Take-over bid regime and early warning system amendments receive ministerial approval in Ontario

Amendments to the take-over bid and early warning reporting regimes announced earlier this year have received ministerial approval and come into force today, May 9, 2016, as discussed here and here. The amendments, which were approved by the Ontario Minister of Finance on March 31, 2016, include, among other things, the adoption in Ontario of National Instrument 62-104 Take-Over Bids and Issuer Bids, the repeal of OSC Rule 62-504 Take-Over Bids and Issuer Bids, amendments to National Instrument 62-103 Early Warning System and Related Take-Over Bids and Insider Reporting Issues and related amendments to the Securities Act (Ontario) (OSA).   The related amendments to the OSA, as included in Schedule 18 of the Budget Measures Act, 2015 (Ontario), also come into force today, as proclaimed by the Lieutenant Governor of Ontario.

For further information, please see Notice of Ministerial Approval of Amendments to Take-Over Bid Regime and Early Warning System.

Final take-over bid rules announced with a 105-day minimum deposit period

Effective May 9, 2016, take-over bids for Canadian issuers will be subject to a minimum 105-day deposit period. Attempting to strike a balance between their original proposal and comments received, the Canadian Securities Administrators (CSA) have published final amendments to the Canadian take-over bid regime (Take-Over Bid Amendments) which, in addition to the longer 105-day bid period, will impose a minimum tender condition and a mandatory 10-day extension to the bid period after the tender condition is satisfied. Other than the change to the minimum bid period, the final Take-Over Bid Amendments generally reflect the CSA's original proposal. 

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Dissent rights condition in Public M&A: Will Canada continue its own way?

Our readers may be interested in a recent post by our colleagues on the Canadian M&A Law blog discussing the differences in the U.S. and Canada on the use of dissent/appraisal right conditions in M&A transactions.  For further details please see our post on CanadianM&ALaw.com.

Revisiting Selected Public M&A Deal Points: A Cross-Border Comparison

The Market Trends Subcommittee of the Mergers and Acquisitions Committee of the Business Law Section of the American Bar Association recently released its latest edition of (i) the Strategic Buyer/Public Target M&A Deal Points Study which analyses acquisitions of US publicly-traded targets announced in 2014 and (ii) the Canadian Public Target M&A Deal Points Study which analyses acquisitions of Canadian publicly-traded targets announced in 2013 and 2014.  Our colleagues on CanadianM&ALaw.com have highlighted key findings of these studies with respect to material adverse changes, dissent/appraisal rights, no-shop and go shop provisions and superior proposal and match rights, among other types of provisions in public M&A acquisition agreements.  For further details please see our post on CanadianM&ALaw.com.

Proposed changes to take-over rules aim to level playing field among boards and bidders

Yesterday, the Canadian Securities Administrators published their eagerly anticipated proposed amendments to the Canadian take-over bid regime (the Proposed Amendments). Specifically, the Proposed Amendments will result in changes to the current rules governing take-over bids by extending the mandatory minimum deposit period and adding mechanisms to address the perceived coercive features of the current rules. The rules surrounding issuer bids will remain unchanged.

The stated objectives of the Proposed Amendments include the facilitation of shareholders’ ability to make voluntary, informed, and coordinated tender decisions while providing target boards with additional time to respond and seek out value-maximizing alternatives. The Proposed Amendments aim to achieve these objectives primarily through the following changes:

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Selected Public M&A Deal Points: A Cross-Border Comparison

Tania Djerrahian and Hadrien Montagne -

The Market Trends Subcommittee of the Mergers and Acquisitions Committee (the ABA Subcommittee) of the Business Law Section of the American Bar Association released in late December 2014 its latest edition of the Strategic Buyer/Public Target M&A Deal Points Study (the US Study) which analyses acquisitions of US publicly-traded targets announced in 2013. This article highlights some of the findings reported by the US Study and compares them to those reported by the most recent Canadian Public Target M&A Deal Points Study prepared by the ABA Subcommittee which analyses acquisitions of Canadian publicly-traded targets announced in 2011 and 2012 (the Canadian Study).

The Study Sample and Type of Consideration

The US and Canadian Studies are similar in terms of the number of deals reviewed, the transaction value range and consideration. However, the US Study specifically excludes acquisition by private equity buyers which may influence some of the deal points it reports.


US Study

Canadian Study

Range of Transaction Values

and over

and over

Number of deals



All Cash Consideration



All Stock Consideration



Mixed Consideration



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A look ahead to the 2015 proxy season

Benoît Dubord and Stéphane Rousseau -

The 2015 Proxy Season is on the doorstep. A look back at the hot topics in shareholder meetings held in the U.S. in 2014 is useful for Canadian issuers to anticipate emerging trends.

Key Shareholder Proposals

When looking at the shareholder proposals voted on at S&P 1500 companies that held their annual meetings in the first half of 2014, three themes of interest stand out.

First, corporate governance issues continue to form the bulk of shareholder proposals. Among those issues, the most common proposal involves the separation of the roles of CEO and chair. Although such resolutions gather about a third of shareholder support on average, the proposal is seldom adopted. Investors appear therefore to be satisfied with the role of the lead independent director as an alternative to an independent board chair. The U.S. position contrasts with the Canadian position where the independent chair is an accepted governance practice for the vast majority of Canadian public corporations.

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IIROC finalizes guidance on underwriting due diligence

D'Arcy Nordick and Jeffrey M. Singer -

The Investment Industry Regulatory Organization of Canada recently published its final guidance on underwriting due diligence (the “Guidance”). Being IIROC’s first ever codification of this nature, the publication of the Guidance represents an opportunity for underwriters to review internal practices in light of IIROC’s expectations. As we discussed when IIROC’s draft guidance were published for comment, while the intention is to codify common practices, the guidance may represent a departure from what some may consider to be the market standard. This is an issue that may be of particular relevance given the role of due diligence in demonstrating that an underwriter has fulfilled its statutory obligations in respect of prospectus offerings.

A draft version of the guidance was originally published for comment in March of 2014, following which IIROC engaged in further industry consultations and consideration of comments. Similar to the draft version, the Guidance is organized into nine key areas spanning the entire underwriting due diligence process. However, it appears that IIROC has made some key adjustments in response to comments received, mainly affording a greater degree of flexibility to underwriters on certain significant matters. Of these, the most notable changes or clarifications are highlighted below, and otherwise discussed in context in our review of the nine principles that follows.

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2015 Oil and gas M&A trends in Canada

Glenn Cameron - 

There was a significant increase in oil and gas M&A and related financing activity in 2014 compared to 2013. By the end of November the value of M&A transactions was over $46 billion, more than three times the aggregate value for the same period in the previous year. 

Reasons for this increase in activity included:

  • The extremely cold winter in North America increased natural gas prices and raised the values of natural gas producers.
  • Several large US producers, including Devon, Apache and EOG Resources, consolidated their Canadian operations, disposing of non core properties.  Devon’s sale of its Canadian conventional assets to Canadian Natural Resources for C$3.13 billion was the largest asset deal of the year.
  • The shale plays in the Montney, Duvernay and other areas of Alberta and BC continued to attract investors looking for significant reserves in close proximity to proposed LNG projects on the West Coast of British Columbia.  Kuwait Petroleum Corporation’s US$1.5 billion purchase of 30% of Chevron’s Duvernay assets and Apollo’s purchase of Encana’s Bighorn assets for C$1.9 billion were examples of these kinds of transactions.
  • Access to capital markets provided the financing required for energy M&A transactions.

This increased activity occurred despite growing concerns that proposed pipeline projects to key export markets may be further delayed or even prevented by increased opposition to those projects, and notwithstanding a lack of significant participation in M&A from Asian acquirors, including state owned enterprises (SOEs). However, the rapidly declining oil prices rapidly declined in Q3 and Q4 of 2014 slowed the M&A activity by year end and the capital markets window for energy issuers closed.

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IIROC releases final guidance on underwriting due diligence

On December 18, the Investment Industry Regulatory Organization of Canada released final guidance in respect of underwriting due diligence.

Ultimately, the document sets out a number of key principles respecting underwriting due diligence, as well as associated guidance respecting each principle, including in regards to: (i) policies and procedures for underwriting due diligence; (ii) due diligence plans; (iii) due diligence Q&A sessions; (iv) business due diligence; (v) legal due diligence; (vi) reliance on experts and other third parties; (vii) reliance on lead underwriter; (viii) due diligence record-keeping; and (ix) the role of supervision and compliance.

As we stated in March when a draft version of the guidance was released, while IIROC's intention was to codify common practices and suggestions, the proposed guidance could have represented a departure from what some dealers consider to be the current market standard. In response to this concern, IIROC specifically states that only appropriate matters are identified as being mandatory, and that many of the statements concerning dealers' policies and procedures provide "ample room" for dealers to reflect the contexts of their businesses.

As previously discussed, proposed amendments were published in March of this year, and the final version published yesterday takes into account stakeholder comments submitted to IIROC. The guidance takes effect immediately.

For more information, see IIROC Notice 14-0299.

CCGG releases annual best practices for proxy circular disclosure

Kevin Smyth and Marshall Eidinger

Recently, the Canadian Coalition for Good Governance (CCGG) released its 2014 Best Practices for Proxy Circular Disclosure. The annual publication, which is intended to provide issuers with guidance on corporate governance and executive compensation disclosure, also includes a list of the CCGG's "Governance Gavel Awards" winners. In determining the winners, which this year includes Canadian Pacific Railway, Pembina Pipeline and Vermilion Energy, the CCGG considered the alignment between an issuer's governance practices and the recommended practices found in its publication Building High Performance Boards.

With respect to the review of disclosure practices, the publication sets out the CCGG’s expectations in respect of such issues as majority voting, director independence, board succession, director skills and education, risk management oversight, executive compensation and shareholder engagement, and provides a number of examples of actual disclosure the CCGG deems as “excellent”. Such disclosure included examples from Potash Corporation of Saskatchewan, ShawCor and Canadian Pacific Railway. 

The following is a summary of guidance provided by the CCGG.

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CSA decide not to reduce early warning threshold to 5%

The Canadian Securities Administrators today announced that they will not be moving forward with plans to reduce the early warning reporting threshold from 10% to 5% as previously proposed.

As we discussed in March 2013, the CSA last year proposed amendments to the reporting threshold, triggers and related disclosure requirements under Canada’s early warning reporting regime intended to “provide greater transparency about significant holdings of issuers’ securities”. While the most significant change under the 2013 proposal would have been to decrease the reporting threshold from 10% to 5%, the CSA also proposed a number of other significant reforms, including greater transparency through reporting of “equity equivalent derivatives” in order to address issues such as “hidden ownership” and “empty voting”.

