Canada: You Can’t Always Get What You Want

Making realistic projections during an auction process

The recent Delaware ruling in In Inc. Shareholder Litigation provides a cautionary tale relating to a target company developing aggressive projections during an auction process.

The Relevant Facts

Following the announcement of a going-private transaction, some shareholders of filed suit in the Delaware Court of Chancery alleging, among other things, that the board preferred the interests of the winning bidder over shareholders. Previously:

  1. Ancestry hired Qatalyst Partners LLP as its financial advisor and initiated an auction process.
  2. Ancestry's management prepared "bullish" projections for the auction process. Notably, Ancestry does not develop long-term projections in the usual course of business. These aggressive projections were provided to Qatalyst.
  3. The auction had a promising start with 12 potential bidders entering into confidentiality agreements and conducting due diligence. However, following due diligence, only three bidders remained, including Permira Advisers, LLC.
  4. Permira indicated that it would make a partial offer for Ancestry in the $32/share range, subject to the participation of other equity sources. Ancestry's largest shareholder and its management agreed to roll their equity interest into the surviving entity.
  5. Qatalyst informed Ancestry's board that it could not provide a fairness opinion at $32/share based on the aggressive projections.
  6. Permira made a firm partial bid for Ancestry at $32/share.
  7. Ancestry's management revised the aggressive projections to, among other things, account for the issues raised by potential bidders during the due diligence process.
  8. Qatalyst provided a fairness opinion based on the revised projections, thereby enabling the board to recommend the Permira offer to shareholders. The board's proxy circular provided shareholders with the aggressive projections and the revised projections.

The Ruling

The Court accepted the board's position that the optimistic projections were deliberately "bullish" and that the board appropriately refined its views as to the future prospects of Ancestry with advice from management and its financial advisors, and in light of feedback received from potential bidders during the prolonged auction process. Nevertheless, the Court found it problematic that there were no entries in the board minutes or in other contemporaneous documentation alluding to the aggressive projections being "optimistic". The Court also found the process by which the aggressive projections were revised "a bit unusual." The Court was perplexed that Qatalyst formally informed the board that it could not provide a fairness opinion based on the aggressive projections; presumably, this would have been unnecessary if the numbers were understood by everyone to be "sell-side puffery".

While denying the relief sought by the shareholders (to enjoin the shareholder vote on the merger), the Court ordered the board to revise its proxy circular to inform shareholders about a "fairly important omission of [an] actual objective fact" — that the aggressive projections were revised because of Qatalyst's inability to provide a fairness opinion.

 The Takeaways

  1. An open ongoing dialogue between a target's board, management and the financial advisors is very important when preparing financial projections in contemplation of a sale process.  Management should clearly articulate the assumptions underlying the projections to the board and the financial advisors and ensure that everyone understands their implications.  This will go a long way to ensure there are no surprises later.
  2. Ensure that the minutes from a meeting where the target's board reviews bullish financial projections clearly document that the projections were prepared on that basis.  The record should show that the board carefully reviewed the projections with management and the financial advisors and concluded that it was in the best interests of the corporation to provide bullish projections to potential buyers to maximize the sale price.
  3. In Canada, a target is required to include in its proxy circular for a voting transaction (such as a plan of arrangement or amalgamation) sufficient detail to enable reasonable securityholders to form a reasoned judgment concerning the transaction.  For a take-over bid, the target must disclose in a directors' circular information that would reasonably be expected to affect the decision of securityholders to accept or reject the bid.  It would be interesting to see whether a Canadian securities commission would view the initial refusal of an investment bank to provide a fairness opinion based on aggressive projections as sufficiently material to warrant disclosure in a circular of a Canadian public company.  Note that it is not customary in Canada for a target to include financial projections in a circular.

To view original article, please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions