Cup board. The Cara nominees on the board abstained from voting.

Last August, Cara offered to pay $7 a share for up to three million Second Cup shares, bringing its stake in the company up to 71 per cent. Cara currently holds about 39 per cent of the Second Cup shares.

There are two other significant shareholders, and both are refusing the Cara offer. Michael Bregman of Toronto controls about 24 per cent of the shares outstanding, while Investors Group Trust Co. Ltd. holds 17.4 per cent. The remaining 19 per cent of the shares are widely held.

Ian Wilkie, Cara's senior vice-president, said yesterday that Cara would ask the Ontario Securities Commission to set the poison pill aside because Second Cup has had more than adequate time to consider the offer.

"A shareholder rights plan is used to buy time" so managers can consider an offer and look for alternatives, he said. The poison pill is "inappropriate."

"The bottom line is over 15 weeks has elapsed since we first announced the offer [and] RBC [Dominion Securities Inc.] has been looking for alternative buyers."

Financial analyst William Chisholm of Dundee Securities Corp. said Cara "may have a valid argument. [A poison pill] is designed to give management ample time" to consider a takeover bid. He added that is typically about 21 days.


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