Canadian Securities Law Online : Canadian Securities Lawyer & Attorney : Stikeman Elliott Law Firm : Montreal, Ottawa, Calgary, Vancouver, Montreal, Toronto

The Canadian Securities Administrators (CSA) today published a staff notice setting out the view of CSA staff regarding the ability of an offeror in a formal take-over bid to make negative variations to a bid, variations the CSA staff characterize as those that vary a bid in a manner that is “less favourable” to target security holders. Such variations cited by the CSA include: (i) lowering the consideration offered; (ii) changing the form of consideration other than to add to the consideration already offered; (iii) lowering the proportion of outstanding securities subject to the bid; or (iv) adding new conditions.

In response to the question of whether an offeror can reduce the offer price or add new conditions for any reason, and at any time, prior to expiry of a bid, CSA staff state that the bid regime does not contemplate the unilateral “withdrawal” of a bid, or, if all the terms and conditions have been satisfied or waived, a reduction in the price or introduction of new conditions. In this respect, CSA staff note that language contained in offer documents and bid circulars that provides that the offeror may vary the bid at its sole discretion at any time, including by reducing the offered consideration, "may be inconsistent" with bid requirements.

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The OSC has just released its 2009 Corporate Finance Branch Report, summarizing the operational activities of the Branch for fiscal 2009, which ended on March 31, 2009.   The report highlights the Branch’s activities in the area of mergers and acquisitions, specifically relating to OSC staff views on negative bid variations and bid withdrawals, significant M&A related decisions and use of the financial hardship exemption under Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101). The report also summarizes the Branch’s activities relating prospectus and rights offerings as well as continuous disclosure reviews and continuous disclosure issues relating to market conditions and transition to international financial reporting standards (IFRS).

Mergers and Acquisitions

According to OSC staff, actions such as a bidder amending a bid in its discretion to make it less favourable or unilaterally withdrawing a bid prior to its expiry may be regarded as “inconsistent with the take-over bid regime” and its “underlying purpose to provide a transparent and predictable framework for take-over bids.” As such, staff intend to monitor such actions by bidders to determine whether the bidder has failed to comply with securities legislation or otherwise acted in a manner contrary to the public interest. Such reviews will focus, in particular, on whether the bidder's actions were based on a reasonable interpretation of bona fide conditions in its offer.

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On November 13, the TSX published for comment proposed changes to Part VI of its Company Manual proposing specific requirements and exemptions with respect to security holder approval in the case of investment fund acquisitions. These proposed amendments relate to the impact on investment fund acquisitions of recent changes to the TSX Company Manual requiring approval of security holders of an aquiror for the issuance of securities as consideration for an acquisition where the number of securities exceeds 25% of the issued and outstanding securities of the aquiror. The proposed amendments would exempt investment funds from this requirement provided certain conditions were satisfied. The proposed amendments would also require security holder approval by investment funds that are the subject of an acquisition unless certain conditions are satisfied.

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The Toronto Stock Exchange (TSX) announced today that the Ontario Securities Commission has approved amendments to Part VI of the TSX Company Manual respecting the acquisition of public companies. While section 611(c) of the Manual currently requires shareholder approval for the issuance of securities as full or partial consideration for an acquisition where the securities to be issued exceed 25% of issued and outstanding securities, an exception exists where the acquiree has 50 or more beneficial shareholders, excluding insiders and employees (a public company).

The amendments announced today will remove the exception for public companies, thereby applying the dilution threshold of 25% to all acquisitions. These amendments follow two separate rounds of requests for comments published by the TSX in October 2007 and later in April 2009.   In the April 2009 Request for Comments, the TSX proposed to require shareholder approval at the dilution level of 50% but decided, consistent with the majority of those that commented on the proposals, that the threshold dilution level should be lower than that proposed. In its Notice of Approval, however, the TSX notes that while it strives “not to rely on discretion” to alter its rules other than in "extraordinary circumstances or where the rules do not apply to the circumstances”, the TSX Manual does provide discretion to impose or exempt issuers from requirements in the Manual in “appropriate circumstances.” It further notes that the “exercise of discretion by TSX is, and should be, limited, particularly where there is a bright line test that applies.” It will therefore continue to apply s. 611(c) (which requires securityholder approval for transactions above the 25% threshold) in this manner.

