CANADA Law and Practice Contributed by: Kevin West, Andrea Hill, Priya Ratti and Gabriel Potkidis, SkyLaw
6.8 Additional Governance Rights If an acquiror is not seeking 100% ownership of a tar - get, it may negotiate for additional governance rights with respect to a target outside its shareholdings, including the right to: • nominate individuals to the target’s board and/or to sit on board committees; • be a board observer; • participate in, or require, a public offering of the target’s equity securities; and • approve of change of control transactions, issu - ances of shares and other major decisions. 6.9 Voting by Proxy Shareholders are permitted to vote by proxy in Can - ada. 6.10 Squeeze-Out Mechanisms If an acquiror wishes to obtain 100% of the shares of a target and is not able to do so through the bid pro - cess, there are two other methods that can be used to acquire the remaining shares, depending on the holdings of the acquiror after the bid is complete. Second-Step Business Combination/Going-Private Transaction A second-step business combination or a going- private transaction can be implemented if the bidder holds between 66⅔% and 90% of the outstanding shares after the bid is complete. Following the bid, the bidder will be able to take the company private through an amalgamation or a plan of arrangement. Such a business combination will need to be approved by a special majority of the shareholders at a share - holder meeting and will be subject to certain minor - ity shareholder protections. (For instance, a majority of the minority of the shareholders will be required to approve of the business combination.) However, as the majority shareholder, the bidder can partici - pate and vote the shares that were acquired under the takeover bid. Thus, if the bidder acquires 66⅔% of the outstanding shares, in most cases, it will have sufficient votes to obtain the majority of the minority approval.
Break/Termination Fees A common deal-protection measure in Canada is a break fee which may be paid by the target to the acquiror if an arrangement or other business combi - nation is not completed. These types of fees usually range from 1% to 5% of the target’s equity value. Reverse break fees requiring a payment by the acqui - ror to the target if the acquiror breaches the acquisi - tion agreement, or is not able to complete the sale, may also be used. No-Shop/Go-Shop Clauses No-shop clauses prohibit a target from soliciting other takeover offers or providing information to other third parties that might be used to make an offer. These provisions will typically include a “fiduciary out” (see 5.4 Standstills or Exclusivity ). Go-shop clauses, in contrast, allow a target to nego - tiate or “shop” a transaction with third parties for a specific amount of time after the execution of the agreement. Go-shops are less common but may be desirable if the acquiror wants to announce the deal publicly before the target tests the market. Matching Rights The acquiror may be provided the right to match a superior proposal and complete the transaction. Managing Risk During the Interim Period Once a definitive acquisition agreement is signed or a takeover bid launched, the acquiror is bound to complete the transaction unless one of the expressly stated conditions is not satisfied. Definitive acquisition agreements now contain specific pandemic or epidemic provisions, including represen - tations about the impact of public health measures on the business and the extent to which government support has been relied on. Material adverse effect and ordinary course of business provisions have gar - nered greater attention in recent years, in part due to the COVID-19 pandemic’s impact and current global trade uncertainty.
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