In today's release, the CSA note that a majority of the over 70 comment letters received in response to the 2013 proposals expressed concern with the potential unintended consequences resulting from some of the proposed amendments to the early warning regime. In what is sure to be a welcome development for most market participants, the CSA have decided against moving forward with the proposed reduction of the reporting threshold to 5% or the proposed inclusion of equity equivalent derivatives in the determination of the early warning threshold. An equity equivalent derivative would have been defined as a derivative that was referenced to or derived from a voting or equity security of an issuer and that provided the holder, directly or indirectly, with an economic interest that was substantially equivalent to the economic interest associated with beneficial ownership of the security (the examples provided included cash-settled total return swaps and contracts for difference).

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TSX extends exemption from security holder approval for security based compensation agreements for acquisitions

Amendments to the TSX Company Manual have been adopted to extend the current exemption from security holder approval in cases where listed issuers adopt security based compensation arrangements for employees of a target issuer in the context of an acquisition, to new security based compensation arrangements created to retain employees of the target.

As we discussed last year, under the amended section 611, the number of securities issuable under the security based compensation arrangement may not exceed 2% of issued and outstanding securities of the issuer and no more than 25% of the issued and outstanding securities of the issuer may be issued as consideration for the acquisition (including those issuable under the security based compensation agreement). Ultimately, the amendments formalize an exemption currently granted by the TSX on a discretionary basis.

The amendments to the Manual also clarify the definition of a "backdoor listing" and the discretion of the TSX to consider various factors when determining whether a transaction constitutes a backdoor listing.

The amendments are effective for listed issuers on October 1, 2014.

Ontario court interprets proviso in advance notice policy to permit late nominations

Sean Vanderpol and Ramandeep K. Grewal -

While advance notice policies have been utilized by issuers in the U.S. for quite some time, they are still relatively new to the Canadian market. As a result, the Canadian jurisprudence on their use and interpretation continues to develop.

The Ontario Superior Court of Justice may have recently added some uncertainty when it granted a declaration in favour of Orange Capital, finding that the investment firm had complied with Partners REIT’s advance notice policy in respect of the time frame for nominating trustees. In light of its finding that Orange Capital had complied with the policy, the Court declined to rule on the validity of the policy itself. Orange Capital had been seeking a declaration that the policy was of no force or effect, as the board had not submitted it for approval of unitholders.

As we discussed in an earlier post, Orange Capital launched a tender offer in May to purchase up to 10% of the outstanding units of Partners in an attempt to acquire enough proxy votes to get a new slate of independent trustees appointed to Partners’ board. Under the terms of the tender offer, tendering unitholders were also required to deposit proxies appointing Orange Capital as proxy holder, for all deposited units, regardless of the number of deposited units actually taken up and paid for by Orange Capital.

Subsequent to discussions with the OSC, Orange Capital clarified certain aspects of its tender offer. Specifically, the additional details and conditions set out in the subsequent release by Orange Capital suggest that the OSC sought to impose aspects of the take-over regime in the immediate situation.

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Canadian regulators propose harmonized take-over bid approach

In a much anticipated development, the Canadian Securities Administrators today provided an update on the status of their proposals to regulate take-over bids and shareholder rights plans. While not publishing any detailed amendments at this time, all CSA members have joined together to announce that they are taking a harmonized approach that will ultimately result in amendments to take-over bid rules across Canada.

Mandatory “permitted bid” features

Specifically, the regulators propose to introduce amendments to the current take-over bid regime that would require all formal bids for Canadian public targets to contain the following mandatory features:

  • a minimum bid period of 120 days (60 days longer than the standard permitted bid period);
  • an irrevocable minimum tender condition requiring that more than 50% of the outstanding securities owned by persons other than the bidder and any joint actors be tendered and not withdrawn before the bidder can take up under the bid; and
  • a 10-day bid extension period after the minimum tender condition is achieved and the bidder announces its intention to take up and pay.

While CSA Notice 62-306 clarifies that the 120-day period could be waived (to a minimum of 35 days) by the target board, provided it is in a non-discriminatory manner in the face of multiple bids, if applicable, it is not clear whether the remaining two features could be subject to a board waiver.

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A closer look at Orange Capital's unconventional tender offer for units of Partners REIT

Adam Kline and Alex Colangelo - 

On May 28, Orange Capital announced that it was launching a tender offer at a premium to market to purchase up to 10% of the outstanding units of Partners REIT. While it did not constitute a takeover bid, the tender offer was structured similar to a takeover bid, asking for willing shareholders to tender their securities to be potentially purchased by Orange Capital in accordance with the terms of the offer. Notably, the tender offer required that depositing unitholders be holders of record as of the record date in respect of the 2014 annual general meeting and appoint Orange Capital as their nominee and proxy for all deposited units in respect of the AGM.

In the event that more than the maximum number of units were delivered in accordance with the tender, the units purchased from each depositing unitholder were to be determined on a pro rata basis according to the number of units delivered by each unitholder. Orange Capital pledged to vote all proxies solicited in favour of a new slate of independent trustees to be nominated by Orange at the AGM.

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Delaware Chancery provides important guidance to boards of directors and financial advisors

Stéphane Rousseau and Benoît Dubord -

The recent Rural Metro decision in the Delaware Court of Chancery provides important guidance to boards of directors and financial advisors in change of control situations. Specifically, the decision underscores the need for boards to be actively engaged in the sale process and to be well-informed about the conflicts of interests of key players. For financial advisors in particular, Rural Metro teaches that full disclosure of conflicts of interest is expected, as financial advisors function as gatekeepers when they advise boards in sales processes.

Given the views expressed by Canadian courts and securities regulators on the role of boards and financial advisors, Rural Metro’s teachings are highly relevant from a Canadian perspective.

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Delaware decision upholds board discretion in implementing rights plan against activist hedge fund

Stéphane Rousseau and Benoît Dubord -

The Delaware Court of Chancery decision in Third Point LLC v. William F. Ruprecht, et al., and Sotheby’s highlights once again the breadth of the discretion of boards of directors when implementing defensive tactics subject to the Unocal standard. The decision is an illustration of the potential role of rights plans to fend off shareholder activists. Interestingly, it recognizes that negative control wielded by activists may present an objective threat to corporate policy and effectiveness that could justify the implementation of defensive measures.

From a Canadian perspective, the Third Point decision must be read in light of our particular legal landscape governing defensive tactics. Still, to the extent that National Policy 62‑202 Take-over Bids – Defensive Tactics does not purport to regulate defensive tactics outside the realms of takeover bids, it is worth reflecting on the teachings of Third Point in the context of shareholder activism from the point of view of corporate law and securities regulation. 

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BCSC issues reasons after decision to cease-trade rights plan after 156 days

John Anderson

On June 27, 2014, the British Columbia Securities Commission published the reasons for its widely discussed decision to cease-trade Augusta Resource’s shareholder rights plan as of July 15, 2014 – an unprecedented 156 days after the commencement of HudBay Minerals’ hostile take-over bid.  Prior to the BCSC’s May 2, 2014 ruling, most securities lawyers would have considered it unlikely that a Canadian regulator would permit a rights plan to endure for even 90 days. Our prior comment on the hearing and result can be found here.

In its reasons, the BCSC panel confirmed that it was not following the approach in proposed NI 62-105 or Quebec’s proposed alternative, but rather following established policy and precedent in analyzing, not whether Augusta’s rights plan should be terminated, but when.  In setting this background, the panel took the opportunity to reconcile the BCSC’s prior decision in Icahn – Lion’s Gate with the decisions of the ASC in Pulse Data and the OSC in Neo Materials, stating that none of those cases stood for the proposition that shareholders could enshrine a rights plan and “just say no” to a hostile bid as contemplated by the proposed NI 62-105.  Rather, in each of these cases, the regulator was essentially answering the “when” question, i.e. whether the time to cease-trade the rights plan had occurred.

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Oil and Gas Trends in Q1 and Q2 2014

Glenn Cameron -

The short take on energy trends in the last two quarters is “what a difference a Polar Vortex can make”. That weather phenomenon is partly responsible for a change in the current and the predicted future prices of natural gas. The winter heating season ended with significantly lower quantities of gas in storage than usual. As well, the demand for gas continues to escalate with gas continuing to replace coal as a power generation fuel. 

That and other factors contributed to a strong revival of M&A and financings in the sector. Much of that activity was focused on natural gas properties. The dollar value of deals done to date has already passed last year’s record low levels of activity.

Q1 saw the CNRL purchase of Devon’s Canadian conventional properties (C$3.13B), Baytex’s purchase of Aurora (C$2.6B), Whitecap’s purchase of properties from Imperial Oil (C$855M), Tourmaline’s purchase of Santonia (formerly Fairbourne) (C$189M), IOC’s purchase of 10% of Petronas’ BC gas reserves, and other transactions.

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BCSC allows shareholder rights plan to survive almost 160 days

John Anderson -

On May 2, the British Columbia Securities Commission (BCSC) ruled on an application by HudBay Minerals Inc. to cease-trade Augusta Resource Corporation’s shareholder rights plan (the Pill).  While the BCSC panel granted an order cease-trading the Pill as at 5:00pm Vancouver time on July 15, 2014, the decision is a clear victory for Augusta, providing Augusta with nearly 160 days (from the date on which HudBay commenced its hostile bid) to find a competing offer.  Prior to this decision, you would have been hard-pressed to find a securities lawyer that would have bet that a poison pill could survive for more than 90 days in the face of a hostile bid.

By way of background, Augusta adopted the Pill in the spring of 2013, and sought shareholder approval for the Pill in the fall of 2013 (within the 6 month time limit required under TSX rules).  The Pill had many unusual features, including that it prohibited any acquisition of more than 15% of Augusta’s shares, except by “permitted bid”.  The adoption of the Pill prevented HudBay, which held 16% of Augusta’s shares, from acquiring any further shares except by way of permitted bid.

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TSX-V provides guidance regarding waivers of minimum pricing requirement

The TSX-V issued guidance yesterday regarding the specific circumstances in which the exchange will consider waiving the $0.05 minimum pricing requirement generally applicable to financings. According to the TSX-V, while the exchange is not generally amenable to waiving the requirement, it will consider waiver requests on a case-by-case basis, treating certain circumstances more favourably, such as rights offerings and pending share consolidations.