The amendments become effective on November 24, 2009 but will not have retroactive effect. Any transaction of which the TSX has been notified in writing prior to such date will not be subject to the new rules, regardless of whether or not TSX conditional approval has been granted.

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Jonah Mann and David Weinberger | PDF Version |  Version française

On September 1, 2009, the Ontario Securities Commission (OSC) released the full Reasons for its decision to deny an application to cease trade a second shareholder rights plan (or tactical plan) implemented by Neo Materials Technologies Inc. (Neo) in the face of a hostile partial bid by Pala Investments Holdings Limited (Pala). Prior to the expiry of the Pala bid, the tactical plan was approved by 81.24% of shares voted (excluding shares held by Pala) at an annual and special meeting of Neo’s shareholders.

In its Reasons, the OSC reiterated that it has broad discretion to determine whether to exercise its public interest jurisdiction in a given matter and the scope of this jurisdiction must be interpreted in the context of the purposes of the Securities Act as a whole. While it will not hesitate to exercise its public interest jurisdiction in appropriate circumstances, it is also mindful that a degree of deference is owed to the decision of the board of directors. In determining whether to exercise its public interest jurisdiction, the OSC will examine all of the circumstances surrounding the establishment of a shareholder rights plan, including whether informed shareholder approval was given, and the context of that approval. While the Reasons put considerable emphasis on shareholder approval as a relevant consideration, the OSC was also careful to note that shareholder approval does not necessarily mean that a shareholder rights plan is protected from the OSC’s public interest jurisdiction.

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On August 25, the Alberta Securities Commission (ASC) dismissed the application filed by TransAlta Corporation requesting that the ASC cease trade a shareholder rights plan implemented by Canadian Hydro Developers, Inc. TransAlta's application to the ASC stemmed from its unsolicited bid for the outstanding common shares of Canadian Hydro. 

Pursuant to its bid circular dated July 22, 2009, TransAlta offered to acquire all of the issued and outstanding common shares of Canadian Hydro (together with associated rights) at a price of $4.55 per common share. The bid is set to expire today, August 27, 2009, and is conditional upon the board of Canadian Hydro redeeming all outstanding rights, waiving application of the rights plan or the plan being cease traded or its application otherwise prohibited or prevented by a relevant governmental entity. The shareholder rights plan was approved by shareholders of Canadian Hydro on April 24, 2008 and allows for certain types of takeover bids that qualify as “permitted bids” under the terms of the plan. A "permitted bid" requires, among other things, that such a bid be made on certain prescribed terms and conditions.

As a result of the decision of the ASC, the plan remains in force. This decision represents the third of its kind to refuse to cease trade a shareholder rights plan in the face of an unsolicited bid and follows on similar decisions made by the ASC in Re Pulse Data Inc. (2007) and the Ontario Securities Commission in the matter of NEO Material Technologies and Pala Investment Holdings Limited (decision rendered on May 11, 2009 with full reasons to follow). While the ASC did not release reasons at the time of its decision, full reasons are expected in the near future.

Update: The reasons have now been released.

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On May 11, 2009, the Ontario Securities Commission (OSC) decided to deny an application requesting that the OSC cease trade two shareholder rights plans implemented by NEO Material Technologies. The first plan was a strategic plan that had previously been approved by shareholders of Neo and the second was a tactical plan that had been adopted by NEO in the face of a partial bid launched by Pala Investments. Pala’s bid was structured to comply with the “permitted bid” definition contained in the first plan in that it was open for at least 60 days, subject to an additional 10-day extension in the event that the irrevocable minimum tender condition, requiring that at least 50% of the independently held common shares of Neo be tendered, was satisfied. In response to Pala’s partial bid, the board of directors of Neo implemented the second shareholder rights plan to prohibit such a partial bid and recommended against tendering to the bid. Pala applied to the OSC under s. 127(1) of the Securities Act to have both plans cease traded but the OSC deferred making a decision on the application until after Neo held its previously scheduled shareholder meeting (which was scheduled to be held prior to the expiry of the Pala bid). Approval of the second plan was put before the shareholders at the meeting and was passed, following which the OSC denied the requested relief. 

