Mergers & Acquisitions

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

The Deal 

On December 15, 2019, United Kingdom-based Cineworld Group plc (“Cineworld”), the second largest cinema chain worldwide, entered into an arrangement agreement (the “Arrangement Agreement”) with Cineplex Inc. (“Cineplex”) whereby Cineworld would acquire all of the issued and outstanding shares of Cineplex for $34 per share in cash, representing a premium of 42% to

What is CSIS?

The Canadian Security Intelligence Service (“CSIS”) is Canada’s principal national intelligence service. CSIS investigates actions believed to constitute a threat to the security and safety of Canada. Arguably, CSIS’ role is even greater given the population’s need to trust and rely on its national intuitions, including its security and intelligence, during the COVID-19 pandemic.  CSIS’ uniquely defensive purpose is to monitor, collect and investigate Canada’s security threats, including economic espionage and foreign-influenced activities.

Canadian Intelligence Service’s 2019 Public Report

On May 20, 2020, CSIS issued a statement in connection with the recent release of its 2019 Public Report (“Report”).  The Report aims to provide, amongst other things, a summary of the threats to Canada and its national interests.  As globalization continues to dominate, the global community, including the potential threats that it may pose to national security, has a wider reach on Canadian businesses and Canadian life generally.

The Report discusses many topics relevant to Canada in 2018/2019, including the current state of terrorism and violent extremism and the ongoing need to protect democratic institutions, but the area of focus here is CSIS’ review as it relates to foreign investment and Canada’s economic security.
Continue Reading CSIS cautions on foreign investment’s potentially negative impact to Canadian businesses and economic security; tighter rules for foreign investment

We have been tracking the impact of Material Adverse Change (MAC) and Material Adverse Effect (MAE) clauses on M&A transactions and how parties to certain M&A transactions are navigating the issues surrounding the termination of transactions in the context of changing business realities due to the global coronavirus pandemic.

Another recent case involves Juweel Investors Limited (“Juweel”), the owner of the company carrying on the business of American Express Global Business Travel (“GBT”), a corporate global business travel enterprise with over 10,000 clients in more than 140 countries.  In its complaint filed in the Court of Chancery in Delaware on May 11, 2020,  Juweel sought an expedited trial to obtain an order to compel several entities related to The Carlyle Group Inc. (“Carlyle”) and GIC (Ventures) Pte. Ltd (through Pure Magenta Investment Pte Ltd.) (collectively, “GIC”, and together with Carlyle, the “Purchasers”) to complete a transaction in which the Purchasers had agreed to acquire an ownership interest in GBT.

The transactions contemplated by the Share Purchase Agreement, dated December 16, 2019 (“SPA”), were scheduled to close on May 7, 2020.  As was seen in the Victoria’s Secret case reported on in our earlier post, the Purchasers claim that there was an MAE[1] and that GBT failed to comply with interim operating covenants between signing and closing by not operating in the ordinary course of business.
Continue Reading Terminations of M&A Transactions: Lessons Learned from American Express Global Business Travel

According to the 2019 ABA Private Target M&A Deal Points Study, in the US 52% of purchase agreements examined included references to representation and warranty insurance (“RWI”)[1]. While this trend seems less pervasive in Canada, we are witnessing a growing trend where buyers and sellers are turning to RWI as an additional coverage to standard indemnity mechanisms. This trend, combined with a reduction in M&A activity in light of the COVID-19 pandemic, has led to growing competition among insurers and increased negotiation power for parties seeking RWI. While some companies may struggle with a significant loss in share value, assets may still be valuable to potential buyers, resulting in an anticipated increase in asset-based transactions. In addition, the pandemic will surely give rise to an increase in distressed transactions with buyers turning to RWI as a source of protection for breaches in representations and warranties, including possibly fundamental representations and warranties. We have summarized below key insights and takeaways regarding the current RWI market in Canada to help parties when deciding which policy best fits their needs.


Continue Reading Diagnosing the impact of COVID-19 on representation and warranty insurance

The global coronavirus pandemic has undoubtedly had an impact on businesses and M&A activity worldwide.  In light of current events, companies negotiating deals and the lawyers penning the contracts are paying closer attention to the paperwork.  In particular, careful drafting and thoughtful consideration of the Material Adverse Change (MAC) and Material Adverse Effect (MAE) clauses in transaction agreements (see our previous posts on MAC provisions) and a potential Canadian court decision on MAC clauses (see our previous post of April 30, 2020 and May 7, 2020), as well as the target company’s covenants, representations and warranties and the buyer’s closing conditions related to such representations and warranties, have proven especially important in how parties have been responding to the onset of the pandemic.

In recent months, we have seen a number of attempts in the U.S. to terminate deals on the basis of the impact of the pandemic to target companies’ businesses.  
Continue Reading Terminations of M&A Transactions: Lessons Learned from Victoria’s Secret and WeWork

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