by Clarke Tedesco and Denna Jalili
In 2015, the Ontario Securities Commission ("OSC") established the Office of Mergers & Acquisitions (the "M&A Office"). The M&A Office's driving purpose is to extend specialized regulatory oversight over merger and acquisitions transactions and proxy voting matters involving public companies, including take-over bids, issuer bids, conflict of interest transactions and defensive tactics.1
As M&A transactions proceed, the M&A Office works to ensure compliance with the applicable regulations and that a level playing field is established (particularly for individual retail investors).2 The M&A Office also determines whether, in appropriate circumstances, corporations ought to be exempt from certain requirements under the Act.
The M&A Office is both proactive and responsive; it actively monitors the market and responds to complaints raised by investors embroiled in contests over corporate control. Accordingly, it is wise for retail investors, would-be acquirers, and directors of target corporations to understand the scope of the M&A Office's functions and powers.
The M&A Office's Involvement in Change-of-Control Transactions
Take-over Bids and Issuer Bids
The M&A Office reviews take-over bids and issuer bids to confirm that all shareholders are treated fairly and that bids comply with regulatory requirements. For example, in the context of take-over bids, the M&A Office will ensure that:
- Target shareholders are provided adequate disclosure, including being given a take-over bid circular, a directors' circular, and, in the context of insider bids, valuations of the target securities;
- Target shareholders are provided sufficient time to assess the bid and disclosures;
- Target shareholders within the same class are treated equally;
- Target shareholders tender at least 50% of the shares in the target class; and
- The offeror has arranged for adequate financing prior to making the bid (i.e., bids cannot be conditioned on the offeror first obtaining financing).
Conflict of Interest Transactions
Conflict of interest transactions are those involving an issuer and a related party. These transactions can lead to unfairness as related parties may be uniquely privy to enhanced information regarding the value of the targeted securities. Thus, the M&A Office's main role during these transactions is to protect the interests of, and mitigate the risks to, minority shareholders.
Defensive Tactics
Take-over bids do not require approval of the board of directors. Thus, in response to a take-over bid, directors may take defensive tactics to defeat the bid – such as instituting a poison pill. Such measures may attract regulatory scrutiny, especially if there is reason to suspect that the board of directors acted to preserve it self-interests rather than to promote the best interests of the corporation. The M&A Office may review the use of any defensive tactics to determine whether the OSC will intervene if their use does not protect the interests of the security holders of the target company.
Conclusion
Contests over corporate control may attract regulatory scrutiny. Parties who are planning to engage in an M&A transaction can seek advice as to the structure of the transaction to mitigate or avoid the cost and delay that can arise in an M&A transaction. Similarly, directors or officers of corporations that have received an unwelcome take-over bid can seek advice on how to best respond to an offer or takeover bid in a manner that is consistent with their obligations to the company's shareholders.
Footnotes
1 Meet Naizam Kanji. (2021, July 12, originally published on February 11, 2016). GetSmarterAboutMoney.ca. https://www.getsmarteraboutmoney.ca/resources/publications/investor-news/interviews/meet-naizam-kanji/
2 Ibid
Co-Authored by
Clarke Tedesco, Crawley MacKewn Brush LLP.
Co-Authored by Denna Jalili, Crawley MacKewn Brush LLP.
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