ASX requirement for non-transferable exchangeable shares may disadvantage Australian corporations looking at a Canadian acquisition transaction

Quentin Markin -

On March 31, 2014, Mamba Minerals, together with its wholly-owned subsidiary, Champion Exchange (Canco), completed the acquisition of all of the common shares of Champion Iron Mines (Champion) by means of a court-approved plan of arrangement. The transaction was structured as an exchangeable share transaction under which certain eligible Canadian shareholders could elect to receive all or part of their consideration in the form of exchangeable shares of Canco instead of ordinary shares of Mamba. The purpose of the exchangeable shares was to offer a tax deferred rollover for eligible Canadian shareholders, rather than the immediate triggering of a taxable disposition under the Canadian Income Tax Act.

As part of the approval process, Mamba sought confirmation from the Australian Securities Exchange (ASX) on which it was and remains listed (under its new name Champion Iron Limited), that in the opinion of the ASX “the terms that apply to each class of equity securities … be appropriate and equitable” as required by ASX Listing Rule 6.1. The ASX subsequently granted that confirmation in respect of the exchangeable shares but subject to conditions, including that the exchangeable shares not be transferrable. As a result, the transaction terms were ultimately amended, and the exchangeable shares made non-transferrable save for certain transfers that are integral to the operation of the exchangeable share structure, and transfer where, in effect, no beneficial ownership change occurs. Champion issued a press release on March 10, 2014 announcing the transfer restriction applicable to the exchangeable shares.

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Ontario court provides guidance on fairness opinions when seeking court approval for plans of arrangement

Quentin Markin and Benoît Dubord -

The Ontario Superior Court of Justice released a decision on March 28, 2014 that provides practical insight for corporate lawyers and investment bankers in regards to the court process for plans of arrangement and the content of fairness opinions.

Justice Brown granted a final order approving the plan of arrangement among Champion Iron Mines, an Ontario Business Corporations Act corporation and TSX-listed, and its acquirer, Mamba Minerals, an Australian corporation listed on the Australian Securities Exchange (ASX). In issuing a set of reasons supporting the final order (which itself is not common), Justice Brown has reminded applicants, bankers and their counsel that in order to approve a plan of arrangement the courts have to consider (i) whether statutory procedures have been met; (ii) whether the application has been put forward in good faith; and (iii) whether the arrangement is fair and reasonable. It is on the latter point that Justice Brown focusses his comments, specifically in respect of the use of fairness opinions in the court approval process for a plan of arrangement.

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2013 Oil and Gas M&A Year in Review - Themes and Deal Points

Chip Johnston, Andrew Wong, Brad Ashkin, Kevin Guenther, Brandon Leitch, Alisha Bhanji -

Recently, our firm’s Calgary office completed a review of M&A themes and deal terms in the oil and gas sector for 2013. This study contains a list of oil and gas M&A transactions over the last year, a review of key trends in deal terms, a summary of notable features of each transaction, an analysis of the timelines and a numerical analysis of key deal terms.

A few key themes emerged from our review:

The year started slowly with nine deals announced in H1. The market announced 10 deals in H2, trailing the equity uptick that occurred in the last half of the year by some distance. This made for a long 12 months for public equity holders, management, employees and advisors. The landscape in 2013 was dominated by privatizations, financial buyers, service deals and very small transactions. Domestic and international strategic buyers were absent from the market and were responsible for the dramatic decline in activity. The highlights were colourful, but somewhat downbeat.

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IIROC publishes proposed guidance on underwriting due diligence

Earlier today, the Investment Industry Regulatory Organization of Canada published a request for comments in regards to proposed guidance respecting underwriting due diligence. Noting that IIROC dealers play an important role as gatekeepers to the Canadian capital markets, IIROC’s stated purpose in developing the proposed guidance is to promote consistency and enhance standards among its Dealer Members.  

While intended to codify “common practices and suggestions” the proposed guidance may represent a departure from what some Dealer Members consider as the current market standard. In developing the proposed guidance, IIROC notes that its process began by soliciting input on current practices from an industry advisory committee composed of senior industry representatives from a cross-section of firms in terms of size and regional representation. However, while IIROC engaged in this and various other consultations, the proposed guidance has ultimately been prepared by and reflects the views of IIROC staff.  Given its comprehensive nature, the proposal offers a good opportunity for Dealer Members to generally revisit their underwriting practices with a view to identifying possible gaps and enhancing existing practices.

The proposed guidance is classified into nine key areas that relate to all aspects of the underwriting due diligence process (discussed in detail below). These are expressed as principles and accompanied by practical examples. While presenting these “common practices,” IIROC is careful to note that due diligence, by its nature, is a fluid and evolving process and should be customized to the particular circumstances based on the underwriter’s exercise of professional judgement. We have set out these nine principles below, with highlights of IIROC’s discussion and/or examples of practices that IIROC has identified as reflecting each principle.

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Quebec task force recommends safeguards against hostile takeover bids

David Massé and Maïté Murray -

Concurrently with the tabling of its budget on February 20, the Parti Québécois minority government released the Report of the Task Force on the Protection of Québec Businesses. In June 2013, Quebec’s Minister of Finance Nicolas Marceau had mandated the Task Force to recommend measures that would enable Quebec companies to better protect themselves from unwanted takeover bids and foster the maintenance and development of head offices in the province.

The report sets out a series of recommendations regarding hostile takeover bids that would apply to public companies governed by the Business Corporations Act (Quebec) (QBCA), including amending the QBCA to allow for:

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Delaware provides guidance on single-bidder process

Stéphane Rousseau and Benoît C. Dubord -

In Koehler v. NetSpend Holdings Inc., decided last year, the Delaware Chancery Court discussed the duties of directors in a change-of-control transaction executed with a single-bidder process.

NetSpend conducted an initial public offering in 2010 for a price of $11 per share. In the following year, the share price fell to less than $4. After two rounds of share repurchases in 2011 and 2012, the board of directors explored several possibilities for enhancing shareholder value, including additional stock repurchases, a self-tender offer or a possible sale of the company. At that time, the board concluded that it was in the shareholders’ best interest to maintain the company as an independent, publicly owned entity.

In the fall of 2012, NetSpend’s two dominant shareholders informed the board of their intention to sell all or a significant portion of their shares. The board assisted the shareholders in their selling efforts. While noting that the entire company was not for sale, the board authorized the disclosure of financial projections to two private equity firms. For this purpose, the company executed confidentiality agreements with standstill provisions containing “Don’t Ask Don’t Waive” (DADW) clauses. In a nutshell, the clauses prevented the private equity firms from asking NetSpend to amend or waive any provision of the standstill provisions. Further, the standstill agreements did not terminate upon the announcement of another transaction.

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OSC holding roundtable discussion of proxy voting infrastructure

On January 29, the Ontario Securities Commission is hosting a roundtable discussion to consider issues regarding the integrity and reliability of proxy voting in Canada. As we discussed last year, the CSA published a consultation paper on the subject in August 2013, and topics to be considered later this month will include improving vote reconciliation and implementing end-to-end vote confirmation.

2014 Energy M&A Trends in Canada

Whether measured by volume or aggregate value, 2013 was a weaker year for energy-related M&A than 2012, continuing a four-year decline in activity in the sector. There was a noteworthy lack of public company M&A in 2013 and nothing to match the marquee deals of 2012.

For a consideration of the reasons for the decline in M&A activity in 2013, and a look forward at the trends, opportunities and challenges that are likely to influence Canada’s M&A activity in 2014, see this post from our colleagues on our firm’s energy blog.

A look back at 2013

From the implementation of prospectus pre-marketing rules to a new "notice-and-access" framework for proxy materials, the past year has been a busy one for capital market regulators. And, 2014 is shaping up to be a busy one as well, with indications from regulators that we could soon see the release of proposals related to crowdfunding, proxy voting and gender diversity. Further, the federal government, along with Ontario and B.C. continue to work towards the creation of a cooperative securities regulator.

In case you missed them the first time around, we've compiled some of our most popular and substantive posts from the last 12 months, below.


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Greater flexibility sought for security based compensation arrangements during acquisitions

The Toronto Stock Exchange published proposed amendments to its Company Manual today that would extend the current exemption from security holder approval in cases where listed issuers adopt security based compensation arrangements for employees of a target issuer in the context of an acquisition, to new security based compensation arrangements created to retain employees of the target. In such cases, the number of securities issuable under the security based compensation arrangement could not exceed 2% of issued and outstanding securities of the issuer and no more than 25% of the issued and outstanding securities of the issuer could be issued as consideration for the acquisition (including those issuable under the security based compensation agreement). Ultimately, the amendments would formalize an exemption currently granted by the TSX on a discretionary basis.

The proposed amendments to the Manual would also attempt to clarify the definition of a "backdoor listing" and clarify the discretion of the TSX to either exempt a transaction from the requirements to meet original listing requirements that may otherwise constitute a backdoor listing or consider a transaction a backdoor listing even if it may not otherwise qualify as one.

The TSX and OSC are accepting comments on the proposed amendments until January 13, 2014.

CSA initiate consultation on proxy voting infrastructure

Mihkel Voore and Ruth Elnekave -

On August 15, 2013, the Canadian Securities Administrators (CSA) initiated a public consultation process that seeks to examine issues affecting the integrity and reliability of the Canadian proxy voting infrastructure.  In outlining the rationale for more active securities regulatory involvement in this area, the CSA cited their concern with the lack of confidence expressed by some issuers and investors in regards to the reliability of the proxy voting system, particularly given the fundamental role of the system in the legitimacy of shareholder voting and fostering confidence in the capital markets.

The consultation paper is not prescriptive. Rather, the CSA provide a detailed description of the proxy voting infrastructure (including numerous market practices not prescribed in securities legislation, such as the key functions performed by Broadridge Investor Communication Solutions Canada on behalf of the vast majority of intermediaries) and are requesting feedback from stakeholders regarding their practices and experiences with certain features of the system in order to assist the CSA in determining whether there is a need to further regulate proxy voting.

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Drafting an oil and gas M&A confidentiality agreement: survey of market terms and checklists

Chip Johnston, Brad Squibb, Jocelyn Reikie, Tom Bell -

Confidentiality agreements are typically employed to protect the disclosures made by target companies to potential buyers and to require buyers to deal with the target before making a bid. As case law has demonstrated, it is essential to both sides that confidentiality agreements are drafted carefully in order to avoid adverse consequences either in the M&A context or in other activity. At the same time, in many cases these agreements need to be completed quickly, sometimes without the involvement of internal or external counsel. It is critical that internal counsel and others have reliable tools to allow them to settle confidentiality agreements efficiently and with confidence.

