In a vindication of the Rona board's business judgment, on
February 3, 2016, Lowe's agreed to acquire Rona for $24 per
share in cash – a 65% premium to Lowe's July 2012
unsolicited $14.50 proposal that was rejected by Rona's board,
and a 104% premium to the pre-announcement share price.
Lowe's original proposal did not proceed in part due to the
Québec government's concerns about the effect of the
transaction on Rona's stakeholders and the Québec
economy more generally.
While board entrenchment and excessive governmental
protectionism are to be avoided, there are many instances in which
the board's long-term business judgment in respect of value and
other stakeholder interests, as well as the government's
legitimate concern about the economic impact of a transaction, turn
out to be warranted. In this case, shareholders are receiving a
much higher premium than they would have under the original
proposal. Lowe's has also made a number of important
commitments, agreeing to continue to employ the vast majority of
Rona's current employees and to make Boucherville,
Québec the headquarters of the combined businesses'
Canadian operations. The Caisse de dépôt et placement
du Québec (Caisse), which holds approximately 17% of
Rona's shares, has announced its support for the transaction,
and has noted that it "believes the transaction will result in
equal or superior economic activity generated by the Rona banners
This transaction highlights a number of important policy issues
and considerations that inform Canadian dealmaking in the current
The critical role of the board in
assessing what's in the long-term best interests of the
corporation and its stakeholders, and the fact that shareholders
should carefully consider the views of a well-advised, independent
and informed board. We note the success of Canadian Oil Sands'
board in convincing shareholders not to tender to the original
Suncor hostile bid, paving the way for a higher-priced supported
transaction in a very challenging market.
The importance of having a
well-developed government- and stakeholder-relations plan when
considering an acquisition of a strategically important Canadian
business. The success of this transaction, as opposed to Lowe's
original proposal, will be based in no small part on the support of
the board combined with the backing of the Government of
Québec and the Caisse, which sends a strong signal that the
undertakings Lowe's has agreed to are of benefit to
Québec and, by implication, of net benefit to Canada under
the Investment Canada Act. We note the success of
TPG's acquisition of the Cirque du Soleil, which also had
important commitments to Québec and Canada, as well as the
stakeholder undertakings negotiated by the Tim Hortons board in
agreeing to the Burger King acquisition.
The strength of the U.S. dollar
relative to the Canadian dollar can drive dealmaking. While the
104% premium Lowe's has agreed to pay for Rona is exceptional,
from Lowe's perspective it is a more modest increase, from
approximately US$14 to US$17 per share, due to the decline in the
Canadian dollar. Other U.S. and foreign acquirors may see
additional buying opportunities in Canada in the current climate,
particularly in the energy and mining sectors, where depressed
commodity prices have adversely affected target valuations.
The regulation of defensive tactics
and the question of how much time and latitude boards should have
in defending against an unsolicited offer. The original proposal
from Lowe's informed, in part, the Autorité des
marchés financiers (AMF) of Québec's consultation
paper on defensive tactics, which was intended to spark debate on
the desirability of adopting a "Delaware-style" approach
to the regulation of defensive tactics in Canada (discussed in this
Osler Update ). Under the AMF proposal, securities regulators
would effectively get out of the business of regulating defensive
tactics (including rights plans), absent cases of abuse, and leave
the regulation of defensive tactics to the courts. The success of
the Rona board in this case is consistent with the views of those
who support giving Canadian boards a greater ability to "just
say no." The pending changes to the Canadian takeover bid
regime, which are intended to give boards of directors 120 days to
respond to a hostile bid if adopted in their current form
(discussed in this previous
Osler Update), do not go as far as the AMF proposal, but signal
a change in the regulatory environment designed to give boards more
time to deal with an unsolicited offer.
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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