CHAPTER 03 Pre-bid Considerations
Pre-acquisition Preparation
KEY DILIGENCE ISSUES – Change of control consequences. – Regulatory requirements (e.g., Investment Canada, including national security review, Competition Bureau). – Convertible securities or other rights to acquire shares. – Contingent liabilities. – Shareholder rights plan (existing or potential). – Location of target’s shareholders (including U.S.). – Coattail provisions for non-voting shares or subordinate voting shares. DILIGENCE PROCESS – Target will require a confidentiality agreement with a “use” clause and usually a standstill agreement as a pre-condition to due diligence and may agree to an exclusivity agreement. FINANCING (TAKEOVER BIDS) – In Canada, cash takeover bids must be fully financed (at announcement, commitment letter signed, fee paid). This is in contrast to tender offers in the United States, which can be conditional on financing. – Bidder must make adequate arrangements before the bid to ensure that the required funds are available. – Bidder must reasonably believe “the possibility to be remote that, if the conditions of the bid are satisfied or waived, the offeror will be unable to pay for the securities deposited under the bid due to a financing condition not being satisfied.” – As a general rule, the bid financing can be no more conditional than the bid itself.
Share Accumulations
TOEHOLD ACQUISITION – Purchases up to 19.9% (together with securities beneficially owned by purchaser and joint actors) are not a “takeover bid.”
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