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On April 20, 2009, the TSX published a notice providing guidance on amendments to securityholder rights plans after a take-over bid has been announced or initiated. The notice reminds issuers that they must obtain written consent of the TSX prior to adopting amendments to a plan. In cases where a plan amendment is reasonably perceived to have been proposed in response to a take-over bid, the TSX will treat the amendment as a new plan and will normally defer its decision to consent until the relevant securities administrator has decided whether or not to intervene. If the regulator does not intervene, the TSX will generally not object subject to securityholder approval. The notice also reminds issuers that any plan filed for acceptance must be accompanied by a letter that states, among other things, whether the plan treats any existing securityholder differently from other securityholders. The notice reminds issuers that the TSX will require securityholder approval as set out in s. 636(b) of the TSX Company Manual notwithstanding such provisions. Any such provisions that purport to exclude votes of certain securityholders must be specifically identified in the issuer's application to the TSX for approval of the plan amendments.

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On April 3, 2009, the TSX released proposed amendments to its Company Manual with respect to requiring security holder approval "in those instances where the number of securities issued or issuable in payment of the purchase price for an acquisition exceeds ... 50% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis, for an acquisition of a reporting issuer (or equivalent status) having 50 or more beneficial security holders, excluding insiders and employees."

The TSX is accepting comments on the amendments until May 4, 2009.

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On March 25, 2009, the Supreme Court of Delaware released its decision in Lyondell Chemical Company v. Ryan, a case where the defendant directors of Lyondell were accused of breaching their fiduciary duties in conducting the sale of the company in July 2007. The plaintiffs claimed, among other things, that the directors did virtually nothing to develop a strategy for maximizing shareholder value once they became aware of the buyer’s filing of a Schedule 13D with the SEC in May 2007, which indicated that the company was “in play”. Since the company charter provided directors protection for breaches of their duty of care, this case turned on whether the directors breached their duty of loyalty by failing to act in good faith. The opinion of the Delaware Supreme Court was issued with respect to the defendants’ appeal of the decision of the Court of Chancery (memorandum opinion of July 29, 2008 and letter opinion of August 29, 2008) denying them summary judgment.

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Income trusts have played a relatively unique role in Canadian capital markets over the last few years and, with the recent changes to their tax treatment and the proposed "conversion" rules, they promise to do so for at least another few years. The following excerpt from our Income Trust Conversion Guide discusses the issue of retained interests.

Update: A revised 2010 version of the Guide has now been published. Download a copy here.

Dealing with a Retained Interest

Many income trusts feature “retained interests”; i.e., individual equity interests held by the pre-IPO owners of the underlying business of the trust. These retained interests are, for tax (and other) reasons, often held at a different structural level than the public (i.e., often directly in the underlying operating business), are usually exchangeable for units of the trust, and often carry voting rights at the trust level on an “as exchanged” basis. The retained interests also frequently have substantial governance rights and protections, including veto rights over certain kinds of transactions by the trust.

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According to Stikeman Elliott's recently published M&A outlook for 2009, the Canadian M&A market will continue to be affected by tight credit, lower valuations based on lower multiples (driven in part by lower earnings and difficulties in leveraging acquisitions) and a Canadian dollar that is likely to remain significantly below par (in the 75-85¢ U.S. range). Also affecting the Canadian market will be political and regulatory developments – not only domestically but in the U.S., Europe and Asia. While blockbuster deals are likely to be few and far between, opportunities will inevitably present themselves, especially to cash-rich acquirors. When all is said and done, the theme heading into 2009 is: "Cash is king – it’s a buyer’s market once again."

"Uncovering Opportunities - Canadian M&A in 2009" is available here.

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The TSX announced today that it has adopted and the OSC has approved amendments to add Part X - Special Purpose Acquisition Corporations to the TSX Company Manual and make ancillary amendments to Parts I and III and to Appendix C Escrow Policy Statement.

As previously announced, the TSX decided to propose rules for the listing of SPACs, having observed the popularity of the use of SPACs in the United States. In the US, a growing number of issuers have gone public with the intention of later completing a qualifying acquisition by merging with or acquiring an operating company with the proceeds of such offering.

