CANADA Law and Practice Contributed by: Kevin West, Andrea Hill, Priya Ratti and Gabriel Potkidis, SkyLaw
The timeline for a friendly takeover bid generally is 50–65 days beginning from the start of preparation of the takeover bid circular to the completion of the transaction, assuming the target waives the minimum bid period of 105 days (shortening it to a period of no less than 35 days). A hostile takeover bid must remain open for at least 105 days. The bid period may be shortened by the target or reduced to no less than 35 days if the tar - get announces an alternative transaction, such as a plan of arrangement, requiring approval by the target’s shareholders. A mandatory ten-day extension period will apply if the bidder satisfies the minimum tender condition and is required to take up securities that were tendered under the bid. Defensive tactics used by the target may vary the timeline to complete the bid. Typically, following a successful takeover bid, the acquiror will conduct a second-step transaction to obtain 100% of the outstanding shares. If the target is a private company, the parties may sign the definitive documents and close the transac - tion on the same day. Otherwise, closing may take 30–60 days or longer depending on the extent to which shareholder, court or regulatory approvals are required. Complex transactions often will have outside dates that may be extended to accommodate regulatory approvals. 6.2 Mandatory Offer Threshold An acquisition of outstanding voting or equity securi - ties of a reporting issuer that would cause a share - holder, together with any joint actors, to have benefi - cial ownership of and/or control over 20% or more of the outstanding securities (calculated on a partially diluted basis) is prohibited, unless: • the shareholder makes an offer to all shareholders of the same class via a takeover bid; or • an exemption from the takeover bid rules is avail - able.
Such exemptions include: • certain purchases by private agreement from not more than five persons; and • normal-course market purchases of no more than 5% of the outstanding securities in any 12-month period. 6.3 Consideration Both cash and shares of the acquiror are commonly used in Canada as consideration in M&A transactions. The takeover bid rules require that identical consid - eration be provided to all target shareholders, with limited exceptions. Generally, no collateral benefits are allowed to be offered selectively to certain share - holders. Plans of arrangement offer flexibility on consideration, as long as the arrangement overall is fair and reason - able. In private M&A, particularly in industries with high valuation uncertainty, tools commonly used to bridge value gaps between parties include holdbacks and earn-outs. • With a “holdback”, an acquiror will hold on to some of the purchase price until after closing in order to satisfy indemnity or breach of warranty claims. This holdback amount may be provided to an escrow agent, particularly in cases where the seller has concerns about the creditworthiness of an acquiror. • With an “earn-out”, part of the purchase price will remain subject to performance requirements or other milestones that must be satisfied after closing and may also be used to set off indemnity or breach of warranty claims. The most common criterion is financial performance. Sellers may also provide some or all of the financing, or reinvest proceeds in the purchaser, to facilitate the closing. 6.4 Common Conditions for a Takeover Offer Common conditions for takeover bids include:
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