To that end, we have created a checklist for building an oil and gas confidentiality agreement that includes a list of issues to consider from the perspectives of both the discloser and recipient. We have also included in our toolkit below a review of common terms found in confidentiality agreements, based on a review of 28 recent transactions.

African M&A: Review of new merger control regulations for 19 African nations

Jeffrey Keey and Stanley McKeen -

On January 14, 2013 a new merger control regime created by the Common Market for Eastern and Southern Africa (COMESA) came into force. The regime requires notification of mergers where at least one of the parties operates in two or more of COMESA’s member states. Failure to notify may result in penalties and/or the merger being of no legal effect in the COMESA region.

COMESA’s merger control regime affects 19 African nations and is enforced by the COMESA Competition Commission (CCC). Decisions made by the CCC are adjudicated by COMESA’s Board of Commissioners.

In November, proposals aimed at improving the merger control regime are expected to be reviewed by COMESA’s Council of Ministers. In the meantime, companies need to be aware of the current regulation and some of its peculiarities.

Response to the merger control regime has been mixed. Applause for its original aim of streamlining mergers in COMESA’s 19 member states has been silenced due to concerns over high filing fees, low thresholds for filings, long review periods and conflicting views regarding whether the CCC has exclusive jurisdiction to review transactions meeting COMESA’s filing thresholds. It is also unclear how the regime will operate in relation to mergers consummated outside the COMESA region that fall within the scope of the merger control regime.

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Oil and gas M&A review published for H1 2013

Chip Johnston and Andrew Wong -

Our firm’s Calgary office recently released its review of public M&A transactions in the oil and gas sector for the first half of this year. The study is based on a survey of the nine transactions involving corporate targets listed in Canada that were announced between January 1, 2013, and June 30, 2013.

This study canvasses emerging themes and trends in public oil and gas M&A, including a review of key trends in deal terms and a survey of notable terms and conditions.

Ultimately, the review confirmed a sharp reduction in activity in the sector. The total value of deals in H1 2013 was only 3% of the value of deals in H1 2012. There were no transactions completed in the period worth more than $200 million and the total deal value was just $492 million. Four of the nine deals were completed by strategic acquirors, with the remainder being completed by financials. An unusually large proportion of the deals involved acquisitions by large or controlling shareholders. There was no topping or contested activity during the review period.

UK Takeover Code expands jurisdiction

Jeffrey Keey and Stanley McKeen -

Effective September 30, 2013, the UK’s City Code on Takeovers and Mergers will be extended to apply to all Channel Islands, Isle of Man (British Crown Dependencies) and UK incorporated companies that have securities admitted to trading on the London Stock Exchange’s Alternative Investment Market or any other multilateral trading facility (MTF) in the UK, irrespective of whether their central management and control is in the UK, or the British Crown Dependencies (the residency test).  

In other words, the Code will remove the current residency test for such companies that have their registered office in the UK, Channel Islands or the Isle of Man. Thus, companies incorporated in those jurisdictions that may not have been subject to the Code due to their directors being located overseas will now be subject to the Code.

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CSA initiate consultation process on proxy voting infrastructure

Citing the importance of proxy voting to the capital markets in Canada, the Canadian Securities Administrators today published for comment a consultation paper setting out a proposed approach for addressing concerns regarding the integrity and reliability of the proxy voting infrastructure.

In considering the reasoning behind addressing proxy voting, the CSA identified a number of factors that contribute to the complexity of proxy voting and vote reconciliation, specifically the intermediated system of holding securities that supports clearing and settlement, securities lending, the use of voting agents by investors and the right of investors to not disclose their identities.

Ultimately, the CSA identified two main issues for examination. First, the CSA questioned whether accurate vote reconciliation is occurring within the proxy voting infrastructure. On that point, the CSA noted that the intermediated holding system resulting in one share having multiple associated entitlements creates a risk that valid proxy votes submitted to the tabulator may be discarded because they can't be properly matched to an appropriate omnibus or registered position. Further, share lending creates a risk that the same share could be voted multiple times.

The CSA also noted that investors do not currently have the ability to confirm that voting instructions they submit to intermediaries have been received and counted. As such, the paper considers the type of end-to-end vote confirmation system that should be added to the proxy voting infrastructure. On each issue, the consultation paper poses a number of questions specific of stakeholders, and the CSA intend to initiate external consultations, including possible roundtable discussions, to consider possible policy initiatives. Notably, the paper stresses that the CSA have not come to any conclusions as of yet as to whether any specific regulatory measures are required.

The CSA are accepting comments on the consultation paper until November 13, 2013. For more information, see CSA Consultation Paper 54-401.

Specific performance in the context of Canadian M&A transactions: Possible but not always practical

Peter Castiel and Tania Djerrahian -

An M&A transaction does not always go as planned. Unfortunately, a transaction may fail at any time, including after the execution of a purchase agreement. For example, a buyer faced with financial uncertainty or a seller with a better opportunity may be hesitant to complete a transaction. However, if all of the conditions to closing in favor of both parties have been met, can one party seek specific performance and require the other party to close an M&A transaction even though the other party does not wish to proceed? The answer largely depends on a number of factors, namely:

  • the applicable governing law;
  • the contractual provisions;
  • the practical challenges of implementation and enforcement.

Two legal regimes apply in Canada: civil law applies in the province of Québec with respect to property and civil rights matters and common law applies in the rest of the country. Subject to a few exceptions, which we will discuss below, while the granting of specific performance is discretionary under common law, it is a remedy to which an aggrieved party is entitled under civil law. The fundamental difference between the common law in Canada and the civil law of Québec with respect to the remedy of specific performance is that the aggrieved party under civil law does not have to establish the inadequacy of damages in order to claim specific performance.

As will be discussed below, notwithstanding these differences, similar considerations will apply in determining whether or not the remedy of specific performance is available or even desirable in the context of an M&A transaction.

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CSA and AMF extend comment period on defensive tactics and early warning proposals

The CSA and AMF have announced extensions to the comment period regarding the CSA proposal for a new rule to govern poison pills and the AMF's alternative approach to amend the take-over bid regime, as well as the comment period relating to the proposed changes to the early warning system.

The comment periods, originally scheduled to end on June 12, have been extended to July 12, 2013.

Insider trading amendments could impose "special relationship" where take-over "considered"

Simon Romano -

As we discussed last week, the Ontario government recently released its 2013 budget plan, which included discussion of amending the Securities Act to clarify the statute's insider trading provisions. The text of the budget bill now provides further detail of the government's intentions. 

Among the proposed amendments to the Act would be a change to the definition of "person or company in a special relationship with the reporting issuer" in respect of those to whom the insider trading restrictions apply. Specifically, the definition would be expanded to include not only persons and companies associated with those proposing to make a take-over bid of a reporting issuer (as is currently the case), but also those associated with a party considering or evaluating whether to make a take-over bid. Similar changes to the wording respecting those considering or evaluating whether to engage in business or professional activities are also proposed. Thus, current provisions of the Act that prohibit persons or companies in a special relationship with a reporting issuer, and with knowledge of an undisclosed material fact or change, from trading in the issuer's securities would, subsequent to the amendments, also prohibit trading by those associated with a party considering or evaluating whether to make a take-over bid or become party to a similar transaction.

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CSA propose amendments to early warning reporting regime to enhance disclosure

Amanda Linett and Ruth Elnekave -

The Canadian Securities Administrators (CSA) have published for comment proposed amendments to the reporting threshold, triggers and related disclosure requirements under Canada’s early warning reporting (EWR) regime intended to “provide greater transparency about significant holdings of issuers’ securities”.

Currently, under the EWR regime, prescribed disclosure is required by any investor that acquires beneficial ownership of or the power to exercise control or direction over 10% or more of any class of a public company’s voting or equity securities. Additional reporting is required on each incremental acquisition of 2% as well as a change in a material fact contained in an earlier report. Certain eligible institutional investors (EIIs) can take advantage of relaxed timing requirements for early warning reporting under the alternative monthly reporting (AMR) regime.

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Canadian regulators propose new rule to govern poison pills; Quebec concurrently advocates for broader changes to the take-over bid regime

On March 14, 2013, the Canadian Securities Administrators (the CSA) published their much-anticipated reforms on the regulation of shareholder rights plans (poison pills) that would allow a plan to remain in place where it has been approved by shareholders on an annual basis (or within 90 days of a bid). While joining the CSA in its proposal, the Autorité des marchés financiers in Quebec (the AMF) also published a separate consultation paper to solicit feedback on its preferred approach, being a broad overhaul of the policy governing defensive tactics generally in order to give target boards more discretion to use defensive tactics as part of the proper exercise of their fiduciary duties.

The CSA propose to implement a new stand-alone rule regulating poison pills under proposed National Instrument 62-105 Security Holder Rights Plans (the Rights Plan Rule), while carving out the regulation of poison pills from National Policy 62-202 Take-over Bids—Defensive Tactics (NP 62-202). The AMF, in its paper entitled “An Alternative Approach to Securities Regulators’ Intervention in Defensive Tactics” (the AMF Consultation Paper), explains that the time has come to replace the securities regulators’ approach to defensive tactics under NP 62-202, and why it believes that specific amendments to the take-over bid regime are required.

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Canadian regulators propose lowering early warning threshold to 5% and expanding disclosure

The Canadian Securities Administrators today published for comment proposed changes to the early warning reporting requirements that propose to, among other things, decrease the reporting threshold from 10% to 5% and expand the basis for disclosure.

The CSA state in the notice that the amendments are being proposed to address the increasing prevalence of shareholder activism and the ability of 5% shareholders to requisition a shareholders' meeting. While the threshold for reporting further acquisitions would remain at 2%, a 2% decrease in ownership would also become reportable, as would a drop below the new 5% threshold.

Changes are also being proposed to expand the scope of the reporting framework in light of the increased use of derivatives by investors. Noting that, through the use of derivatives, a sophisticated investor may be able to accumulate a substantial economic interest in an issuer without public disclosure, the CSA also propose specific amendments intended to capture certain types of derivatives that affect an investor’s total economic interest in an issuer. These amendments are also aimed at concerns relating to “empty voting” or the ability of an investor to hold voting rights while not holding an equivalent economic stake.

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2012 Oil and Gas M&A Year in Review - Themes and Deal Points

Kevin Guenther, Chip Johnston, Patrick McNally, Andrew Wong, Janel Young -

Recently, the firm’s Calgary office completed its 2012 review of M&A themes and deal terms in the oil and gas sector. We prepared this study based on a review of the 34 public M&A transactions involving corporate targets listed in Canada that were completed or announced between January 1, 2012, and December 31, 2012. 

