INTRODUCTION
Canada has an active and vibrant mergers and acquisitions market. The legal processes and procedures reflect this by establishing relatively clear and straightforward rules by which M&A transactions can be completed. At the same time, the law continues to develop and evolve as it relates to directors' duties and responsibilities, so that hostile acquisitions and responses to shareholder activism can be the subject of creative strategies and structures.
The summary is intended to provide a high-level outline of the principal legal considerations pertaining to public company M&A in Canada. The question and answer format is designed to provide answers to some of the most commonly asked questions by potential buyers who are contemplating an M&A transaction. The summary is based on the law as it stands as of March 2021. Also, as this publication goes to press, the market has had a year to learn how to do deals during the COVID-19 pandemic and, for the most part, has had success in doing so. Nevertheless, the limitations the pandemic has imposed on, for example, due diligence, have certainly affected the deal process and made some deals difficult to complete. BLG has published a series of articles on considerations relevant to M&A practice during COVID-19, which can be accessed here.
In addition, in our Building Blocks series, we examine in depth a number of key concepts important to the M&A process, and these can be accessed here. If you have further questions about anything related to mergers and acquisitions in Canada, please contact us and we will be happy to assist.
June 2021
PROCESS
1. How does a buyer acquire control of a public company?
The two most common methods of acquiring control of a public company are: (i) a two-step take-over bid; (ii) a court approved plan of arrangement, with the vast majority of acquisitions being done by way of a plan of arrangement.1
- Take-over bid. A formal offer is made to all shareholders, which is open for acceptance (or tenders of shares) by the target's shareholders. A take-over bid can be friendly or hostile. Shares not tendered to a take-over bid can generally be acquired in a second-step transaction if at least 66 2/3% of the shares are tendered to the bid.
- Plan of arrangement. A statutory plan of arrangement that
requires both shareholder and court approval and, if successful,
results in the acquisition of 100% of the target in a single step.
As these transactions require the cooperation of the target, they
are almost always negotiated. A plan of arrangement may provide for
almost any type of transaction or combination of transactions,
including:
- share purchases;
- amalgamations;
- windups;
- redemptions of shares;
- transfers of assets; and/or
- issues of new shares.
It is this flexibility, the ability to acquire 100% of the target in a single step and the ability to accommodate various transaction objectives and tax-planning requirements, which makes plans of arrangement so widely used. In addition, if the purchaser issues securities as consideration and the target has U.S. shareholders, a plan of arrangement enables the purchaser to issues its shares without having to register them under the U.S. Securities Act of 1933 under the exemption from registration provided by Section 3(a)(10).
Appendix A contains a table showing the principal differences between a take-over bid and a plan of arrangement.
A third, far less common method to acquire a company is by way of a statutory amalgamation under corporate law which allows two Canadian companies to amalgamate directly into one combined company. Subject to certain tax considerations, an amalgamation may be the more desirable method in a straightforward consensual merger, since it avoids the necessity of court proceedings required under a plan of arrangement.
2. How long does the process take to acquire a public company?
The amount of time to complete an acquisition can vary significantly depending on a number of factors, including how long the purchaser spends on due diligence, how long the definitive agreement takes to complete (in a friendly deal), whether there are regulatory or other conditions that will extend closing, whether any competing bids are made and, in the case of a take-over bid, if the bid is successful on its initial expiry date or whether it needs to be extended before it is successful. For more details on timing, see Question 16.
Footnote
1 According to a 2018 study of key deal points in Canadian public M&A transactions by the M&A Market Trends Subcommittee of the M&A Committee of the ABA, 88 of 90 public M&A transactions involving Canadian targets in 2015 and 2016 were structured as plans of arrangement and just 2 were completed by take-over bid.
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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.
