CANADA Law and Practice Contributed by: Kevin West, Andrea Hill, Priya Ratti and Gabriel Potkidis, SkyLaw
ing a corporate profile, and a review of public filings on SEDAR+, the System for Electronic Disclosure by Insiders (SEDI) and other databases. Searches are typically run against the target company and its management and material subsidiaries; for pri - vately held companies, they are also run against the selling shareholders. Diligence documents, such as financial statements and material contracts, will typically be supplied by the target to the buyer and its counsel via an electronic data room. Common factors affecting the scope of due diligence include the nature of the target’s industry, the juris - diction where assets are located, whether the target competes with the buyer, and the access to sensitive information the target is willing to grant. 5.4 Standstills or Exclusivity Most letters of intent and acquisition agreements include exclusivity obligations on the target. Acquirors will usually want to know that the target has ceased all negotiations and is not shopping their deal to third parties. Most targets will want a standstill arrangement in place with the acquiror. For the acquisition of a reporting issuer, it is common for exclusivity obligations to contain a “fiduciary out” clause allowing the target to terminate the agreement and accept a superior proposal if doing so would be consistent with the target board’s fiduciary duties. The acquiror would typically have a right to match the superior proposal or would be entitled to be paid a break fee (as described in 6.7 Types of Deal Security Measures ) if the agreement is terminated. A “superior proposal” will typically need to satisfy spe - cific negotiated conditions, including that: • it is for all the target’s shares (or in some cases substantially all assets); • it is reasonably capable of being completed with - out undue delay with regard to all financial, legal,
regulatory and other aspects of the competing transaction; • it is not subject to any financing condition; and • the target board make a determination that it is a more favourable transaction. The existence of “hard” lock-up agreements (ie, the shareholder is not permitted to withdraw and tender its shares to, or vote in favour of, any other competing transaction) with target shareholders holding a sig - nificant percentage of shares could render an offer incapable of being a “superior proposal” because it is not reasonably capable of being completed. 5.5 Definitive Agreements The documentation used to set out the terms of a deal is determined by the nature of a transaction. If the transaction is a takeover bid, the acquiror must publicly file a takeover bid circular that describes the terms of its offer and includes other required disclo - sure. If the terms of the takeover bid subsequently change, further notices must be filed. For friendly takeover bids, the acquiror would typically enter into a support agreement with the target prior to launching the bid, setting out the process of the bid, conditions and certain deal protections. If the transaction is a plan of arrangement or other negotiated business combination, the acquiror and the target would enter into an arrangement or com - bination agreement. The agreement would set out the process of the transaction (including shareholder, court and other approvals), conditions and certain deal protections. 6. Structuring 6.1 Length of Process for Acquisition/Sale Parties typically enter into a non-binding letter of intent, setting out the proposed deal terms and pro - viding for exclusivity, expenses and confidentiality. Parties then conduct due diligence and negotiate a definitive acquisition agreement. The time required varies, depending on the size and nature of the target and the involvement of third parties, such as lenders.
272 CHAMBERS.COM
Powered by FlippingBook