This study contains a list of 2012 oil and gas M&A transactions; a review of key 2012 trends in deal terms; a summary of notable features of each transaction; an analysis of the timelines and events of contested bids; a numerical analysis of key deal terms.

A few key themes emerged from our review:

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Emerging themes in the African oil & gas industry

Chip Johnston and Derek Linfield -

Towards the end of last year, we attended Africa Oil Week in Cape Town, South Africa. With more than 500 delegates in attendance from all of the major players and many of the junior explorers and service providers in the sub-Saharan African exploration and production sector, the conference offered a good overview of the state of the industry.

Although Africa and London-based management teams tend to comprise most of the African junior and independent space, Canadian-listed companies and management teams are playing an increasingly important role in developing African assets.

Our firm has been involved in many of the leading Africa-based transactions that have a nexus with the TSX or AIM, whether through mergers and acquisitions, finance or underwriting work in Calgary, London and Toronto. Our view is that we are at the beginning of the next phase of the growth of the African oil and gas industry, and we have made a long-term commitment to be involved in its future through finance and M&A activity involving TSX-listed companies. 

Several major themes emerged from the conference:

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Top ten energy M&A trends in Canada for 2013

Glenn Cameron, Keith Chatwin, Stephen Cooper, David Holgate, Susan Hutton, Chip Johnston, Lisa McDowell and Christopher Nixon -

It’s generally agreed that 2012 was a difficult year for the oil and gas industry in Canada. No part of the industry was spared from challenging times. Indications of these difficulties included:

  • Persistent wide differentials in prices for Canadian oil and gas production compared to North American and international benchmarks;
  • Decreases in capital spending by producers; and
  • Declines in Alberta land sale bonuses and aggregate drilling days from 2011 levels.

At the same time, the industry’s initiatives to increase oil pipeline and refinery capacity and to develop alternatives to the US market for the oil and natural gas produced in Canada were frustrated by organized and effective opposition from First Nations, environmental and other special interest groups and by the reactions of governments to those political pressures.

In this difficult environment, the share prices of oil and gas companies declined during the year. The average for small and mid-cap companies was down 19% in 2012. In some cases, lower share prices can result in increased M&A activity as opportunistic acquirors look for bargains. However, in 2012 the number of acquisitions of oil and gas producers actually dropped compared to 2011 activity levels. There were some very large deals, but fewer other transactions. The drop in 2012 continued a three year trend of reduced numbers of M&A transactions in the Canadian oil and gas industry.

Will M&A activity improve in 2013? 

The following are ten trends that will have an impact on the answer to that question.

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Canadian M&A Outlook for 2013

John Ciardullo -

In our M&A Outlook for 2012, we posed the question of whether the proverbial glass was half empty or half full. A year later, the future of Canadian M&A remains uncertain, as 2012 was another mixed year and the prognosis for 2013 seems equally murky. Nevertheless, Canada remains a very stable place to do business and we anticipate continued interest in Canadian M&A opportunities. As Mark Carney, the Governor of the Bank of Canada and soon-to-be Governor of the Bank of England recently said, "[i]n this uncertain world … Canada is rightly viewed as an attractive investment destination".

Reflecting back upon 2012, overall deal volumes were less than robust as a result of lingering global macro-economic and political issues, volatile commodity prices and other negative factors. However, some sectors performed relatively well and there were a number of high-value transactions that challenged the notion that market participants are reluctant to pursue large transactions in a risky environment.

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CNOOC/Nexen and the Future of SOE Acquisitions

Canada's Prime Minister sent a clear message today that the country remains open to foreign investment, including investment on a significant scale by state-owned enterprises (SOEs) in certain circumstances. However, continued acquisitions by SOEs of controlling interests in the oil sands industry has been largely constrained and will be found to be of net benefit to Canada only on an exceptional basis going forward. The acquisition by SOEs of non-controlling interests, including joint ventures, will continue to be welcome.

The Prime Minister's address followed the announcement by the Minister of Industry, which was communicated by way of press release, of:

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TSX provides disclosure guidance for transactions requiring security holder approval

On September 28, the TSX issued guidance regarding the disclosure to be included in a circular, form of written consent or press release for transactions requiring securityholder approval, such as private placements and acquisitions that result in more than 25% dilution, as well as those not involving the issuance of securities but which require security holder approval on account of the involvement of insiders or related parties for non-exempt issuers.

According to the guidance, disclosure should include such information as (i) the principle terms of the transaction and the securities issuable; (ii) the value of the consideration and a summary of the independent report, where security holder approval is required; (iii) the maximum number of securities issuable under the transaction as an absolute number and as a percentage of the listed issuer's outstanding number of pre-transaction securities on a non-diluted basis; (iv) the effect the transaction may have on the control of the listed issuer; (v) the material terms of any voting trust or similar agreement or arrangement; and (vi) the identity of any persons or entities who will hold more than 10% of the listed issuer's outstanding post-transaction.

The Staff Notice also advises that where security holder approval is required, a draft circular must be submitted to the TSX for review at least five business days prior to being finalized and that security holders must be asked to ratify the specific matters for which approval is required under the TSX’s rules, with proxies allowing security holders to vote “for” or “against” the transaction.

For more information, see TSX Staff Notice 2012-0003.

Alberta and B.C. publish recognition orders for Maple acquisition of TMX

Yesterday, the British Columbia Securities Commission published its final recognition orders regarding Maple Group's acquisition of the TMX Group. Of particular interest, the recognition order respecting the TSX Venture Exchange requires that at least 25% of the directors of the TSX-V have relevant venture experience, that the TSX-V maintain regional advisory committees comprised of participants in the Canadian public venture capital market, and that the TSX-V maintain an office in Vancouver that has a role in certain functions.

The Alberta Securities Commission also issued its final orders related to the acquisition yesterday. Similar to provisions in the BCSC's order, the Alberta order contains provisions respecting director experience and the requirement that the TSX-V maintain an office in Alberta.

OSC approves Maple acquisition of TMX

Michael Kilby -

The Ontario Securities Commission has now issued final recognition orders regarding the Maple Group's proposed acquisition of TMX Group, Alpha Group and Canadian Depository Services.

Meanwhile, the Commissioner of Competition has also issued a “no-action letter” to Maple Group in respect of its proposed acquisition of TMX Group, Alpha Group and Canadian Depository Services. The Competition Bureau’s review of the Maple / TMX transaction was extensive. Maple Group (whose investors are Alberta Investment Management Corporation, Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, CIBC World Markets Inc., Desjardins Financial Group, Dundee Capital Markets Inc., Fonds de solidarité des travailleurs du Québec (F.T.Q.), National Bank Financial & Co. Inc., Ontario Teachers' Pension Plan, Scotia Capital Inc., TD Securities Inc. and The Manufacturers Life Insurance Company) announced on May 15, 2011, in the midst of the failed bid by the TSX to merge with the LSE, that the Group had submitted a proposal to acquire the TMX Group. Maple filed an application for an advance ruling certificate on June 7, 2011. The transaction was therefore under active Competition Bureau review for a period of some 13 months.   

The Commissioner stated in a press release that “the measures contained in the OSC's final recognition orders materially change the regulatory environment sufficient to substantially mitigate the Bureau's competition concerns” thereby addressing the serious competition concerns that the Bureau had previously communicated to Maple in two areas: equities trading, and post-trade services, including clearing, settlement and depository services. 

Notably, there is no consent agreement under the Competition Act in respect of the proposed transaction, with the result that beyond the standard one-year period after closing within which the Commissioner may challenge a transaction on the grounds that it substantially lessens or prevents competition, there will be no ongoing monitoring or enforcement of any competition law remedy.  Such ongoing monitoring and regulation will instead fall to the OSC and other securities law regulators.

Proposed recognition orders related to Maple acquisition published by OSC

On May 3, the Ontario Securities Commission published a notice summarizing the public comments received to date on Maple Group's proposed acquisition of TMX Group and identifying changes to the application since its original publication in October 2011. The notice also contains a proposed order recognizing Maple Group, TMX Group and TSX as exchanges. According to the OSC, the proposed order, which also approves the beneficial ownership by Maple of more than 10% of each of TMX Group and TSX, was released following an extensive review of Maple Group's acquisition proposal.

The recognition order also sets out various terms and conditions applicable to Maple, TMX Group and TSX, including with respect to governance, fee models and financial reporting. Further, a separate order was published to recognize the Canadian Depository for Securities Limited and CDS Clearing and Depository Services as clearing agencies, subject to various terms and conditions.

The OSC is accepting comments on the proposed orders, including their terms and conditions,  until June 4, 2012.

Regulatory challenges faced by resource issuers on recent bought deals

Ivan Grbešić and Tim McCormick

A great deal of attention has been focused recently on challenges faced by issuers in the resource sector, particularly in connection with short form prospectus distributions and the ability to respond to comments on technical disclosure within the timeframes of the deal.

In December of 2011, we saw the first of a series of short form prospectus offerings being withdrawn.  Karnalyte Resources filed a preliminary short form prospectus on December 5 for its $115 million offering of common shares, with an expected closing date of December 19, 2011. On December 13, the company issued a press release indicating it was no longer proceeding with the offering as the final short form prospectus could not be filed within the required timeframe “as a result of the delay” caused by comments raised by regulators on its technical report. (The Company subsequently filed an amended and restated technical report effective March 30, 2012, announcing via press release on the same day that it had responded to the regulators’ comments over the past few months and, as a result, was filing the amended and restated report.)

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Proposed changes to the UK's Listing Rules - Key changes explained

Kate DaSilva and Stanley McKeen -

In January of this year the U.K. securities regulator, the Financial Services Authority (the FSA), issued Consultation Paper CP12/2 proposing amendments to rules applied by it as the UK Listing Authority to companies listed or seeking listings on the UK’s regulated stock market (the Listing Rules). As we discussed briefly earlier this week, the paper proposes a series of changes, primarily to the Listing Rules, but also to rules which apply to prospectuses being issued in the UK (the Prospectus Rules) and to the on-going share capital, financial and other disclosures required in respect of companies listed in the UK (the Disclosure and Transparency Rules). Key proposed amendments apply to transactions, reverse takeovers (RTOs), externally managed companies (also known as special purpose acquisition companies or "SPACs"), the sponsor regime and the ability to buyback more than 15% of a company’s own shares.   

