Under Canadian securities laws, an offeror may not take up shares deposited under a takeover bid if 50% or less of the outstanding shares (excluding the shares held by the offeror and any person acting jointly or in concert with the offeror) have been deposited under the bid. If less than 100% of the outstanding shares have been tendered to the bid (which will always be the case), the acquirer may acquire the remaining shares in a second- step transaction completed in one of two ways. If 90% or more of the outstanding shares have been tendered, Canadian corporate laws generally allow the offeror to “squeeze out” the remaining shareholders at the same price paid under the takeover bid by sending a notice to the remaining shareholders. Such shareholders then only have the right to receive such consideration or to exercise a dissent right to apply to a court to determine the “fair value” for their shares. If less than 90% but 66 2⁄3% or more of the outstanding shares have been tendered, the offeror may proceed to a second-step amalgamation or arrangement transaction with the target company whereby the remaining shareholders are squeezed out for the same consideration as in the takeover bid (subject to a dissent right). An amalgamation or arrangement generally requires 66 2⁄3% shareholder approval. Given that the shares previously acquired by the offeror under the takeover bid can be counted toward the required 66 2/3% approval, typically the vote on the amalgamation or arrangement will be favourable. Since a second-step transaction by way of an amalgamation or arrangement requires the holding of a shareholders’ meeting, it adds another period of approximately 35 to 45 days following the expiry of the takeover bid to complete the acquisition of the remaining shares.
For a foreign acquirer, although it is not possible to exchange target shares for acquirer shares or to merge the two entities on a tax- deferred basis, it is possible to utilize an “exchangeable share” structure to provide such tax deferral.
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Doing Business in Canada
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