The governing principle behind Canadian takeover bid laws is that shareholders should be treated equally and, therefore (subject to certain exceptions), all shareholders must be offered the same consideration or choice of consideration.
Canada has a well-established corporate and securities law framework for the acquisition of Canadian public companies. The acquisition of a public company in Canada can take the form of a takeover bid, a plan of arrangement or an amalgamation. Its form will most often depend on whether the acquisition occurs on a negotiated (or “friendly”) basis, with the support of the board of directors of the target company, or whether it occurs on an unsolicited (or “hostile”) basis, without the support of the board of directors of the target company. Virtually all acquisitions of Canadian public companies are “friendly,” and as a result are completed by way of plan of arrangement. Takeover Bid A takeover bid is an offer to acquire shares of a public company that is made by the acquirer directly to the shareholders and is subject to the deposit (or tender) of a requisite number of shares by the shareholders of the target company. Takeover bids are specifically regulated by Canadian securities legislation. Although each province and territory in Canada has its own securities laws and securities commission or similar regulatory authority, a national instrument has been adopted to harmonize the rules regarding takeover bids in all Canadian jurisdictions. In an unsolicited (or hostile) scenario, a takeover bid is the main means of obtaining control of a Canadian public company. In a negotiated (or friendly) scenario, while a takeover bid is an available means of acquiring the company, it is not the preferred form, as discussed below. A plan of arrangement allows the acquirer to acquire all of the outstanding shares of the target in a single transaction as compared with a takeover bid, which requires a second step transaction to “squeeze out” shareholders that did not tender into the bid. CONSIDERATION In a takeover bid, an acquirer can pay with cash, securities or a combination of both. The governing principle behind Canadian takeover bid laws is that shareholders should be treated equally and, therefore (subject to certain exceptions), all shareholders must be offered the same consideration or choice of consideration. However, because a takeover bid is an offer made directly to shareholders, no mechanism exists to deal with options or other convertible securities. Accordingly, an acquirer can decide whether it will elect to make an offer to acquire options and other convertible securities of the target that are not otherwise exchanged or converted prior to the termination of the bid.
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Doing Business in Canada
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