The TSX has also published Staff Notice 2008-007 to provide guidance on SPAC-related disclosure and administrative matters.

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The Supreme Court of Canada has just released its reasons in the case of BCE Inc. v. A Group of 1976 Debentureholders. The Supreme Court's judgment, without reasons, was previously released on June 20, 2008.

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On November 3, 2008, the TSX issued Staff Notice 2008-0005 relating to the following provisions of the TSX Company Manual: Section 628, relating to normal course issuer bids (NCIBs), Section 707, relating to the Remedial Review Process, Part 1, relating to the definition of “market price” and Section 604, respecting securityholder approval requirements for issuers experiencing a financial hardship.

With respect to NCIBs, the Staff Notice grants temporary relief from the daily purchase restrictions to increase the amount that an issuer can purchase under an NCIB from 25% of the average daily trading volume to 50% of the average daily trading volume. Similar relief has also been granted to participating organizations from corresponding provisions of the TSX Trading Rules. The Staff Notice also provides temporary relief to issuers subject to a remedial review by extending the time period that an issuer has to remedy deficiencies that triggered a delisting review from 120 to 210 days. The temporary relief relating to NCIBs and remedial reviews will be effective from November 3, 2008 through to March 31, 2009.

The Staff Notice also clarifies that while the TSX Manual defines “market price” as the 5 day volume weighted average trading price of listed securities, it also provides that this 5 day period may be adjusted based on relevant factors if such price does not accurately reflect the current market price of securities. Given current market conditions, the Staff Notice clarifies that the TSX may be willing to use a shorter time period for making this calculation on a case-by-case basis for the purposes of pricing securities for private placements, including warrants.

Finally, the Staff Notice also reminds issuers that Section 604(e) of the TSX Manual provides an exemption from securityholder approval requirements for issuers experiencing serious financial hardship, which exemption may be more relevant to issuers under current market conditions.

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Deer Creek Energy Ltd. v. Paulson & Co., Inc., June 13, 2008 | 2008 ABQB 326 (Court of Queen's Bench).

Andrew Cunningham

Alberta judge holds market valuation soundest basis for deciding fair value of dissenters’ shares; dissenters not permitted to take advantage of spike in market price after first stage of two-step transaction. Court also rejects dissenters’ claim for far higher valuation based on future possibilities, even though some of these had been touted by company in its marketing efforts.

In this long‑anticipated ruling, Madam Justice Romaine of Alberta’s Court of Queen’s Bench found that “market value” was the primary consideration in valuing the shares of dissenting shareholders of Deer Creek Energy Ltd., an ABCA corporation involved in an oil sands pro­ject near Fort McMurray, Alberta.

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Following the recent announcement by the U.S. SEC that issuers listed on a U.S. exchange would be temporarily exempt from certain share repurchase rules, the TSX has announced that it is taking similar action for interlisted issuers. Until (and including) October 2, 2008, for issuers that are listed on the TSX and also listed on a U.S. exchange, the time of purchase condition in s. 629(l)8 of the TSX Company Manual with respect to NCIB purchases at the opening and closing of a trading session is suspended and the volume of purchases condition in s. 628(a)(ix)(a) of the Manual is modified so that the amount of NCIB purchases must not exceed 100% of the ADTV for the security. Participating organizations acting on behalf of interlisted issuers will receive similar benefit. The SEC Order expires at the same time.

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The purpose of this notice is to publish for comment a proposed new Part X to the Toronto Stock Exchange Manual (the Manual), which would result in the introduction of Part X -- Special Purpose Acquisition Corporations (referred to as "SPACs”) to the Manual.

The TSX has decided to propose rules for the listing of SPACs, having observed the popularity of the use of SPACs in the United States, with a growing number of issuers going public with the intention to later complete a qualifying acquisition by merging with or acquiring an operating company with the proceeds of such offering. While similar to reverse takeovers, the TSX notice observes that unlike reverse takeovers, SPACs generally offer: i) a clean public company shell; ii) more experienced management teams; iii) greater certainty of financing; and iv) a readily available retail and institutional securityholder base.

