CHAPTER 05 Public Mergers & Acquisitions
Under Canadian securities laws, a takeover bid made by an insider of the target company, including a member of management or a person that holds shares carrying more than 10% of the voting rights attached to all the outstanding shares of the target company, is subject to an obligation to obtain an independent formal valuation of the target shares, subject to certain exemptions. Unlike in the United Kingdom, Canadian securities laws do not provide for a “put up or shut up” rule, meaning that “phantom bids,” whereby bidders announce that they are going to make a bid for a company, but do not follow through, are not restricted. Plan of Arrangement A plan of arrangement is a flexible statutory procedure that can include steps such as the acquisition of 100% of the shares and other securities of the target company. It requires approval by the target company's shareholders (typically 66 2/3%) and approval by the court. In an unsolicited (or hostile) scenario, a plan of arrangement structure will typically not be used since it is difficult to implement without the cooperation of the target company. In a negotiated (or friendly) scenario, a plan of arrangement is typically the preferred form, compared with a takeover bid or an amalgamation, due to its one-step structure and flexibility. CONSIDERATION An acquirer of a Canadian public company by way of plan of arrangement can pay with cash, securities or a combination of cash and securities. Unlike the rules that govern takeover bids, there is no specific prohibition on offering different consideration or providing different treatment to different shareholders. However, if related parties of the target company are offered different
consideration or if they receive a “collateral benefit,” it may be necessary to obtain an independent formal valuation of the target shares, as well as approval by a majority of the votes cast by minority shareholders at the shareholders’ meeting. A typical example of different treatment would be an acquisition by a private equity buyer whereby management is required to reinvest a portion of the proceeds or to take a portion of the proceeds as an equity interest in the acquired business. If securities are offered as consideration, the issues discussed above in the context of takeover bids would also be relevant. PROCESS The implementation of a plan of arrangement generally involves five stages. First, the acquirer and the target company negotiate a definitive agreement whereby, among other things, the acquirer and the target company agree on the consideration for the shares and the process through which the plan of arrangement will be implemented. Second, the target company applies
A plan of arrangement is a flexible statutory procedure that can include steps such as the acquisition of 100% of the shares and other securities of the target company.
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