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FSA proposes tightened regulation of reverse takeovers

Kate DaSilva and Stanley McKeen -

Earlier this year, the U.K. Financial Services Authority issued a consultation paper proposing amendments to the UK Listing Authority's Listing Rules that would, among other things, amend the regulations respecting reverse takeovers. According to the FSA, the proposed changes would ensure that reverse takeovers could not be employed as a "back-door" route to listing for otherwise ineligible companies.

Definition of "reverse takeover"

Under the amendments, a reverse takeover would be defined as

a transaction, whether effected by way of direct acquisition by the issuer or a subsidiary, an acquisition by a new holding company of the issuer or otherwise, of a business, a company or assets:

(1) where any percentage ratio is 100% or more; or

(2) which in substance results in a fundamental change in the business or in a change in the board or voting control of the issuer.

When calculating the percentage ratio, the issuer should apply the class tests [these consist of a gross assets test, a profits test, a consideration test and a gross capital test].

In considering whether a fundamental change in the business occurred, the FSA would consider the extent to which the transaction would change the strategic direction or nature of the business, the impact the transaction would have on the industry sector classification of the enlarged group and the impact on the end users and suppliers. According to the consultation paper, the proposed definition would remove "any uncertainty as to which structures result in a reverse takeover".

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Quebec's AMF intends to approve Maple transaction

Quebec's Autorité des marchés financiers (the AMF) announced last week that it intends to approve Maple Group's proposed acquisition of the TMX Group. As we discussed in an October 2011 post, the AMF requested comments on the proposed acquisition last year. According to the AMF, it is satisfied that the proposals and undertakings to be finalized with Maple will "maintain the integrity and efficiency of the financial markets" as well as the continuity of derivatives operations in Quebec.

The AMF's notice specifically sets out a number of undertakings that Maple will be required to provide, including ensuring the maintenance and development of Maple's derivatives trading and related products operations in Montreal. The AMF also intends to approve Maple's proposed acquisition of Alpha Trading Systems and CDS subject to certain conditions pertaining to corporate governance, barriers to access, fee structure and the fairness of the structure for market participants.

Top ten energy M&A trends in Canada

Glenn Cameron, Susan Hutton and Lisa McDowell -

Despite uncertainty and slow growth in the US and Europe, Canada has continued, for the most part, to post impressive economic results. One reason for this has been the unceasing demand for Canadian natural resources including oil and gas. In addition, Canada’s stable majority government is a significant factor. In recognition of this economic strength, Forbes recently ranked Canada as the best country in the world in which to do business. It is the only country of the 134 surveyed that reached the top 20 in ten separate metrics. Consequently, we expect M&A activity in Canada will increase in 2012, particularly in the energy sector.

The following outlines ten trends that will impact M&A activity in the energy sector in the coming year.

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Canadian companies easier targets for activist investors than U.S. companies

Many features of the Canadian regulatory framework are friendly to shareholders and make it easier for activist investors to take action against management. Specifically, it is easier in Canada for shareholders to requisition meetings and nominate directors, the threshold for share disclosure is 10% in Canada as opposed to 5% in the U.S., and it is easier to dismiss directors with a single resolution. Watch Stikeman Elliott partner Mihkel Voore discuss the Canadian regulatory regime generally, and specifically with respect to the recently announced plans by a stakeholder in Canadian Pacific Railway to propose a minority slate of alternative directors, in this interview on BNN.

Canadian M&A trends for 2012: World's best country for business

Richard E. Clark and Curtis A. Cusinato -

Is the glass half full or half empty? We are decidedly in favour of the glass being half full, and getting fuller, for Canadian M&A markets in 2012. While uncertainty and slow growth in the U.S. and Europe have affected the Canadian economy, the country has continued, for the most part, to post impressive economic results, thanks not only to unceasing demand for its natural resources but also to its strong regulatory system and stable majority government. Thus – as noted by Canadian Prime Minister Stephen Harper in his year-end address for 2011 – Forbes recently ranked Canada as the best country in the world in which to do business, the only country of the 134 surveyed that reached the top 20 in ten separate metrics. All things considered, therefore, we expect favourable growth in M&A activity in Canada in 2012.

The following are some of the top “trending topics” for the coming year:

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Courts extend privilege to non-lawyer deal team members

Eliot N. Kolers and Andrew S. Cunningham -

Earlier this year, the Ontario Superior Court heard a motion that considered whether solicitor/client privilege extends to documents shared with non-lawyers who participated in structuring a complex commercial transaction. The ruling in Barrick Gold Corp. v. Goldcorp Inc. is brief but expands on a point made in Camp Development Corp v. South Coast Greater Vancouver Transportation Authority.

In Camp Development, the B.C. Supreme Court held inter alia that solicitor-client privilege extends to communications between the defendant’s solicitor and another member of the client’s transaction team who was not a lawyer (a project manager). In that case, it was not that the project manager served merely as a conduit or “channel of communication” between solicitor and client (that being one way in which a third party could traditionally fall under the umbrella of solicitor-client privilege) but rather that his function was “essential to the existence and operation of the solicitor-client relationship”, a slightly different criterion arising from the leading case of General Accident Assurance Co. v. Chrusz. As implied in Camp Development, this is essentially a “deal team” exception, recognizing the “practical reality in major commercial projects where teams of individuals with focused expertise are assembled.”

In Barrick, meanwhile, the plaintiff contested a claim of privilege over documents containing the advice of various advisors from (for example) BMO and GMP Capital. Ultimately, the Court found that the non-lawyer advisers were

appropriately regarded as part of the "team" for the purposes of requesting, obtaining and/or receiving legal advice.

The documents make clear the particular input of a relatively small number of non-lawyer individuals outside the companies, whose input was necessary and appropriate to the consideration, structuring, planning and implementation of very complex transactions in a very short timeframe.

While accepting the general principle of Chrusz, Justice Campbell added:

I do not accept that there is to be expected a “deal team” extension of solicitor/client privilege in every complex commercial transaction where there is not a specific protocol that has been executed. In each instance the context, the parties and that framework for the establishment and maintenance of privilege must be established to the satisfaction of the Court.

To be privileged, then, the solicitor's advice should be targeted to those members of the team whose input is essential to the proper performance of the solicitor's role. An example given in the ruling is that of a former senior employee of one of the defendant companies, whose “institutional knowledge and wisdom” was required in order to develop the legal strategy for the transaction, in the view of Justice Campbell.

Regulators consider policy that would allow poison pills to remain unchallenged

Bill Braithwaite -

On November 1, I had the opportunity to participate in a panel discussion on M&A Trends and Outlooks during OSC Dialogue 2011 (which we've discussed previously on this blog). The panel also included James Turner (Vice-Chair of the OSC) and Naizam Kanji (Deputy Director of Corporate Finance at the OSC). Of particular interest was the discussion of poison pills.

Mr. Kanji reported that the OSC is currently considering adopting a standalone rule on shareholder rights plans that would allow poison pills to remain unchallenged if approved by shareholders. While the content of pills would be minimally regulated, shareholders would have to be able to remove the pill on a “majority of the minority” vote (requiring a bidder to launch a proxy battle or proceed with a permitted bid).

The purpose of the rule would be to provide more consistency and certainty in the context of defensive tactics and decrease the need for regulatory intervention. In this respect, both Mr. Kanji and Mr. Turner expressed that, in their view, securities regulators are better situated to consider shareholder rights plan challenges than the courts. Courts, Mr. Kanji stated, are restricted by the way an application is presented and then must undertake a process oriented analysis applying the business judgment rule. A substantive analysis, which can be undertaken by securities regulators, would be more appropriate. Mr. Turner added his view that Ontario courts are not the right venue for defensive tactics. They are not Delaware courts, he noted, and the Commission is more apt at dealing with the policy issues involved.

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Controlled auctions in Canada: Tactical and strategic legal considerations

Richard Clark and Curtis Cusinato -

Despite the uncertainty and volatility continuing to affect both the global economy and North American capital markets, controlled auction transactions in the Canadian marketplace remain remarkably active, especially in the mid-market. Before venturing into these tempting waters, sellers and buyers alike should take note of some key Canadian legal considerations.

Pre-Auction Considerations

  1. Controlled Auctions vs. Negotiated Sale Transactions. Under Canadian law, a formal Revlon-style auction is not always necessary for a target board to satisfy its fiduciary duties in a change of control context. In many circumstances, a privately-negotiated sale, combined with a less formal canvass of the market, may be sufficient.1 At the same time, sellers must be cautious about any public statements which create a reasonable expectation among shareholders (among others) that an auction will be conducted or that it will be held on an unconditional or unrestricted basis. Under most Canadian company law regimes, these types of statements can potentially give rise to an "oppression" action should the auction turn out to be either highly conditional or not held at all.2
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AMF requests comments on TMX acquisition

On October 7, the Autorité des marchés financiers (AMF) issued a notice of public consultation related to the application filed with the AMF on October 3 by Maple Group Inc. in connection with its proposed acquisition of TMX Group, and the subsequent proposed acquisitions of Alpha Trading Systems Limited Partnership, Alpha Trading Systems Inc. and the Canadian Depository for Securities Limited. The notice outlines the basis of Maple Group's application to the AMF, describes the proposed transactions, considers potential issues raised by the proposed transactions and requests comments on specific questions. Comments are being accepted until November 7. The AMF plans to hold public consultations in connection with the application at the end of November 2011.

OSC requests comment on TMX acquisition

The Ontario Securities Commission today issued a notice and request for comment related to the proposed acquisition by the Maple Group Inc. of TMX Group, Alpha Trading Systems Limited Partnership and Alpha Trading Systems Inc., the Canadian Depository for Securities Limited and, indirectly, CDS Clearing and Depository Services Inc. The OSC's notice summarizes the Maple Group's proposal, considers the potential issues raised and requests responses on specific questions. Comments are being accepted until November 7. The OSC also plans to hold policy hearings to consider the proposal in December 2011.

Time to rethink poison pills

Sean Vanderpol and Edward Waitzer -

It has been 20 years since the Ontario Securities Commission first relied on its public interest jurisdiction to cease trade a shareholder rights plan, or "poison pill," in a case called Canadian Jorex. The recent decision of the Delaware Chancery Court in Airgas serves as a reminder that it may be time for Canadian securities regulators to reconsider their basic approach to and role in adjudicating defensive tactics.

Airgas illustrated the importance of recognizing and respecting the statutory obligations of boards of directors under corporate law in the context of a change-of-control transaction. It also illustrates the competence of courts to scrutinize board conduct in takeovers.