The TSX notice also observes that while SPACs bear some similarity to capital pool companies (CPCs) in that both involve the creation of publicly-traded shell companies that later acquire an operating business using the initial proceeds raised, the proposed SPAC rules differ from the CPC rules, particularly because SPACs are much larger than CPCs and, therefore, involve more stringent investor protections. The proposed SPAC rules take into account SPAC rules recently adopted by the New York Stock Exchange and currently proposed by NASDAQ, while also attempting to incorporate best commercial practices observed in the SPAC market in the United States.

As a result of the growing market acceptance of SPACs in the United States, and building on the CPC concept, the TSX is proposing Part X to provide a framework for the listing of SPACs on TSX. The proposed Part X of the TSX Manual sets out: i) the original listing requirements that must be met by the SPAC; ii) the continued listing requirements that a SPAC must meet prior to the completion of a qualifying acquisition; and iii) the process relating to the completion of a qualifying acquisition, or failing that, liquidation distribution of the SPAC.

Part X will be effective upon approval by the Ontario Securities Commission following public notice and comment and is open for comments until Monday, September 15, 2008.

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John Lorito, Simon Romano, Jeffrey Singer and Joel Binder | Version française

On July 14, 2008 the Minister of Finance released draft legislative proposals that implement certain measures from the 2008 federal Budget together with certain previously announced tax changes, including certain proposals to amend the rules relating to specified investment flow-through (SIFT) trusts and partnerships that were announced in December 2007.

In addition, the proposals contain the rules for allowing a SIFT trust to convert into a publicly traded corporation without adverse consequences for the trust or its unitholders. The SIFT conversion rules generally allow the unitholders of a SIFT trust to transfer their units of the trust to a corporation in exchange for shares of the corporation on a tax deferred basis.  While such a transfer is possible under the current rules in the Income Tax Act, the new rules allow this tax deferred transfer to be effected without the need for a joint election to be filed by the unitholder and the corporation.  In addition, the new rules will allow the trust and its subsidiary trusts to be subsequently wound up into the corporation without adverse tax consequences and will permit the flow-through of certain tax attributes of the trust and its subsidiary trusts to the corporation.  Alternatively, a SIFT trust (or a subsidiary trust of a SIFT trust) whose only asset is shares of a taxable Canadian corporation may wind-up and distribute the shares of the corporation to its beneficiaries on a tax deferred basis.

The SIFT conversion rules will apply to conversions that are effected after July 14, 2008 and before 2013 and, on election, may also apply to conversions occurring after December 20, 2007 and prior to July 14, 2008.

Update: See our recent post regarding our Income Trust Conversion Guide.

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Curtis Cusinato, Jeffrey Singer and Sandra Walker  | Version française

As financial institutions and private equity firms focus on recovery from the subprime mortgage crisis, government investment vehicles known as Sovereign Wealth Funds (SWFs) are emerging as key players in global M&A. Quite apart from the spotlight cast on them by their recent (and heroic) intervention in the financial markets, including investments in Citigroup, Bear Stearns, Morgan Stanley and Merrill Lynch, SWFs are attracting widespread international attention because of their dramatic growth. No longer the almost exclusive preserve of the traditional oil exporters,¹ they are being established in significant numbers in Asian export economies as well as in Russia and other emerging natural resources powers. According to one recent estimate, the holdings of SWFs worldwide may top US$12 trillion by 2015.² Another important development is a shift in investment strategy away from lower-yielding bond investments towards equity investments and (most significantly) key strategic assets.

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William J. Braithwaite and John Ciardullo

This past year was a record year for Canadian mergers and acquisitions with transaction volumes soaring to all time highs. However, the second half of 2007 was marred by the North American credit crunch and transaction volumes suffered as a result. According to data compiled by Financial Post Crosbie: Mergers and Acquisitions in Canada, there was $370 billion worth of deals in 2007, up a staggering 44% over the record $257 billion of deals in 2006. But there were fewer transactions in the second half of the year and leveraged buyouts over $100 million involving financial buyers fell dramatically from 78 ($85 billion) in the first half of 2007 to 13 ($10.7 billion) in the second.

