Canada: Canadian Mergers & Acquisitions – A Guide For Foreign Investment Banks And Bidders, Eighth Edition

Types of M&A Transactions

  • Takeover bids (like a U.S. tender offer)
  • Plans of arrangement
  • Amalgamations (like a U.S. merger)
  • Asset sales
  • Share sales (e.g., private purchase of control block)
  • Restructurings (e.g., spinoffs)
  • Going-private transactions

TAKEOVER BID REGULATION

  • Takeover bids are regulated by each province, but Canadian securities regulators have harmonized the takeover bid regime across Canada under National Instrument 62-104 and National Policy 62-203.
  • Applicable laws depend on where the target shareholders reside and where the target is incorporated.
  • Recent amendments to takeover bid rules that came into effect on May 9, 2016, give target boards more time to respond and seek alternatives to a hostile bid.

WHAT IS A TAKEOVER BID?

  • A takeover bid is an offer to acquire voting or equity securities made to persons in a Canadian jurisdiction where the securities subject to the bid plus securities beneficially owned by the bidder and its affiliates and joint actors constitute 20% or more of the outstanding securities (partially diluted) of a class of securities.
  • Equity securities include non-voting common shares.
  • A trap for the unwary: calculation of current beneficial ownership includes securities convertible within 60 days into the class of equity or voting securities.
  • Indirect offers:

    • "Anti-avoidance" rule
    • Indirect offers can apply when an acquirer acquires shares of a holding company that owns more than 20% of the shares of a public company when aggregated with the acquirer's shares.
    • The acquisition of convertible securities, particularly in-the-money convertible securities, could constitute an "indirect" offer for the underlying security.

Equal Treatment Rules

OFFER TO ALL

  • The bid must be made to all holders of the class, but may be for less than all securities.
  • The circular must also be sent to holders of convertible securities, including option holders.

IDENTICAL CONSIDERATION

  • All holders must be offered identical consideration (or an identical choice of consideration).
  • If the bidder increases the price during a bid, everyone gets the new price, even holders whose shares have been tendered and taken up.
  • Partial bids must be pro rata.

NO "SIDE DEALS"

  • No collateral agreements are permitted – that is, agreements or understandings that have the effect of providing a shareholder with consideration of greater value.
  • Exceptions permit certain employee compensation and severance arrangements for management and other employees of the target.
  • Can also get securities commission ruling to permit a collateral agreement when there is a clearly established business or financial purpose relating to the making of the bid or the ongoing operations of the target.

PRE-BID INTEGRATION

  • The bidder cannot acquire securities outside of the bid within 90 days preceding the bid unless the bidder offers the same consideration and acquires the same percentage from each holder under the bid.
  • Exception for normal course purchases on a stock exchange (pre-arranged trades are not normal course).
  • Toehold acquisitions in which offeror intends to offer share consideration in the subsequent offer must be carefully planned.
  • Securities acquired prior to the bid are

    • not counted toward the 90% compulsory acquisition threshold;
    • not counted in determining if the 50% mandatory minimum tender condition has been satisfied; and
    • not counted as part of the minority for a majority-of-the-minority vote on a second-step going-private transaction.

PURCHASES AND SALES DURING A BID

  • The bidder cannot offer to acquire or enter into any agreement or understanding to acquire the securities subject to the bid until its expiry.
  • The bidder can purchase up to 5% of the outstanding securities on a recognized stock exchange if it states its intention to do so either in the takeover bid circular or in a subsequently filed press release. Purchases must be reported daily by press releases disclosing price and number.
  • Securities purchased during a bid will not count toward the 90% compulsory acquisition threshold or toward the 50% mandatory minimum tender condition, or as part of the minority for a majority-of-the-minority vote on a second-step going-private transaction.

POST-BID INTEGRATION

  • The bidder cannot acquire securities outside of the bid within 20 business days of the expiry of the bid except by way of a transaction that is generally available to securityholders on identical terms or normal course purchases on a stock exchange.

SELLING RESTRICTIONS

  • The bidder cannot sell or enter into an agreement to sell target securities from the date of announcement of the intention to make a bid until expiry of the bid.
  • The bidder can agree to sell securities taken up under the bid at a future date, but only if it discloses its intention in the circular.

MINIMUM TENDER CONDITION

  • Under newly enacted amendments to the takeover bid rules, all bids (including partial bids) must include a non-waivable minimum tender condition that more than 50% of securities owned by persons other than the bidder be tendered to the bid before the bidder can acquire any securities tendered.
  • Bids for all outstanding shares typically include a minimum tender condition to ensure that the bidder can obtain the remaining shares not deposited through a second-step going-private transaction. The condition would typically require a deposit of at least (i) two-thirds of outstanding shares and (ii) a majority of the minority.

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