What Is an Arrangement? – Common alternative to takeover bids for negotiated M&A transactions. – Corporate reorganization of the target under applicable corporate law. > Unlike a takeover bid, an arrangement is a one-step transaction approved by target securityholders at a special meeting. > Agreement is negotiated with the target, and voting support agreements are often negotiated with significant securityholders. > Independent committee of the board of directors of the target may be formed when the transaction may give rise to potential conflicts of interest or is otherwise justified. > The target applies to court for an interim order prior to mailing the proxy materials specifying the required securityholder approval. > The target calls a special shareholders’ meeting to approve the arrangement. > Arrangement becomes effective after it is approved by target securityholders and by the court, all other closing conditions are satisfied and articles of arrangement are filed by the target. – Securities of any class of the target may be exchanged for any other securities or property, including cash. In addition, assets, including shares of subsidiaries, can be distributed to shareholders or other parties, and the order of all the steps to be effected by the arrangement can be specified, which assists in tax planning. – Court will consider whether arrangement is “fair and reasonable.” > Court must be satisfied that (i) the arrangement has a valid business purpose; and (ii) the objections of those whose legal rights are being arranged are being resolved in a fair and balanced way. > Determination is focused on securityholders whose legal rights are being arranged rather than securityholders affected only in respect of their economic interests. > In determining whether these tests are met, considerations will include: ○ level of approval by the target’s securityholders; ○ proportionality of the arrangement’s impact on affected groups; ○ whether the arrangement has been approved by a special committee of independent directors of the target; ○ existence of a fairness opinion from a reputable expert and, depending on circumstances, whether the expert is independent and whether adequate disclosure of analysis underlying the opinion is made; and ○ availability to shareholders of dissent and appraisal remedies.
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Canadian Mergers & Acquisitions
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