Most M&A practitioners expect reduced volumes and fewer leveraged buyouts in 2008 as the market continues to digest the large backlog of debt in the pipeline. Members of the M&A bar are hopeful that activity will remain respectable by historical standards as a result of transactions involving strategic buyers (including non-Canadian buyers), sovereign wealth funds and the continued presence of financial buyers in transactions where leverage is less of a factor, and due to continuing economic drivers such as strong balance sheets, the trend towards globalization and the competitive landscape in North America.

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The HA2003 Liquidating Trust v. Credit Suisse Securities LLC, February 20, 2008 | No. 06-3842 (U.S. Court of Appeals for the 7th Circuit)

Alex Colangelo

Contract between parties set out terms of engagement and the defendant did not have a duty to go beyond its mandate.

This case takes us back to the heady days of the dot-com boom. Back in the 1990s, HA-LO In­dus­tries was in the business of making logo-bearing promotional products that companies could use to market themselves. In 1999, the company decided it needed to join the e-commerce bandwagon and subsequently agreed to purchase Starbelly.com for $240 million in cash and shares. While Starbelly.com was a young start-up with a negligible track record, its e-commerce system was attractive to HA-LO.

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Kim Alexander-Cook and Richard Clark  | Version française

The Federal Government has just provided notice that the general threshold for review under the Investment Canada Act for a direct acquisition of control of a Canadian business by WTO investors for 2008 will be C$295 million. This direct acquisition review threshold is adjusted annually for inflation and growth in Canada's GDP and normally refers, (a) in the case of an acquisition of the assets used in carrying on a Canadian business, to the gross book value of those assets, (b) in the case of an acquisition of control of an entity carrying on a Canadian business, to the gross book value of the assets of that entity, and (c) in the case of an acquisition of control of an entity carrying on a Canadian business and of control of one or more other entities in Canada, to the gross book value of the assets of that entity and all other entities the control of which is being acquired. 

Indirect acquisitions (e.g. acquisition of a U.S. company with a smaller Canadian subsidiary) of Canadian businesses that are either WTO-controlled or are being acquired by WTO investors generally are not reviewable (regardless of the value of the assets), but remain subject to a post-closing notification obligation under the Act. However, the acquisition of control of Canadian businesses engaged in (i) transportation services, (ii) certain cultural businesses, (iii) certain financial services, or (iv) certain uranium production activities are subject to much lower thresholds for review (C$5 million if direct and C$50 million if indirect), and there are no de minimis exceptions where a Canadian business carries on any of these activities.

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Andrew Cunningham  | Version française

In its widely anticipated ruling of Re AiT Advanced Information Technologies Corp., the Ontario Securities Commission (OSC) held that the obligation to disclose a potential merger as a "material change" under s. 75 of Ontario's Securities Act does not apply to proposed mergers and acquisitions until the board believes that the parties are "committed" to the transaction and that completion is substantially likely.

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Simon Romano, Jeffrey Singer and Ramandeep Grewal  | Version française

Effective February 1, 2008, a new infrastructure to govern take-over bids and issuer bids is now in place across Canada.  While substantively the same, the new regime is structured differently in Ontario as compared to all other Canadian jurisdictions (the Other Jurisdictions), and is comprised principally of the following: Continue Reading...

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As of February 1, 2008, the Ontario Securities Commission (OSC) and securities regulators from all other Canadian jurisdictions will implement parallel but separate rules to govern take-over bids and issuer bids.

Brian Pukier, Ramandeep Grewal and Alex Colangelo

In April 2006, all of the Canadian Securities Administrators (CSA), including the OSC, published for comment a proposed national instrument to govern take-over bids and issuer bids which was designed to harmonize and streamline the requirements for take-over bids and issuer bids across Canada. The proposed course of action envisioned removing detailed bid provisions from provincial statutes, replacing them with general “platform provisions” in the form of a national instrument and national policy. Since the time of that original publication, however, the OSC decided to take a different course of action and subsequently proposed its own parallel but separate bid regime, to take the form of amendments to the Securities Act (the OSA), supplemented by an OSC rule. The comment and review process for both the OSC and the multilateral initiative has culminated in proposed final versions of both of these separate but similar regimes.   Effective February 1, 2008, the Canadian take-over and issuer bid regime will therefore be comprised of the following:

