CANADA Law and Practice Contributed by: Scott Hyman, Anthony Spadaro and David Wilson, Davies Ward Phillips & Vineberg LLP
1. Market 1.1 Major Lender-Side Players
The most common way to acquire a Canadian public company in “friendly” transaction is by way of a plan of arrangement carried out under the applicable corporate statute governing the target company. Unlike in the case of takeover bids, there is no legal requirement for a potential acquirer to have committed financing in place before entering into a definitive arrangement agreement. Similarly, in the context of an acquisition of a private company, there is no legal requirement for the purchaser to have committed financing in place at the time the purchase and sale agree- ment is executed. Nevertheless, public company boards and prudent sellers of private companies will want to know that the acquirer has sufficient committed resources at its disposal to consum- As a result, it is very common and generally expected in Canada that fully committed financ- ing will be secured at the time the acquisition agreement is signed, and that “certain funds” provisions will be included in commitment papers to lend further credibility to any acqui- sition offer. Certain funds provisions typically obligate lenders to fund their financing commit- ments under all circumstances, even where a misrepresentation or default exists. Lenders can elect not to fund in only a very narrow subset of circumstances, typically related to: • the failure to satisfy the conditions to the underlying acquisition; • the breach of key representations related to ostensible authority to complete the acquisi- tion and financing transactions; and • the existence of a payment or bankruptcy default. mate the transaction. Committed Financing
Acquisition financing in Canada is typically arranged by Canadian, US and other interna- tional banks and non-bank lenders. The “big six” banks – Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank – account for the majority of bank-led acquisition financings in Canada. In some cases, particularly acquisitions of private companies and smaller going-private transactions, acquisition financing is provided by private equity funds and leveraged debt funds, but even with such transactions the majority of financing is provided by banks. 1.2 Corporates and LBOs Please see 1.1 Major Lender-Side Players . The acquisition of a Canadian public company by way of a cash takeover bid cannot be subject to a financing condition. The acquirer must make adequate arrangements before the bid to ensure the required funds for the acquisition are availa- ble. Although those financing arrangements may be subject to conditions, the acquirer must rea- sonably believe there is only a remote possibility that, if the conditions to its takeover bid were satisfied, it would be unable to pay because a condition to its financing arrangements could not be satisfied. As a rule of thumb, those financ- ing arrangements can be no more conditional than the bid itself. 2. Documentation 2.1 Governing Law Acquiring a Canadian Company
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