A contested control transaction - that is, a hostile takeover - raises a number of important issues that touch on both corporate and securities law. This includes the fundamental question of who, as between the shareholders and the directors of a Canadian corporation, ought best to decide when and if the corporation should be sold. Since Canadian Jorex, Canadian securities regulators have consistently taken the position that this is a decision to be made by shareholders. Boards can use a "poison pill" to delay submitting the deal to shareholders, but there is always a time (generally within 90 days) when "the pill must go."

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TSX codifies guidance for delisting after going private

In a blog post last week, we discussed the recent announcement by the TSX that it was consolidating its Personal Information Form and Declaration with those of the TSX-V. The announcement, however, also included information on a number of other changes to the TSX Company Manual intended to clarify existing definitions, improve the instructions for filers and reduce or eliminate common filing deficiencies. To that end, amendments to two particlar provisions may be of specific interest to issuers.

Section 627

The amendments introduced section 627(c) to the Manual in order to import guidance found in Staff Notice 2005-0002 to deal with the delisting of issuers that are subect to a going private transaction. The new section describes the procedure the TSX will follow in delisting an issuer and provides an example of factors that may be taken into account in the application of the procedure in the going private context, including with respect to interlisted securities.

Section 466

Section 466 of the Manual, which requires issuers to concurrently file a copy of all written securityholder correspondence with the TSX's Listed Issuer Services, has also been amended to remove the provision that permits concurrent filings through SEDAR. On this point, the TSX stated that since notices sent to holders of listed securities may contain time sensitive information, filing on SEDAR alone was insufficient. Issuers must now concurrently file correspondence by email. The TSX has, however, included an exception from the requirement for annual reports, financial statements and annual meeting materials. 

UK Takeover Code - Final changes support target boards

Sandra Bates

Further to our May 2011 post, the UK Takeover Panel has finalised significant amendments to the UK Takeover Code which, when implemented on September 19, 2011, will herald a substantial rebalancing of power in favour of target boards.

As expected, the principal amendments to the Code are substantially the same as originally proposed by the Panel. This draws a line under the Panel’s protracted consultation process triggered by the political furore arising from the successful takeover by Kraft of Cadbury in 2010.

From a strategic and commercial perspective, the most important changes are:

  • the banning of break fees and other common deal protection measures;
  • the public identification of all potential bidders at the start of a transaction via a “possible offer” announcement to be made by the target company;
  • the imposition of a fixed four week period between the “possible offer” announcement identifying a potential bidder and the announcement of a fully financed firm offer (or a statement that no offer will be made) by that bidder; and
  • the requirement for all bidders to disclose details of the financing of the offer (including the refinancing of any existing target company debt) and the fees and expenses associated with the financing in the offer document and to publicly disclose (via a website) the financing documents. 
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Courts, not regulators, should scrutinize poison pills: Waitzer

As we discussed last month, our very own Sean Vanderpol and Ed Waitzer recently published an article in the Osgoode Hall Law Journal that questioned the emphasis on the primacy of shareholder choice in the case of Canadian take-over transactions. In today's Globe and Mail, Mr. Waitzer expounds on the argument that securities regulators should no longer scrutinize the actions of companies fending off hostile takeovers and, rather, leave the issue to the courts.

Journal article suggests repeal of defensive tactics policy

Stikeman Elliott partners Sean Vanderpol and Ed Waitzer recently published an article in the Osgoode Hall Law Journal that questions the current emphasis on the primacy of shareholder choice in the case of take-over transactions under Canadian securities regulations. Entitled Mediating Rights and Responsibilities in Control Transactions, the paper states that such a shareholder-centric approach is difficult to reconcile with the powers and responsibilities allocated to boards under Canadian corporate law and ultimately suggests that regulators repeal National Policy 62-202 Take-over Bids - Defensive Tactics. The paper follows a post from January of this year, in which the authors cast doubt on the utility of the National Policy.

Fairness opinions revisited: Lessons for the board

William J. Braithwaite

Fairness opinions are largely accepted as forming an essential component of the board’s review of a major business transaction. They are typically obtained from a financial adviser for the purpose of analysing the consideration that is being received or paid, in order to determine whether the transaction meets the requisite standards of fairness. In this respect, the fairness opinion can assist in demonstrating that the board has fulfilled its duties in considering a transaction, and provide objective evidence of its fairness. A fairness opinion often supports a board’s recommendation to the shareholders when a transaction requires the affirmative vote of the shareholders in order to proceed. Issues relating to fairness opinions and the proper board process surrounding such opinions have surfaced recently on a few occasions in Canada, the most recent being the high-profile dual class share declassification of Magna International Inc, a transaction where, ironically, no fairness opinion was given. What follows from the Magna transaction is a clear affirmation that the facts will be paramount in determining whether a fairness opinion fulfils its objectives. These facts include not only the nature of the transaction and consideration involved, but also the process followed by the board in retaining and working with its financial advisers.

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Amendments to UK Takeover Code would restrict deal protection measures

As we discussed in this November blog post, the UK's Panel on Takeovers and Mergers made a number of recommendations last year regarding the amendment of the City Code on Takeovers and Mergers. Specifically, the Panel recommended, among other things, strengthening the position of offeree companies in a takeover bid by prohibiting deal protection measures and inducement fees other than in certain limited cases and requiring the disclosure of offer-related fees. The Panel has now released proposed amendments to the Code to implement its earlier recommendations. Comments on the proposals are being accepted until May 27. The Panel expects to release final text of the amendments once it has considered responses to its proposals.

The rise of a Canadian high yield debt market

D’Arcy Nordick and Ruth Elnekave

Canadian companies issuing high yield debt have historically had little choice but to tap the high yield market south of the border. In recent years, however, an increasing number have been opting to issue Canadian-dollar denominated high yield bonds to investors in Canada. 2010 saw 14 Canadian deals worth more than $3.4 billion, up from $1.2 billion in 2009 – a burgeoning market that has even begun to draw U.S. dealers north to lead domestic offerings. Investors’ appetite for Canadian-dollar denominated high yield debt is strong and growing, as evidenced not only by the foregoing statistics but by the frequency of over-subscribed deals and the emergence of an increasing number of high yield mutual funds and exchange traded funds. Having been involved in nearly half of the Canadian deals in 2010, our group at Stikeman Elliott is anticipating another busy year in 2011 as a rising economic tide buoys weaker companies that are motivated to complete corporate borrowing and refinancings while interest rates are low.

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Let courts rule on poison pills

The OSC should ease up on its application of the Defensive Tactics Policy

As published in Monday's Financial Post

Edward Waitzer and Sean Vanderpol

The current Baffinland Iron Mines Corp. control contest, in which the Ontario Securities Commission (OSC) has intervened several times, raises yet again questions about the fundamental differences between securities regulation and corporate law. It also casts more doubt on the utility of National Policy 62-202, known as the Defensive Tactics Policy, under which securities regulators deal with unsolicited corporate takeover bids and hostile control contests.

Criticisms of the Defensive Tactics Policy have been heard before. In June 2008, the report of the Competition Policy Review Panel, Compete to Win, said Canadian securities regulators should repeal the Defensive Tactics Policy and cease to regulate conduct by boards in relation to shareholder rights plans (poison pills). That conclusion was reached after broad consultations and input from the legal and investment banking community on both sides of the border. To replace the policy, the panel recommended that the regulation of substantive decision-making by directors in respect of change-of-control proposals should be left to the courts, as is the case in the U.S.

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M&A trends 11 for '11

Richard Clark and Curtis Cusinato

As the global financial storm subsides, Canada’s economy is commanding unaccustomed attention and some new-found respect. A solid regulatory system and strong demand for Canadian resources and commodities have kept the country in the business headlines for all the right reasons. In the M&A sector, there is every indication that the rebound experienced in 2010 will continue in 2011, as market players continue to adjust and adapt. We believe that each of the trends identified below will play a part in shaping the market – whether it’s creative methods of financing, more realistic valuation methods, adjustment to deal terms or regulatory developments in the areas of foreign investment, taxation and securities law.

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Investment Canada says "no" to BHP Billiton takeover of PotashCorp

Our colleague Susan Hutton recently published a short article discussing the BHP Billiton attempt to acquire PotashCorp on the competition group's blog, The Competitor. The post is available here.

U.K. Takeover Panel proposes changes to Takeover Code

Earlier this year, the Code Committee of the U.K. Panel on Takeovers and Mergers released a Consultation Paper setting out suggestions for possible amendments to the Takeover Code and requesting public feedback. The Consultation Paper resulted in an unprecedented number of responses and on October 21, the Code Committee issued a report outlining its conclusions on the principal issues considered. Notably, the Code Committee focused on comments made to the effect that it has become to easy for “hostile” offerors to succeed and on the potential for the outcome of an offer to be unduly influenced by the actions of “short-term” investors, concluding that hostile offerors can obtain a tactical advantage over the target to the detriment of the target and its shareholders. In light of this conclusion, the Code Committee intends to move forward with proposals that are aimed at reducing this tactical advantage and improving the offer process to better consider the position of persons, in addition to target shareholders, who are affected by the takeover.

Specifically, the Code Committee recommended: 

  1. Increasing the protection for offeree companies against protracted "virtual bid" periods whereby a potential offeror announces that it is considering making an offer but doesn't commit to doing so.  The proposals would require that potential offerors be named in the announcement following an approach, which would initiate an offer period. Except with consent of the Takeover Panel, the potential offeror would then have four weeks to clarify its intentions;
  2. Strengthening the position of the offeree company by prohibiting deal protection measures and inducement fees other than in certain limited cases. According to the Code Committee, contractual protections (such as undertakings given by the target to the offeror to take or refrain from taking certain actions) have detrimental effects for offeree company shareholders. The proposals would also clarify that offeree company boards are not limited in the factors that they may take into account in providing their opinion and recommendation on the offer;
  3. Increasing transparency and improving the quality of disclosure by requiring the disclosure of offer-related fees and requiring further financial disclosure with respect to offerors and the financing offers; and
  4. Providing greater recognition of the interests of the offeree company employees by improving the quality of disclosure with respect to the offeror's intentions and improving the ability of employee representatives to make their views known. In this regard, the Committee recommended requiring that statements regarding the offeror’s intentions about the target and its employees, locations of business and fixed assets be expected to hold true for at least one year following the offer becoming or being declared wholly unconditional.

According to the report, the Code Committee will now publish further consultation papers setting out the proposed amendments in full.