In Ontario,

• new and/or amended provisions contained in Part XX of the OSA (OSA Amendments);
• OSC Rule 62-504 Take-Over Bids and Issuer Bids (OSC Rule); and
• National Policy 62-203 Take-Over Bids and Issuer Bids (National Policy)

In all jurisdictions other than Ontario,

• Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids (Multilateral Instrument); and
• the National Policy

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Amendments included as sections 628 and 629 of the TSX Company Manual and contain new filing and reporting forms

Ramandeep Grewal and Alex Colangelo

Effective June 1, 2007, changes to the TSX Company Manual amended the policies on Normal Course Issuer Bids (NCIB) and Debt Substantial Issuer Bids (DSIB). Meanwhile, proposed changes relating to the use of derivatives and accelerated buy backs in connection with NCIBs have been postponed due to the number of comments received by the TSX.

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Andrew Cunningham

Proposed settlement of class action relating to minority buyout fails to win the approval of the Delaware Court of Chancery

Exploratory negotiations toward a going private transaction may well have violated a shareholders' agreement provision barring such discussions unless the Special Committee invited them - ruling suggests that such an invitation may need to be formally issued before negotiations begin, not merely at the point where the price settled on is to be voted on

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Ramandeep Grewal and Simon Romano

 

On October 12, 2007, the TSX issued a request for comments to determine whether it should revisit its practice of exempting listed issuers from the requirement to obtain security holder approval for share exchange acquisitions of other public entities. The request for comments includes a summary of some of the material considerations for or against such a proposal and a comparison to similar requirements in other jurisdictions.

The TSX Manual currently requires shareholder approval for acquisitions where the number of securities issued or issuable as consideration exceeds 25% of the issued and outstanding securities of a listed offeror. Prior to January 1, 2005, the TSX generally applied its historical practice of exempting listed issuers from this requirement for acquisitions of other public entities. Amendments that were effective on that date expressly added this exemption as Section 611(d) of the TSX Manual. In response to concerns raised by some market participants, the TSX has decided to review whether it is appropriate to continue to make this exemption available to its listed issuers.

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Reprinted with permission from the 2007/2008 Lexpert®/CCCA Corporate Counsel Directory and Yearbook, 6th Edition. © Thomson Carswell.

Brian Pukier

The prevalence of hostile take-over bids and other forms of contested M&A transactions continued a theme in the Canadian M&A markets in 2006 and the first part of 2007. The number and profile of these types of transactions have continued to grow. despite the record number of transactions in the previous year.

Some of the more notable transactions include Alcoa Inc.'s hostile bid for Alcan Inc. and Saskatchewan Wheat Pool's bid for Agricore United (which was then topped by James Richardson International Limited, and then amended again once Saskatchewan Wheat Pool entered into an arrangement with James Richardson International to split up certain of Agricore United's assets). Other recent transactions include Harbinger Capital Partner's successful bid for Calpine Power Income Fund, Genzyme Corporation's successful bid for AnorMED Inc. and Avion Group hf's successful bid for Atlas Cold Storage Income Fund.

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The OSC's AiT proceeding could start a trend towards earlier public disclosure.

Jeffrey Singer

Recent actions by the Ontario Securities Commission (OSC) in connection with the acquisition of AiT Advanced Information Technologies by 3M Canada may lead to tighter Canadian public M&A disclosure standards. The unexpected proceedings targeted AiT and two of its directors (its President/CEO and its legal counsel) over their alleged failure to make timely disclosure of the proposed transaction. The company and one of these directors have settled with the OSC, but the second director (the company's legal counsel) has chosen to defend her actions at a hearing.

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William J. Braithwaite and John Ciardullo

Introduction

Canadian M&A activity was extremely robust in 2006, with transaction volumes reaching all-time highs. According to industry data compiled by Crosbie & Company, there were 1,968 announced transactions valued at about C$257 billion (US$216 billion) in 2006, compared to 1,247 transactions valued at about C$165 billion in 2005, representing a 56% and 58% increase, respectively. Canadian practitioners are optimistic that this pace of M&A activity will continue in 2007.

The increase in Canadian M&A activity can be attributed to a number of factors and trends, including favourable economic conditions and low interest rates in North America, strong global commodities prices and the increased presence of credible international buyers and U.S. private equity firms on the Canadian M&A scene, among other factors.

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