Canada: More Engaged Shareholders Bring Challenges To Strategic M&A

Investors are more engaged and less deferential to boards and management teams—a trend that is increasingly being felt in M&A. Companies considering strategic transactions have to be aware of the risks of dealing with investors who are critically evaluating strategies developed by management, in some cases going as far as proposing their own competing strategies. This dynamic is creating challenges for companies in pursuing strategic transactions.

Laying the Groundwork

Recognizing that investor support is fundamental to successful M&A execution, management teams are more proactively disclosing to investors the role they see for M&A in their overall strategy, sometimes being fairly specific about sectors, geography or specific assets. Boards are increasingly pressing management teams to bring their analyses of potential opportunities to the board so that they can be more engaged in this element of the company's strategy. Boards are also showing more transparency, including by speaking directly with investors. Direct communication with select investors always carries the risk of selective disclosure. Discussing M&A strategy publicly provides more latitude to management in investor meetings. It continues to be rare to see specific discussion of M&A strategy and goals in a company's MD&A or other disclosure documents; it is more common for companies to discuss these matters in investor presentations or media interviews. While the Canadian regime does impose liability for misrepresentations in public statements, Canada lags behind the U.S. in requiring such communications to be incorporated into a company's formal disclosure record.

Approaching Investors Pre-announcement

Companies frequently consider approaching larger shareholders prior to announcement to gauge how the market will react. This raises "tipping" concerns. The general principle in Canada is that whenever a company wishes to impart confidential information prior to announcement, it has to be comfortable that the communication is in the necessary course of business. Where a transaction does not require shareholder approval, it can be difficult to meet that test. A further complication is that when making the disclosure, the company should impose confidentiality and trading restrictions. Investors are leery of being restricted without knowing more specifics, including how long the restrictions will apply, which may or may not be clear. In addition, hedge fund and other event-driven investors, while always happy to receive information, do not generally accept limitations on their ability to trade. Against this backdrop, companies are often forced to rely on their own judgment, informed by expert advice, regarding the likely market reaction. Companies that understand investors' perspectives on their growth initiatives and overall strategy going into a negotiation are better positioned to make those judgments.

Shareholder Approval Considerations

A key point for companies considering a significant transaction is whether shareholder approval will be required. TSX rules require listed companies to obtain shareholder approval for an acquisition involving the issuance of more than 25% of the company's outstanding shares. For an acquiror, a shareholder vote can introduce significant complexity and risk. Shareholders typically are not receiving any consideration and the vote dynamics are therefore different than in a sale where shareholders are receiving a premium price to entice them to vote in favour. In a buy-side vote, the fact that shareholders have to make a decision and vote on the merits of the deal provides an opportunity for shareholders to express a view on the company's strategy, and its execution to date, without selling their shares. It also gives parties waiting in the wings an opportunity to propose alternatives at a time when both the board and the shareholders will be forced to respond. Acquirors must consider whether they should negotiate for a "fiduciary out" in the event that they themselves become a target in the midst of the deal. This most often arises where an acquisition is sufficiently large to necessitate a buy-side shareholder vote or where the deal is portrayed as a merger. In those cases, parties tend to negotiate for reciprocal deal protections. In addition, boards of acquirors, concerned about the risk of being put "in play," sometimes see advantage in having a fiduciary out because an interloper will be required to pay a break fee, making a competing deal more expensive.

Disclosure in the Spotlight

Companies are holding themselves to a higher standard in the disclosures they provide when significant strategic transactions are announced. More and more, investors want to see and understand for themselves the analysis on which the company relied. For example, even where not required, companies are providing details on their plans for an acquired business. Companies selling a business face increased pressure to be specific about their plans for sales proceeds. In many transactions, agreeing on an estimate of synergies is essential to settling the financial terms. Investors expect information about the estimated synergies to assist them with their analysis. However, companies are reluctant to provide specifics around the quantum, categories and timing because the numbers used for negotiating purposes will invariably be refined once the transaction has been announced and integration planning begins in earnest. The rules for disclosure of forward-looking information protect companies in disclosing synergies estimates but require them to be specific in disclosing their key assumptions and risks and, in some cases, require actual results to be reconciled to the estimates. This can be challenging for management because the synergies are based on very high-level information.

Compensation issues are receiving more attention from investors in the context of M&A. Retention or termination arrangements are often negotiated or modified as a transaction is being negotiated. Even though these arrangements are of keen interest to investors, the tendency in Canada is to provide disclosure only when and to the extent required. Investors have taken notice. In the U.S., new rules require companies to provide enhanced disclosure of "golden parachute" compensation arrangements and to hold a separate shareholder advisory vote in the context of a merger transaction.

Alternatives to M&A

Companies have to weigh M&A opportunities against alternatives that investors may find more attractive. In the current environment, investors seem increasingly prepared to accept relatively low returns in exchange for more certainty. That makes strategic M&A more challenging because the returns sought are less certain and depend on management's execution over a longer period. With substantial cash accumulating on balance sheets as the economic environment improves, companies are opting to return record amounts of capital to shareholders though increased dividends and share buybacks. Spin-offs also continue to be popular with investors. From a company's perspective, spin-offs can provide a means of disposing of a noncore business without the complexities of negotiating with a third party and the risk that investors will be disappointed by the financial terms. For shareholders, spinoffs are a tax-efficient means of returning capital because shareholders can decide either to hold the spun-off shares or sell them into the market. Although it can be debated whether companies are serving their long-term best interests in favouring immediate value-creation alternatives over long-term growth strategies, it is unlikely that directors face any practical risk or legal challenge in doing so.

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 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
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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