CHAPTER 05 MI 61-101 – Related Party Transactions
– Enhanced disclosure – Special committee of independent directors
INDEPENDENT VALUATION – Valuation Requirements: > Valuations are required for insider bids (unless the bidder is an “outside” insider); business combinations (but only if an “interested party” is acquiring or combining with the issuer); and related party transactions (but only if the subject matter of the related party transaction exceeds 25% of the issuer’s market capitalization). > Valuation must be “en bloc” value, with no liquidity or minority discount. > Bidder loses control in valuation process (e.g., in an insider bid, valuation is done at expense of bidder and included in the takeover bid circular, but is prepared under the supervision of the target’s special committee of independent directors). > Valuation cannot be more than 120 days old. – Independence of Valuator: > Valuator is not independent if it is an associated or affiliated entity or an external auditor (some exceptions), or entitled to success fees. > Other relationships simply require consideration and disclosure (e.g., lead or co-lead underwriter relationship in past 24 months). – Valuation Exemptions: > Previous arm’s-length negotiations: Consideration offered is at least equal in value and is in the same form as agreed to in arm’s-length negotiations not more than 12 months earlier by a 10% securityholder (5% if the bidder already has 80% of target’s securities) holding at least 20% of the outstanding securities not owned by the bidder. > Auction: One or more other transactions or bids are outstanding, and equal access to data room information is provided to all. > Second-step business combination: Within 120 days of a formal bid that disclosed intent to effect a second-step transaction as well as tax consequences of that transaction, and consideration has the same value and is in the same form as paid under a formal bid. > Pro rata related party transaction: Rights offerings, dividends, asset distributions or share reorganizations in which the interested party is treated identically to all holders. > Lack of knowledge of undisclosed material information and no board or management representation (for insider bids).
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