Defensive Measures – National Policy 62-202 sets out the views of the Canadian securities regulators with respect to the defensive tactics that a target company may employ in advance or in the face of a takeover bid. The Policy expresses securities regulators’ view that unrestricted auctions produce the most desirable results in takeover bids. – The Policy warns that the securities regulators may take action where defensive measures are likely to deny or severely limit the ability of shareholders to respond to a takeover bid, although it recognizes that defensive measures may be taken to obtain a better bid. “JUST SAY NO” – It is generally accepted, as a matter of securities law and policy, that boards cannot “just say no” to a bid in Canada, but must rather be able to convince shareholders that it is in their interest to reject the bid. RESTRUCTURING/RECAPITALIZATION – The goal is to give shareholders the opportunity to receive substantial cash value on a current basis while preserving the independence of the company. – One possible restructuring transaction would be a sale or spinoff of a significant asset or assets. > Substantial advance analysis and planning is required, including tax analysis. > Identification of assets, the sale or disposition of which would further a defensive strategy, may depend on the identity and strategic position of the bidder. > The transaction must have a demonstrable business purpose and be undertaken with a view to the best interests of the company, otherwise it will be at risk of being set aside by a court as an improper exercise of the directors’ fiduciary duties. – An example of a recapitalization transaction would be a substantial increase in long-term debt combined with a special dividend or issuer bid to distribute cash to shareholders. > This transaction provides shareholders with an opportunity to realize cash value in respect of a significant portion of their investment. > Tax analysis is required to ascertain whether monies received by shareholders on a restructuring/recapitalization can be received tax-free. ACQUISITION OF SIGNIFICANT ASSETS – An acquisition of significant assets may make the company more leveraged and less attractive to a bidder; it could make the transaction prohibitively expensive or cause the bidder antitrust problems.
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Canadian Mergers & Acquisitions
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