Governance Insights 2025
M&A Process Matters: Lessons from a Contested Fairness Hearing
Authors: B rett Seifred and Marc Pontone
A contested fairness hearing in respect of the take-private of Altius Renewables Royalties Corp., a TSX-listed renewable energy royalty company (the target), serves as a helpful reminder to directors and M&A professionals of the value of following M&A governance best practices, particularly where the transaction involves material conflicts of interest. Although the transaction was ultimately completed, the legal challenges levelled against the target’s governance process increased transactional costs and execution risk and exposed both the deal and the principals of the target to legal and reputational risks. Our key takeaways are set out at the end of this article.
The plan called for the approval of the transaction by two-thirds of the votes cast by the target’s shareholders. In addition, securities laws required the separate approval of a simple majority of the votes cast by the target’s minority shareholders. The purchaser entered into voting support agreements (VSAs) with a number of shareholders, including the controlling shareholder, who held in aggregate a sufficient number of shares to ensure the requisite shareholder approvals would be obtained. Based on the publicly filed forms, the VSAs were “soft” lockups, meaning that the “locked-up” shareholders were able to vote against the arrangement if, among other things, the target terminated the transaction in order to agree to a better deal with a third party. The required shareholder approval was obtained at a shareholders meeting held in the fall of 2024. The Fairness Hearing Following the meeting, the target applied to obtain final approval of the arrangement from the Alberta Court of King’s Bench at a “fairness hearing” (so named because the court is required to approve the “fairness and reasonableness” of the transaction). Generally,
Background The take-private was structured as a plan of
arrangement under the Business Corporations Act (Alberta). The transaction provided for the purchase by Northampton Capital Partners LLC, an infrastructure-focused asset manager (the purchaser), of all of the common shares held by minority shareholders of the target, leaving Altius Minerals Corporation, the target’s 58% controlling shareholder (the controlling shareholder), as the only other shareholder following completion of the transaction.
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Governance Insights 2025
Governance Insights 2025 M&A Process Matters: Lessons from a Contested Fairness Hearing
target; (v) the lack of a market check either through a “go shop” provision or auction; and (vi) the purchaser’s use of the VSAs, which the dissident suggested had a negative impact on the effectiveness and integrity of the shareholder vote. Notably, in the lead-up to the fairness hearing, the dissident shareholder issued a series of highly critical press releases aimed at the target and its board. Among other things, the dissident accused the board and special committee of agreeing to a deal that grossly undervalued the target and of being focused more on the interests of the controlling shareholder than those of minority shareholders. Serious public accusations such as these raise the spectre of reputational risk for the institutions and individuals involved and underscore the importance of avoiding real and perceived conflicts. Court Dismisses Governance Concerns To assess whether the arrangement was “fair and reasonable,” the court applied the two-pronged test from BCE Inc. v 1976 Debentureholders , the second prong of which requires the court to examine whether “the rights of affected parties were resolved in a fair and balanced way.” The court noted that, although BCE stands for the proposition that the substance of the arrangement, rather than the board’s process, is the object of the court’s fairness determination, courts can and should consider governance matters as indicia of the fairness of the transaction. Although the court noted certain imperfections in the transaction process, it concluded that the target’s governance was reasonable in the circumstances. This determination, together with other indicia considered by the court, formed the basis of the court’s conclusion that the arrangement was fair and reasonable to minority shareholders.
