CANADA Law and Practice Contributed by: Kevin West, Andrea Hill, Priya Ratti and Gabriel Potkidis, SkyLaw
released Simpson Oil from the standstill, allowing it to advocate freely for strategic alternatives, including the sale of the company. The decision reinforced the enforceability of negoti - ated agreements between sophisticated parties. What Constitutes a Material Change Requires a Broad and Contextual Approach After Lundin delayed its disclosure of pit-wall instabil - ity at its flagship mine and the share price fell signifi - cantly once disclosed, a shareholder sought leave to commence a statutory class action claim. Ultimately, the Supreme Court of Canada adopted a broad and contextual approach when assessing whether events constitute a “material change”. Regulators will Strike Down Poison Pills in the Absence of Abuse After Waterous announced its intent to acquire approx - imately 43% of Greenfire’s outstanding shares from non-Canadian shareholders under the private agree - ment exemption in the take-over regime, Greenfire adopted a retroactive poison pill to block the acquisi - tion. The Alberta Securities Commission cease-traded the rights plan and held that in the absence of abusive conduct or harm to the market integrity, the rights plan could not be used to undermine lawful transactions. 3.2 Significant Changes to Takeover Law Takeover Bid Amendments The last significant amendments to the takeover bid rules in Canada were implemented in 2016. These amendments included: • the extension of the minimum bid period from 35 days to 105 days (which may be shortened in certain circumstances) to allow target boards adequate time to respond to hostile bids; • the introduction of a mandatory 50% minimum tender condition (at least 50% of the shares not already owned by the acquiror and its joint actors must be tendered before any shares can be taken up by the acquiror); and • a mandatory ten-day extension to the bid period if, at the end of the initial deposit period, all terms and conditions of the bid have been complied with or
waived, and the minimum tender requirement has been met. Securities regulators are inclined to enforce these rules strictly in order to promote predictability in the takeover bid regime. Exemptions and variations are rare. 4. Stakebuilding 4.1 Principal Stakebuilding Strategies It is common in Canada for prospective acquirors to accumulate shares of their target prior to launch - ing a takeover bid or change of control transaction. An acquiror may establish a “toehold” through open market purchases or private transactions with other shareholders. Acquirors may also seek support from other share - holders through accumulation of proxies or lock-up or voting agreements in support of a transaction. 4.2 Material Shareholding Disclosure Threshold An acquiror must publicly disclose its ownership of a reporting issuer once it directly or indirectly benefi - cially owns, or has control or direction over, 10% or more of a class of securities (whereas in the USA, the threshold is 5%). This threshold is reduced to 5% in Canada if a takeover bid for the relevant securities is outstanding. Beneficial ownership of securities is calculated on a partially diluted basis by class and includes: • all securities of that class that could be acquired within 60 days upon the conversion or exercise of convertible securities; and • all securities of that class beneficially owned by any joint actors of the acquiror. Control or direction generally is established by the ability to vote, or direct the voting of, shares or the ability to acquire or dispose of, or direct the acquisi - tion or disposition of, shares.
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