Mergers & Acquisitions

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.


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Introduction

In a number of recent cases, Canadian courts have demonstrated a willingness to vest mining claims free of royalty rights notwithstanding that those rights might constitute interests in land. One such case before the courts in Ontario is Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc.


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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.


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On March 15, 2018, the Ontario Securities Commission (OSC) and the Financial and Consumer Affairs Authority of Saskatchewan (FCAAS) released highly anticipated reasons for a combined decision relating to Aurora Cannabis Inc.’s (Aurora) unsolicited take-over bid to acquire CanniMed Therapeutics Inc. (CanniMed). The reasons followed a December 21, 2017 decision in which the OSC and FCAAS, among other things:

  • Permitted Aurora’s use of “hard” lock-up agreements with other CanniMed shareholders to build support for its bid (finding that the locked-up shareholders were not “acting jointly or in concert” with Aurora).
  • Cease traded a tactical shareholder rights plan (poison pill) implemented by the CanniMed board in the face of the Aurora bid.
  • Declined to grant Aurora exemptive relief from the 105-day minimum deposit period.
  • Declined to restrict Aurora’s ability to rely on the exemption from the general restriction on purchases by a bidder to purchase up to 5% of the target company’s shares during the currency of its bid.


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Financial advisors are often critical to the success of an M&A transaction. Often, but perhaps not always. Should the fees payable to a financial advisor be denied if, through no fault of its own, an M&A transaction is completed without any involvement of the advisor? This question is the subject matter of Crew Gold[1] a decision of the Ontario Superior Court which was recently affirmed by the Ontario Court of Appeal.

In M&A sell-side roles, financial advisors are typically retained to advise boards on strategy, as well as perform a number of related tasks, including: preparing a timetable, identifying prospective purchasers, preparing a confidential information memorandum (CIM) and standstill agreement, providing a market check on any offers received, assisting in the due diligence process, providing an opinion as to the financial fairness of any offers, reviewing various deal documents and assisting with communications to, and at times interacting with, the public, key stakeholders, rating agencies and proxy advisory firms.

M&A advisory fees for sell-side roles are typically success-based, payable on completion of a transaction. Prior to completion, the advisor may receive a fee for the delivery of an opinion relating to financial fairness and periodic work fees, all of which are usually credited against the success fee. Work fees are typically modest compared to the success fee, as most issuers prefer not to run up huge advisory costs if no transaction is ultimately completed. Besides, it is often argued, any success fee is effectively for the account of the acquirer.


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On March 7, 2017, 1891868 Alberta Ltd., a wholly-owned indirect subsidiary of Sprott Inc. (Sprott, and together with its wholly-owned subsidiaries, Sprott Group), filed an originating application (Application) in the Court of Queen’s Bench of Alberta (Court) for an order approving a proposed plan of arrangement (Arrangement) with Central Fund of Canada Limited (Target), Sprott Physical Gold and Silver Trust (to be formed and managed by Sprott Asset Management LP (Trust)), the holders of class A non-voting shares (Class A Shares) of the Target and, as applicable, the holders of common shares (Common Shares) of the Target pursuant to Section 193(2) of the Business Corporations Act (Alberta) (Act).  The Application has been scheduled to be heard by the Court on September 7, 2017.

The Application

The Application seeks an interim order for the calling and holding of a meeting of shareholders (Target Shareholders) of the Target to approve the Arrangement proposed by the Sprott Group.  It should be noted that applications for court orders approving arrangements are typically made by target companies.  Accordingly, this application, which is not supported by the Target, could be characterized as a “hostile” plan of arrangement.  At an application held in April, the Court agreed to set a date in September for the interim application.

According to the Sprott Group, there are a number of qualitative and quantitative benefits to the Target Shareholders which are anticipated to result from the Arrangement and the transactions contemplated thereby, including eliminating the dual-class share structure, continued exposure to the future growth of the Target’s portfolio of assets, the availability of a physical redemption feature, and the potential for the Class A Shares to trade at, near or above their net asset value (instead of at a discount to net asset value, which is currently the case).

According to the Target, the Application is one of numerous steps already taken by the Sprott Group to seek control of the Target. Among other measures taken, the Sprott Group has previously attempted to requisition a meeting of the Target to, among other things, elect a slate of directors (Requisition), commenced a derivative action against the Target and appealed to the Court of Appeal the Court’s finding that the Requisition was invalid.  All of these attempts were unsuccessful.

In this context, a take-over bid made directly to the holders of Common Shares and Class A Shares would likely be ineffective since, according to Sprott, at least 75% of the Common Shares are held by directors and officer of the Target and such persons are not expected to tender to the bid.


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The American Bar Association has published its Canadian Private Target Mergers & Acquisitions Deal Point Study[1] (Study) analyzing transactions that involved Canadian private targets that were acquired or sold by public companies in 2014 and 2015. The Study included a sample of 101 transactions and excluded transactions with a value less than C$5 million,

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Background

On November 23, 2016, Total Energy Services Inc. (Offeror) disclosed its intention to make an offer (Offer) to purchase all of the issued and outstanding common shares (Target Shares) of Savanna Energy Services Corp. (Target) for consideration consisting of common shares of the Offeror (Offeror Shares).

The Target responded in two press releases, dated November 24, 2016 and November 28, 2016, in which the Target indicated that any change of control on or before June 13, 2017 would result in all amounts (approximately $105 million) outstanding under a recently implemented term loan (Term Loan) becoming immediately due and payable plus a change of control fee in the amount of 3% of the $200 million commitment amount (approximately $6 million) (Loan Fee).

The Offeror filed its take-over bid circular (Bid Circular) outlining the Offer on December 9, 2016 and filed support agreements from significant shareholders of the Target representing approximately 43% of total number of issued and outstanding Target Shares.


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The views expressed in this post, as in all of my posts, are mine alone and should not be taken to represent the views of Fasken Martineau DuMoulin LLP or any of my partners or associates.

A little over five years have passed since the U.K. Takeover Code was reformed on September 19, 2011 in order to prohibit deal protection provisions — including lock-ups, “no shop/no talk” covenants and termination or “break” fees — in M&A deals involving the acquisition of publicly-listed U.K. companies.  Seizing upon a rare and valuable opportunity to conduct some natural experiments into the effect on the U.K. M&A market of this regulatory change, a pair of students from Stanford and Harvard recently published a study on the impact of the 2011 Reforms on U.K. deal volumes, the incidence of competing offers, deal premiums and deal completion rates.[i]  The results of their study are both interesting and instructive.

Among other things, they found that:

  • the ratio of U.K. deals to non-U.K. deals[ii] decreased by approximately 50% after the 2011 Reforms;
  • this reduction in deal volume was not offset by any increase in the incidence of competing offers or deal premiums in the U.K.; and
  • as a result, the U.K. M&A market experienced an estimated quarterly loss of approximately US$19.3 billion in deal volume following the 2011 Reforms, implying a quarterly loss, assuming a conservative average deal premium of 20%, of approximately $3.3 billion to shareholders of U.K. public companies since the 2011 Reforms were put in place.


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