shareholders and other interested parties are permitted to attend a fairness hearing and make submissions. In this case, the hearing was attended by a 4% minority shareholder of the target (the dissident shareholder) who contested the fairness and reasonableness of the transaction. It is generally expected that a court will issue its final approval for an uncontested arrangement on the same day as the hearing. Here, the court’s final approval arrived 10 days after the hearing, adding to the delays and uncertainties precipitated by the dissident shareholder’s arrival on the scene. The Dissident Shareholder’s Critiques of the Governance Process At the hearing, the dissident shareholder argued that the transaction’s alleged governance failures, including the process followed by the target’s special committee in negotiating and reviewing the transaction, resulted in a transaction that was not fair and reasonable to minority shareholders. The dissident shareholder’s governance criticisms principally targeted (i) the involvement of the CEO of the target in negotiations, where the target CEO was also the CEO of the controlling shareholder (a conflicted party), and allegations of improper influence of the controlling shareholder on the sales process; (ii) the special committee’s engagement of regular company counsel rather than independent legal advisers; (iii) the late engagement of a independent financial adviser to provide financial advice to the special committee and prepare the required formal valuation of the target shares; (iv) the lack of disclosure to shareholders regarding an unsolicited third-party offer received by the
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Specifically, the court found no evidence that the early involvement of the controlling shareholder, or the lack of independent counsel to the special committee, tainted the process, noting that the special committee was comprised of independent directors and that conflicted board members were excluded from decision making. There was no evidence that company counsel suffered from a conflict vis-à-vis the controlling shareholder, despite the latter’s effective control over the target. The court also rejected the argument that the late engagement of the financial adviser was fatal, observing that the special committee did not bind the target to a price until after the committee received the adviser’s fairness opinion and formal valuation (which concluded that the offer was within the fair market value range). The court summarily addressed the issues surrounding the unsolicited third-party offer and did not raise any substantive concerns regarding the alleged lack of disclosure. The court also held that the lack of an auction or “go- shop” provision in the acquisition agreement did not render the transaction unfair for a number of reasons, including (i) a “sizeable body of credible evidence” available to the directors that indicated the price was fair; (ii) the unique nature of the target’s assets; and (iii) the existence of a right of first offer in respect of substantially all of the target’s assets. The court also dismissed the dissident shareholder’s complaints regarding the VSAs, concluding that they “did not limit the choice of Minority Shareholders to vote against the Arrangement” and noting that minority shareholders could exercise dissent rights to obtain fair value for their shares.
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Governance Insights 2025
Governance Insights 2025 M&A Process Matters: Lessons from a Contested Fairness Hearing
Key Takeaways: Avoid Noise and Expense with Governance Best Practices
Although perfection is not the yardstick against which courts and regulators will judge a transaction, a robust governance process not only increases the likelihood of the deal’s success, but also protects the target, management and the directors from reputational harm, execution risk and delay. Even if transaction parties believe that the fairness of a transaction can be successfully defended, relatively inexpensive measures to insulate a transaction from “low hanging” governance critiques will, in many cases, be preferrable to increasing deal risk or public criticism. This is particularly true in the case of arrangements, which provide shareholders and other stakeholders with a fairly low-cost and effective forum in which to raise concerns regarding a proposed transaction. Directors and executives should engage with counsel at the outset of a potential deal to
consider how governance procedures can be leveraged to steer their transaction away from avoidable criticism (including from stakeholders, proxy advisory firms and other market commentators) and costly litigation. This is all the more important when dealing with a conflict of interest transaction, where a sound governance regime adopted at the earliest stages is often a key measure of fairness and a basis for deference to the board’s business judgment. For regulatory guidance on this topic, refer to CSA Staff Notice 61-302 (SN 61-302), which includes commentary from securities regulators regarding governance best practices for material conflict of interest transactions. Of course, the process adopted in this instance must be situated in the specific context in which the target found itself. However, boards that are similarly situated in the future should consider the following governance “best practices.”
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1. INDEPENDENT LEGAL COUNSEL By retaining independent legal counsel rather than relying on the target’s regular counsel, a special committee can better insulate itself from allegations of conflict and undue influence (including the influence of any controlling shareholder). 2. ENGAGE A FINANCIAL ADVISER EARLY Engaging a financial adviser as early as possible in the process – particularly prior to detailed price discussions – ensures that a special committee has credible, independent advice on value to inform its negotiation stance. 3. SPECIAL COMMITTEE OVERSIGHT Consistent with guidance in SN 61-302, a special committee should ensure that it is directly overseeing
negotiations with the purchaser rather than simply delegating negotiations to an officer (particularly if that officer is a fiduciary of parties on both sides of the negotiations). 4. ENHANCED DISCLOSURE Disclosure in the transaction circular should be sufficient to demonstrate that the target and its board have good insight into fair market value (particularly in the absence of an auction or robust market check) and to meaningfully articulate the board’s preference for a chosen buyer, and should also adequately describe the details of any third party offers and other material “background.” The court’s order approving the fairness and reasonableness of the arrangement is available at Altius Renewable Royalties Corp (Re) .
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Governance Insights 2025
Key Contacts If you would like to discuss any of the issues raised in this report or receive more information, please contact any of the individuals listed below or visit our website at www.dwpv.com.
Marc Pontone 416.367.7609 mpontone@dwpv.com
Aaron Atkinson 416.367.6907 aatkinson@dwpv.com
Brett Seifred 416.863.5531 bseifred@dwpv.com
Researching and writing this report is a project undertaken by Davies Ward Phillips & Vineberg LLP and not on behalf of any client or other person. The information contained in this report should not be relied upon as legal advice.
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