CANADA Law and Practice Contributed by: Kevin West, Andrea Hill, Priya Ratti and Gabriel Potkidis, SkyLaw
functions as a de facto termination date for tactical rights plans. Other Hurdles to Stakebuilding Acquisitions of shares generally cannot be made if a person is in a special relationship with an issuer and possesses inside information (information that has not been generally disclosed and could reasonably be expected to affect the market price or value of a security of the issuer significantly). Most private companies have restrictions on share transfers in their articles or in unanimous share - holder agreements that would prevent a third party from acquiring shares without board or shareholder approval. For reporting issuers with a public float, it would not be possible to restrict share transfers in the articles or by-laws, but individual shareholders may agree to a standstill as part of a negotiated transaction. 4.4 Dealings in Derivatives Dealings in derivatives are permitted in Canada. 4.5 Filing/Reporting Obligations Disclosure by 10% holders must be made of the material terms of any “related financial instrument” involving the issuer’s securities as well as any other “agreement, arrangement or understanding that has the effect of altering, directly or indirectly”, the inves - tor’s economic exposure to the issuer’s securities. Disclosure is also required of any securities lending arrangements. See 2.4 Antitrust Regulations for filing requirements under competition laws. 4.6 Transparency Early warning reports and alternative monthly reports require disclosure of any plans or intentions that inves - tors and joint actors may have relating to any changes in their security ownership, voting intentions or any material transaction they may propose. An eligible institutional investor will be disqualified from filing alternative monthly reports if the investor
intends to propose a transaction that would result in it acquiring effective control.
5. Negotiation Phase 5.1 Requirement to Disclose a Deal
Reporting issuers must immediately disclose all “material changes”. In the context of a proposed transaction, the threshold for a material change requir - ing disclosure is typically met when both parties have decided to proceed with a potential transaction and there is a substantial likelihood that the transaction will be completed. There is no bright-line test for this determination; however, the Supreme Court of Cana - da has recently provided some guidance. See Lundin Mining v Markowich under 3.1 Significant Court Deci - sions or Legal Developments. Certain Canadian stock exchanges require disclo - sure of all “material information”, which includes both material changes and material facts. Confidential material change filings and trading halts may be made in certain circumstances. The acquisition by a reporting issuer of a private com - pany will require disclosure only if the transaction is a material change for the reporting issuer. A transac - tion between two private companies carries no public disclosure obligation. 5.2 Market Practice on Timing Most acquisitions are announced publicly only once definitive acquisition agreements are signed. Compa - nies tend to avoid disclosing a potential transaction at the non-binding letter of intent stage because the transaction may be tentative or uncertain and prema - ture disclosure could unduly affect the share price or give potential competitors or stakeholders time to mobilise in opposition prior to the issuer having any deal certainty. If the transaction is announced prema - turely, the target could suffer reputational harm or face questions from regulators. 5.3 Scope of Due Diligence Significant business combinations usually involve a thorough scope of due diligence including searches of public bankruptcy, lien and litigation registries, obtain -
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