CANADA Law and Practice Contributed by: Scott Hyman, Anthony Spadaro and David Wilson, Davies Ward Phillips & Vineberg LLP
9. Takeover Finance 9.1 Regulated Targets
lic companies, boards of directors play a much more important role. The two most common methods for acquiring control of a public company are by way of a takeover bid or a plan of arrangement carried out under the applicable corporate statute. While takeover bids can be either “friendly” or “hostile” , plans of arrangement can only be car- ried out on “friendly” basis (ie, with the approval of the target’s board of directors). In either case, the board often makes a recommendation to shareholders as to whether they should accept or reject the offer. In making this determination, the board will often require one or more “fair- ness opinions” from financial advisers who opine that the transaction is fair to shareholders, from a financial point of view. The board will typically form a special committee of independent direc- tors for the purpose of evaluating and consid- ering the proposal. This is because manage- ment (or non-independent directors) may have interests in the transaction that do not neces- sarily align with the interests of shareholders. Ultimately, however, it is the shareholders who decide if the transaction will proceed. In the case of a takeover bid, shareholders will elect to ten- der their shares to the offer, or not. In the case of a plan of arrangement, a shareholders’ meeting will be held and shareholders will vote either for or against the proposed transaction. Generally speaking, the stock exchange on which the public target company is listed does not play a significant role in acquisition transac- tions. However, if the acquirer is also a listed public company and intends to issue shares to the target’s shareholders as part of the trans- action, stock exchange rules may require the acquirer to obtain shareholder approval. For example, under the rules of the Toronto Stock Exchange, shareholder approval will be required
In addition to customary merger review consid- erations, certain industries in Canada are subject to federal and/or provincial regulation, includ- ing telecommunications, broadcasting, aero- space, railroads, insurance, banking, defence and energy. The legislation governing compa- nies that operate in these industries will often contain restrictions on foreign ownership and/ or changes in control, meaning that regulatory approval may be required for any transformative transaction involving these companies. In some cases, the approval process can take many months. Moreover, certain direct acqui- sitions of a Canadian business in any industry by a foreign acquirer may be subject to a pre- acquisition review process under the Investment Canada Act, which can take a couple of months (the average is 75 days). However, acquisitions of Canadian businesses in certain industries or by certain acquirers may be subject to a lengthy national security review process that can last for more than 200 days. The Canadian govern- ment’s Guidelines on National Security Review of Investments include a non-exhaustive list of factors that may give rise to a national security order in relation to an investment. Lenders can consult these guidelines as part of their due dili- gence. 9.2 Listed Targets The boards of directors of all companies – public or private – owe a fiduciary duty to shareholders under the corporate statutes of each province and territory of Canada. This seldom creates any issues in the context of a sale of a private company because it is the shareholders them- selves who negotiate and sign the purchase and sale agreement. However, in the context of pub-
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