recent blog post, which summarized the latest editions
of the US and Canadian Strategic Buyer/Public Target M&A Deal
Points Study indicates that in the context of public M&A
transactions, Canadian and US practices are generally fairly
consistent and have not changed significantly over the past few
One area, however, where the Canadian and US practices are not
aligned is with respect to the inclusion of a condition to closing
that dissent/appraisal rights not be exercised by shareholders
representing more than a specified percentage of the shares of the
target. Unlike in US deals where inclusion of such a closing
condition is not common, Canadian deals almost always include it
(in fact, based on the latest Canadian Strategic Buyer/Public
Target M&A Deal Points Study, a dissent rights closing
condition was included in 92% of Canadian all cash deals and 100%
of share deals1).
It is surprising that a dissent rights closing condition
(typically to the exclusive benefit of the buyer) is included in
virtually all Canadian transactions. With dissent rights/appraisal
arbitrage being more frequently in the news, we can question
whether the Canadian practice will start to change by target and
buyer reconsidering the need for a dissent rights condition so as
to avoid adding unnecessary conditionality and uncertainty to a
In determining whether such a condition is needed, target and
buyer may compare the context and the facts of their transaction
against the factors which have been given weight by the courts in
determining that the fair value of the target shares (i.e. the
value a dissenting shareholder will be entitled to receive) is
equal to the transaction price, such as, among others, (i) whether
the transaction is the result of an active auction process, (ii)
whether there is a controlling shareholder or another potential
source of conflict of interest, (iii) whether the target shares are
part of an active and liquid market and (iv) whether the market has
otherwise been imperfect.
Target and buyer may also consider if, in certain circumstances,
providing for a dissent rights closing condition may not attract
activists or empowered opposing shareholders by allowing them to
leverage this closing condition in their interest. Buyers relying
on committed financing for a transaction should also note that the
decision to waive a dissent rights closing condition may not be
entirely theirs, as committed financing papers usually restrict the
ability of a buyer to waive a closing condition without the prior
consent of its lenders.
Finally, and as we mentioned in our earlier post, the vast
majority of Canadian public M&A deals are structured as plans
of arrangement (92% of the deals reviewed in the Canadian study)
and such deals provide that dissent rights must be exercised by a
certain date before the target shareholders meeting. Although buyer
will know before the shareholders meeting if dissent rights have
been exercised by shareholders representing a greater percentage of
the shares of target than the specified percentage provided by the
closing condition, acquisition agreements typically do not provide
for an obligation for buyer to either terminate the acquisition
agreement or waive the condition before the target's
shareholders meeting. Target's shareholders could effectively
be in a position where they are asked to approve a transaction for
which the buyer benefits from an "option" on the target
since its obligation to close the transaction will remain
contingent upon the buyer waiving the dissents rights condition.
Again, with parties potentially having a greater regard on the
inclusion of a dissent rights condition, acquisition agreements
that include such a condition may revisit how and until when it is
For further details on these and other deal points, please consult the US and Canadian Studies, which are all available to ABA members on the Markets Trends Subcommittee of the American Bar Association’s Mergers and Acquisitions Committee website at: http://apps.americanbar.org/dch/committee.cfm?com=CL560003
1 The US Strategic Buyer/Public Target M&A Deal Points
Study provides that "Stock-for-stock deals are excluded as
appraisal rights are generally not available in stock-for-stock
deals between two public companies due to the "market
out" exception in Section 262 of the Delaware General
Corporation Law and other jurisdictions have similar statutory
provisions." With respect to transactions where the
consideration is all cash or part cash/stock, the US study provides
that, respectively, 0% and 13% of the deals reviewed included a
condition to closing regarding the target's shareholders'
exercise of dissent or appraisal rights.
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.
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