outstanding shares in order to utilize the squeeze- out procedures noted above. A plan of arrangement, on the other hand, requires the approval of 66 2⁄3% of the votes cast by shareholders represented at the shareholders’ meeting (which representation is likely to be less than 100%). That being said, the element of court approval and the fairness hearing provide a forum for shareholders (and other stakeholders) that object to the transaction to seek to block it unless it is modified to address their concerns. Amalgamation An amalgamation is a statutory combination or “merger” of two or more corporate entities. In an acquisition of a Canadian public company by way of amalgamation, the acquirer will generally form a special purpose company to amalgamate with the target company, and the shareholders of the target company will receive the acquisition consideration. Generally, transactions by way of amalgamation can be undertaken only on a negotiated (or friendly) basis, but are not nearly as common as using a plan of arrangement structure, largely because an amalgamation is less flexible. An amalgamation requires approval by the target company shareholders at a shareholders’ meeting (typically 66 2/3% of the votes cast), but it does not require court approval and therefore does not involve a fairness hearing at which shareholders (and other stakeholders) may object to the transaction. Shareholders can, however, exercise statutory dissent rights to apply to a court to determine the fair value of their shares.
to the court for a procedural order to set the level of shareholder approval required for the transaction (which is generally 66 2⁄3% of the votes cast at the shareholders’ meeting) and the procedures for the shareholders’ meeting to approve the transaction. Third, the target company mails an information circular to its shareholders and holds a shareholders’ meeting to approve the transaction (generally approximately 30 days following such mailing). Fourth, the target company returns to the court for a “fairness hearing,” at which the court grants or denies the order approving the plan of arrangement. At the fairness hearing, the target company must satisfy the court that the arrangement is fair and reasonable. Shareholders of the target company and other persons whose legal rights are affected by the arrangement may appear at the fairness hearing to raise objections to the terms of the arrangement. Finally, following shareholder and court approval, the parties close the transaction (subject to obtaining any required regulatory clearances or approvals). Given that the court process is led by the target company, transactions by way of plan of arrangement are not practicable in an unsolicited (or hostile) scenario and can generally only be completed on a negotiated (or friendly) basis. A plan of arrangement is typically the preferred structure, for the following reasons. First, it provides parties with an enhanced level of flexibility, because stock options or other convertible securities can be dealt with and tax-planning steps can be implemented in the arrangement steps. Second, a 100% acquisition can be completed in a single-step transaction. Third, the threshold for shareholder approval is lower than that for a takeover bid. While applicable law requires the tender of at least 50% of the outstanding shares (excluding the shares held by the offeror and any person acting jointly or in concert with the offeror), most transactions include a minimum tender condition of 66 2⁄3% of all
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Doing Business in Canada
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