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Introduction

Recently, the Ontario Securities Commission (“OSC”) released its reasons for a September order dismissing an application for exemptive relief from the minimum tender requirement under Canada’s securities take-over bid regime.[1] ESW Capital, LLC (“ESW”), the largest shareholder of Optiva Inc. (“Optiva”), sought the relief in connection with a contested proposed take-over bid involving shares of Optiva (“Voting Shares”). The application is the first instance in which a Canadian securities regulator has been asked to grant exemptive relief from the minimum tender requirement. The OSC concluded that “there were no exceptional circumstances or abusive or improper conduct that undermined minority shareholder choice to warrant intervention…[and that] predictability is an important aspect of take-over bid regulation and [OSC] must be cautious in granting exemptive relief that alters the recently recalibrated bid regime”.
Continue Reading OSC Releases Reasons for Rejection of Application to Waive Minimum Tender Condition

Several months ago we asked whether a COVID-19-related impact on a business might constitute a “Material Adverse Change” (referred to as a “MAC,” or a material adverse effect, “MAE”) under merger agreements, and we noted the near complete absence of case law on the issue in Canada (see: “COVID-19 and Material Adverse Change Provisions

Further to our earlier post discussing COVID-19 and Material Adverse Change (“MAC”) provisions in merger and acquisition agreements, and the procedural ruling in respect of the dispute involving Rifco Inc. (“Rifco”), ACC Holdings Inc. (“Purchaser”), and the Purchaser’s parent company, CanCap Management Inc. (“CanCap”), each of Rifco, the Purchaser and CanCap, (collectively, the “Parties”) settled

Further to our earlier post discussing COVID-19 and Material Adverse Change (“MAC”) provisions in mergers and acquisitions agreements and the hearing held last week in connection with an application for the final order (“Final Order Application”) in respect of the proposed plan of arrangement (the “Arrangement”) involving Rifco Inc. (“Rifco”), an alternative auto financing company

Further to our earlier post discussing COVID-19 and Material Adverse Change (“MAC”) provisions in M&A Agreements that addressed the lack of relevant Canadian court decisions and the associated uncertainty in their interpretation, Canadian capital market participants are watching with keen interest the dispute between Rifco Inc. (“Rifco”), an alternative auto financing company that trades on

Introduction

The COVID-19 pandemic has raised a fundamental question for M&A participants: does the outbreak of COVID-19 and the impact on a business constitute a “Material Adverse Change” (referred to as a “MAC”) under merger agreements? The answer is important because if the pandemic is a MAC, then buyers can typically walk away from a deal without penalty or legal exposure. On the other hand, if it is not a MAC and buyers try to walk the seller can seek damages and/or seek specific performance of the agreement to force the buyer to close.

The law on MACs

In Canada there is virtually no case law on what constitutes a MAC, so most M&A practitioners look to the jurisprudence from Delaware for assistance (where there are several thoughtful and well-articulated decisions). Not wanting to empower buyer’s remorse at the expense of public shareholders, Delaware courts have been extremely reluctant to find a MAC to have occurred. In fact, there is only one case in which a Delaware court has found a MAC and allowed a buyer to walk from a merger agreement. See our previous blog post for reference.

Although difficult to establish, the case law has focused on two key elements: that the adverse change is “material” and “durationally significant.” Put differently, a MAC needs to be much more than a short-term drop and essentially reflect a fundamental change in the business to be acquired.
Continue Reading COVID-19 and Material Adverse Change Provisions in M&A Agreements

Institutional Investor Services (“ISS”) and Glass Lewis have released their updates to proxy voting guidelines for 2020. These guidelines shape the recommendations both bodies will give in reports concerning specific issuers which are often followed by institutional investors. For issuers with an institutional investor as a majority shareholder, these guidelines can be determinative

The latest edition of the American Bar Association’s (ABA) Canadian Private Mergers & Acquisitions Deal Points Study was released on December 19, 2019. The study focused on deals signed in 2016 and 2017. A number of members of the Fasken team were involved in the preparation of the study, including the authors of this post.

The ABA deal points studies have been cited in numerous court decisions and are a leading source in seeking to answer the dealmaker’s most basic question: what’s market?  This article highlights some of the key findings from the study and compares certain deal points to recent US studies.

Notwithstanding the importance of the study, readers should be mindful of the nature of the sample used before applying it too broadly. The agreements reviewed are sourced from the System for Electronic Documents and Analysis and Retrieval (SEDAR) maintained by Canadian securities regulatory authorities for reporting issuers. As result, the study necessarily reviews only a small portion of transactions completed during the relevant time period and is limited to Canadian private targets that are being acquired or sold by public companies. The latest study reviews just 90 agreements and is heavily skewed towards smaller deals (48% are under $50 million and 60% are under $100 million). That said, one of the biggest changes since the last Canadian study is the increase in deals over $200 million (up to 29% from 20% in the 2016 study). As a result of the how the transaction samples are developed for the study, 87% of the deals involved corporate buyers (unchanged from 2016 study) and only 6% involved private equity buyers (down from 10% in the 2016 study). 70% of deals in the study involved corporate sellers (71% in the 2016 study) and 9% involved private equity sellers (8% in the 2016 study).

Of note, the study shows that 21% of deals were in the oil & gas sector (up from 16% in the 2016 study and up from 8% in the 2014 study) and that 4% of deals were in the chemical & basic (natural) resources sector (down from 17% in each of the 2016 and 2014 studies).

Purchase Price Adjustments

The study shows a number of shifts in market practice with respect to post-closing purchase price adjustments. First, 79% of transactions include such an adjustment (up from 72%) with the vast majority of deals adjusting for working capital. Second, and somewhat puzzling, is that that the buyer prepares the first draft of the closing balance sheet in only 59% of deals (down from 76% in 2016 and 61% in 2014). That is in stark contrast to the US study, in which the buyer prepares the first draft of the closing balance sheet in 95% of deals. Some of the change might be attributable to data collection challenges, as 19 of the agreements reviewed did not specify who prepared the closing balance sheet. Finally, Canadian deals tend not to use earn-outs to bridge valuation gaps to the same degree as deals in the US (16% in Canada and 28% in the US), which is consistent with previous studies.Continue Reading Latest Canadian ABA Private M&A Deal Points Study Released

In recent years, competition/antitrust enforcers around the world, including Canada, have taken a marked interest in private equity deals.  As part of a broader global trend of tougher merger enforcement, private equity firms that have taken ownership positions (controlling or minority) in portfolio companies that are competitors have been subject to heightened scrutiny.  The litigation and subsequent settlement in involving Canada’s Competition Bureau and Thoma Bravo is the most recent example.Continue Reading Private Equity in the Cross-Hairs of the Competition Regulator: Lessons Learned from Thoma Bravo

Since it costs a lot to win, and even more to lose,

You and me bound to spend some time wondering what to choose.

Deal – The Grateful Dead

IIROC recently published guidance regarding managing conflicts of interest arising from soliciting dealer arrangements. The guidance elaborates on existing conflict of interest rules in the context of takeover bids, plans of arrangement, proxy contests and other securities transactions involving various types of solicitation fees.Continue Reading IIROC Provides Guidance on Soliciting Dealer Arrangements