Corporate governance concerns considered in Globe article

David Milstead of the Globe and Mail discusses the corporate governance concerns surrounding mergers and acquisitions in an article published in today's Globe. According to Stikeman Elliott partner Edward Waitzer, quoted in the article, "[t]akeovers, in a sense, are the ultimate discipline on management".

SEC releases executive compensation proposals

The U.S. Securities and Exchange Commission (SEC) last week released a proposal that, among other things, would require issuers that are subject to federal proxy rules to conduct: (i) a shareholder advisory vote to approve the compensation of executives at least once every three years; (ii) a shareholder advisory vote on the frequency of executive compensation votes at least once every six years; and (iii) a shareholder advisory vote on golden parachute arrangements in connection with merger transactions. The SEC's proposal, which result from an amendment to the Securities Exchange Act of 1934 emanating from the recent Dodd-Frank Act, would also impose various disclosure requirements.

Meanwhile, further proposals would require institutional investment managers that manage certain equity securities having an aggregate fair market value of at least $100 million to annually report to the SEC on how they voted proxies relating to the matters described above, namely, executive compensation, the frequency of say-on-pay votes and "golden parachute" arrangements.

The SEC is accepting public comments on the proposals until November 18.

Full and minority reasons for cease trading Lions Gate poison pill released

As we discussed in our post of June 3, the British Columbia Securities Commission released summary Majority Reasons in May for its decision to cease trade the shareholder rights plan (poison pill) implemented by Lions Gate Entertainment Corp. in response to a hostile bid by equity funds controlled by Carl Icahn.

On July 26, the BCSC released the full reasons of the panel majority and last week it released the reasons of the minority. While our more in-depth summary is forthcoming, a copy of the full reasons of the majority and the minority reasons can now be accessed from the BCSC website.

New BYU study underscores the value of a "dual-track" IPO/M&A approach

Earlier in 2010 we featured the article “M&A transaction or IPO: Why not pursue both?” in which Stikeman Elliott M&A partner Curtis A. Cusinato discussed the advantages of “dual-track” IPO/M&A processes. Dual-tracking is an increasingly popular strategic alternative involving the simultaneous pursuit of both an initial public offering and a negotiated or controlled auction sale process.

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House committee releases report of CBCA review

Last month, the House of Commons' Standing Committee on Industry, Science and Technology released a report based on its statutory review of the Canada Business Corporations Act. The report considered a number of issues and ultimately recommended that a broad public consultation be conducted by the government within two years regarding issues such as: (i) executive compensation, including whether shareholders should have an advisory vote on compensation packages; (ii) shareholder rights and governance, including the election of directors and shareholder approval for significantly dilutive acquisitions; and (iii) securities regulation.

TSX adopts amendments to Manual regarding security holder approval for acquisitions

As discussed in our post of November 18, 2009, the Toronto Stock Exchange proposed changes last year with respect to security holder approval in the case of investment fund acquisitions. The proposals followed 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 were intended to exempt investment funds from this requirement provided certain conditions were satisfied and would also require security holder approval by investment funds that are the subject of an acquisition unless certain conditions are satisfied.

Today, the TSX announced the adoption of the amendments with certain changes made in response to comments from the public and the OSC. Specifically, the final amendments clarify that the requirement for security holder approval of an investment fund which is the subject of an acquisition (unless certain conditions are met) applies to acquisitions of funds or assets. Other changes to the original proposal were made, including requiring the fund manager to make certain determinations rather than the Independent Review Committee.

The amendments will become effective on August 16, 2010. While not retroactive, the TSX stated that it will consider applications by investment funds made prior to the effective date for discretionary exemptions.

BCSC releases summary Majority Reasons for cease trading Lions Gate poison pill

Jonah Mann and Sean Vanderpol

On May 6, 2010, the British Columbia Securities Commission (BCSC) released its summary Majority Reasons for its decision to cease trade the poison pill (or shareholder rights plan) implemented by Lions Gate Entertainment Corp. (Lions Gate) in the face of a hostile bid by equity funds controlled by activist investor Carl Icahn (Icahn).

By way of background, Icahn held 19% of Lions Gate’s shares and sought to increase its stake to 30% by launching a partial bid. In the face of the Icahn bid, the Lions Gate board decided it was not the time to put the company in play and, therefore, adopted a poison pill. The pill allowed certain “permitted bids”, provided that these bids, among other things, had a “minimum tender condition” which could not be waived. The board called a shareholder meeting to consider the pill for May 4.

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Earn-out providing for return of assets if targets not met, rather than expressly requiring purchaser "effort", will not be rewritten just because the weak economy and other factors have made an asset return unpalatable to the seller

Airborne Health, Inc. v. Squid Soap, LP, C.A. No. 4410 VCL
Delaware Court of Chancery | Vice Chancellor Laster | November 23, 2009

Andrew S. Cunningham

This ruling by Vice Chancellor Laster of the Delaware Court of Chancery reminds us that in a commercial relationship, the contract reigns supreme. Even though it had a sympathetic story to tell, and despite some creative appeals to tort and equitable doctrines, Squid Soap couldn't get around the fact that the Asset Purchase Agreement (APA) it had negotiated with acquiror Airborne Health - with payment heavily weighted toward the earn-out - had not adequately protected it against certain unanticipated post-closing events that occurred, most notably the economic downturn.


Squid Soap had developed a child-friendly hand washing product. A hit with U.S. TV morning shows and major magazines, "Squid Soap" was soon picked up by Wal-Mart and other mass retailers. As the brainchild of a single entrepreneur, the Squid Soap business was ripe for a buyout. Despite interest from Procter & Gamble and a major hedge fund, Squid Soap selected Airborne Health, Inc., a larger entrepreneurial company, as its acquiror. Airborne had made its name with a highly successful vitamin and herb supplement that was marketed as effective against coughs and colds.

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Mining M&A: Opportunities and trends

Richard E. Clark and Dee Rajpal

The Canadian resource sector has recovered nicely from the worldwide decline in commodity prices, public company valuations and M&A activity that was experienced earlier in the year. As economies and financial markets around the world begin to stabilize, we see excellent opportunities and advantages for investors in the Canadian resource sector. In this regard, the following factors are significant.

Domestic and international supply of natural resources

With an abundance of base metals (in particular iron, copper, zinc and nickel), precious metals (in particular gold, silver and platinum), uranium, diamonds, coal, oil and gas, controlled by Canadian companies, both domestically and internationally, there is an enormous source of supply for the global economy. The Canadian entities exploiting such natural resources have a voracious appetite for capital and are open to takeover, investment or joint ventures.

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Section 116 relief for non-resident investors

Francesco Gucciardo and Richard E. Clark

Great news for non-resident investors, including, in particular, non-resident investors in private equity funds. The Canadian Federal Government has proposed a substantial change in its most recent budget (dated March 4, 2010) to the definition of "taxable Canadian property" (TCP) to exclude the shares of a corporation, interests in a partnership and interests in a trust that do not derive and have not derived at any particular time in the 60-month period that ends at the time of measurement (i.e., the time of disposition), directly or indirectly, their value principally from one or more of (i) real or immovable property situated in Canada, (ii) Canadian resource property, or (iii) timber resource property. As a consequence, this measure should eliminate section 116 compliance obligations (subject to a prospective purchaser's satisfaction that the subject property is not TCP), reduce the need for tax reporting and exempt a host of non-resident persons who would otherwise be taxable in Canada on the disposition of shares of Canadian corporations and other interests who do not currently qualify for exemptive relief under an existing Canadian income tax treaty or convention ("tax treaty").

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M&A transaction or IPO: Why not pursue both?

There may be legal advantages to a dual-track strategy in the current Canadian marketplace

Curtis A. Cusinato

Over the past year, as Canadian capital markets have regained their footing, Canadian private companies in search of greater liquidity have generally had a wider range of strategic alternatives to explore. One increasingly popular option is the "dual-track" or "parallel-track" IPO/M&A process, in which the company simultaneously pursues both an initial public offering and a negotiated or controlled auction sale process (or other specific sale process). Because market and economic conditions have not generally favoured dual-track processes in recent years, some boards and shareholders may find the concept relatively unfamiliar. The purpose of this article is to highlight, from a Canadian legal point of view, some of the potential benefits of pursuing a dual-track strategy for Canadian private issuers, Canadian portfolio companies of private equity groups and Canadian subsidiaries of multinational companies.

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CSA publish notice regarding variations of take-over bid terms

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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OSC 2009 Corporate Finance Report highlights staff views on M&A issues raised in 2009

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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TSX publishes proposals regarding security holder approval requirements and exemptions for investment fund acquisitions

 PDF Version

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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TSX to require shareholder approval of public company acquisitions effective November 24, 2009

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.

OSC releases Reasons in Neo denying application to cease trade shareholder rights plan

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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ASC makes it a hat-trick - following decisions in Pulse Data and NEO Technologies, the Alberta Securities Commission refuses to cease trade shareholder rights plan

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.

OSC refuses to cease trade shareholder rights plans

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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TSX publishes guidance on amendments to securityholder rights plans after take-over bid

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.

TSX publishes proposed changes to Company Manual respecting security holder approval for acquisitions

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.

Delaware Supreme Court considers directors' fiduciary duties in sale of company

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 trust conversions: dealing with retained interests

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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Uncovering Opportunities - Canadian M&A in 2009

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.

TSX adopts Part X - Special Purpose Acquisition Corporations of the TSX Company Manual

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.

Supreme Court releases reasons in BCE case

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.

TSX issues notice of temporary relief relating to NCIB purchases and issues reminder of other TSX rules

 PDF Version | Version française

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.

Recent Case: Deer Creek Energy v. Paulson

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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TSX notice on NCIB rules

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.

Request for Comment for Public Interest Amendments to the TSX Company Manual

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.

Minister of Finance releases rules for income trust conversions

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.

Sovereign Wealth Fund investment: What's next for Canada?

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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Another record year for M&A

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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Investment bank not liable for fairness opinion relying on unverified financial projections

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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New Investment Canada Act review threshold announced

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.

Merger talks are not a reportable material change unless parties are committed and success is likely, OSC panel rules

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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New Canadian take-over bid rules effective February 1, 2008

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...

Take-over bid regimes in all Canadian jurisdictions move closer to national harmony

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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TSX adopts amendments to NCIBs and rules relating to DSIB policies

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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Recent court decisions of interest: TD Banknorth and LaPoint

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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TSX revisits exemption from securityholder approval for share exchange acquisitions of public entities

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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Contested Take-over Bids - Offensive Strategies

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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When to disclose merger talks

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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M&A continues to thrive

William J. Braithwaite and John Ciardullo


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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