Canada: Canadian Mergers And Acquisitions: FAQs And 2018 Trends

Introduction

Our Canadian Mergers and Acquisitions: FAQs and 2018 Trends answers frequently asked questions regarding the regulation of public M&A in Canada and provides an outlook for what 2018 may hold based on significant developments we observed from the Canadian deal environment in 2017.

While global M&A aggregate value surpassed US$3-trillion for the fourth consecutive year in 2017, it dipped slightly from the previous year. Total deal value in the Canadian M&A landscape experienced a similar fate. Despite the dip in total value, the past year brimmed with innovation, including a sharpened focus on maximizing opportunities in the tech space, a frenzy in cryptocurrency and the emergence of the cannabis industry, all of which could make for a strong 2018.

FREQUENTLY ASKED QUESTIONS ABOUT CANADIAN PUBLIC M&A

1 Who regulates trading in securities in Canada?

Trading in securities, including in M&A transactions, is largely regulated through securities legislation enacted by each of the provinces and territories. Each provincial or territorial securities act creates and empowers a provincial or territorial securities regulator to enforce such laws. These regulators have enacted a number of national, multilateral and local rules and policies that, among other things, seek to harmonize the application of certain aspects of securities laws across the country, including in relation to M&A transactions. In addition, companies whose securities are listed for trading on a stock exchange in Canada are subject to rules imposed by such stock exchange.

2 How are Canadian public issuers typically acquired?

Canadian public companies are typically acquired by way of either a plan of arrangement or take-over bid. A plan of arrangement is akin to a U.S. merger transaction with the addition of court supervision. Often, "friendly" M&A transactions are structured as plans of arrangement, with take-over bids being principally used for unsupported or "hostile" transactions. In the 2018 Blakes Canadian Public M&A Deal Study, we found that 90 per cent of the friendly transactions we reviewed were completed by way of a plan of arrangement, while two per cent of such deals were completed by way of a take-over bid and six per cent were completed by way of another shareholder-approved structure, such as an amalgamation.

Plan of Arrangement

A plan of arrangement is a shareholder and court-approved transaction governed by the corporate legislation of the target. An arrangement practically requires the target's involvement and support but is subject to a less prescriptive regulatory regime as compared to take-over bids.

The parties to a plan of arrangement generally enter into a definitive transaction document known as an "arrangement agreement" setting out the basis for the combination, which is followed by an application to a provincial court for approval of the process. The court order will require the calling of a target shareholders' meeting (typically held 45 to 90 days after an arrangement agreement is entered into), specify the approval threshold (typically two-thirds of the votes cast at the meeting) and provide for the grant of dissent rights. A meeting circular will then be sent to target shareholders that provides a broadly similar level of disclosure to what would be provided by a take-over bid circular and, like a take-over bid circular, is not subject to regulatory pre-clearance review. Where the offered consideration includes securities of the offeror, the circular must contain prospectus-level disclosure regarding the offeror's business and financial results. Unlike a takeover bid circular, a meeting circular does not need to be translated into the French language.

Arrangements have a number of advantages over take-over bids. For example, they can facilitate dealing with multiple classes of securities (particularly convertible instruments), provide for acquisition of 100 per cent of the target shares in a single step without the need for a subsequent exercise of compulsory acquisition rights or another second-step transaction and, if securities of the offeror are to be offered to U.S. shareholders of the target, provide an exemption under U.S. securities laws from the requirement to register securities.

Take-Over Bid

Unlike plans of arrangement, take-over bids may be made with or without the agreement of the target. If the bid is successful, a "second-step" transaction is required in order to acquire 100 per cent of the target shares (in connection with which dissent rights will be applicable).

Canadian securities legislation contains detailed procedural and substantive requirements applicable to take-over bids governing such things as timing, conditionality, share purchases outside of the bid, and rules applicable to deposit, withdrawal and take-up. The take-over bid circular must set out prescribed information about the offer and the parties, including securityholdings and past dealings by the offeror and related parties in securities of the target, the nature of any financing relating to the bid and prospectus-level disclosure regarding the offeror if the bid consideration includes offeror securities.

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