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Article

Canadian Take-over Bids Practices and Procedures

Date

January 26, 2007

AUTHOR(s)

Graham P.C. Gow
Brian C. Graves


Chinese Version

This article is intended to provide the reader with a primer on how take-over bids are conducted in Canada, and to contrast certain aspects of take-over bids with other common Canadian acquisition structures. The law in this area is sometimes complex. The following discussion seeks to provide a summary rather than a detailed analysis of the statutory provisions, case law and precedent transactions.

Alternative Transaction Structures

There are three commonly used ways to acquire a public company in Canada: a take-over bid, a merger/amalgamation, or a plan of arrangement.

Take-Over Bids. The first and most straightforward of these is a take-over bid whereby the bidder makes an offer to all of the shareholders of the target company to buy their shares for cash or some form of non-cash consideration (typically, shares of the bidder). The offer is made by way of a take-over bid circular that is mailed to all of the shareholders of the target company. The directors of the target company then respond by sending to their shareholders a directors’ circular which generally contains a recommendation as to whether or not shareholders should tender into the bid. The offer must remain open for shareholders to accept for at least 35 days, and can be extended to allow for more time if necessary. Exactly the same offer must be made to all shareholders; it is not permissible to have collateral agreements with, for example, a controlling shareholder or a shareholder who is a senior officer that result in additional consideration flowing to that shareholder for their target company shares.

If the bidder succeeds in acquiring at least 90% of the target company shares (other than shares owned by the bidder at the commencement of the bid) then the corporate statute governing the target company typically provides that the bidder can effect a "compulsory acquisition" to acquire the shares held by the remaining target shareholders through a relatively simple statutory process. This process can take up to 30 days or so, although the timing varies depending on the jurisdiction of incorporation of the target company. Alternatively, if the bidder acquires more than two-thirds of the outstanding shares, but less than 90%, the bidder may call a meeting of the shareholders of the target company (including the bidder) for the purposes of voting on a merger with an affiliate of the bidder or some other transaction, the result of which will be that the remaining "minority" shareholders are squeezed-out for the same consideration that was offered in the take-over bid. This second step squeeze-out transaction takes longer than the 90% compulsory acquisition under the corporate statute because of the need to call a meeting of the shareholders of the target company.

Mergers/Amalgamations. Sometimes, an acquirer believes that it has a high likelihood that the holders of over two-thirds of the outstanding target shares will support the transaction, but that it is unlikely to achieve a 90% tender in a take-over bid. In that case, the acquirer may prefer to propose a going private merger whereby the target company would be amalgamated with an affiliate of the acquirer and all of the target company’s shareholders would exchange their shares of the target for whatever consideration is being offered (either cash or shares of the acquirer). A shareholder meeting of the target company is needed to approve the merger, but this transaction has the advantage in these circumstances of achieving 100% ownership of the target by the acquirer in a one-step transaction, instead of the two steps required where first a take-over bid is made followed by a squeeze-out merger.

Plans of Arrangement. The third mechanism commonly used to acquire a Canadian public company is a "plan of arrangement". The corporate statutes in Canada generally provide that companies can be merged and their outstanding securities can be exchanged, amended or reorganized through a court-supervised process known as a plan of arrangement. The target company will apply ex parte for an initial court order directing the target company to seek the approval of its shareholders and fixing certain procedural requirements for obtaining such approval, and will schedule a second court appearance after the shareholders have voted at which any interested party may appear and object to the completion of the transactions. If the price is right, the shareholders will vote to approve the transaction and, in the absence of meritorious objections from other interested parties, the court will give its approval and the relevant transactions will become effective. Often, the sole purpose for the plan of arrangement is to have the shareholders of the target company exchange their shares for either cash or some other form of consideration.

The plan of arrangement has two significant advantages in the right circumstances. One is that it allows for multiple transactions to happen all at once or in a specified sequence following the approval of the shareholders and the order of the court. This can sometimes be useful, for example, where there are multiple companies involved in the transaction, where several classes of equity and debt securities are outstanding, or where the sequencing of particular steps in the transaction is important to achieve an advantageous tax result. The other advantage to a plan of arrangement is that it may allow the parties to rely on the exemption in Section 3(a)(10) of the United States Securities Act of 1933 so that any securities being issued by the acquirer to shareholders of the target who reside in the United States will be exempt from registration in the U.S.

Documentation

Prior to announcing a take-over bid, merger or plan of arrangement, a "friendly" bidder will generally seek to enter into a support agreement with the target company. Pursuant to this agreement, the bidder will commit to moving forward with the transaction on an agreed timetable and at an agreed price. The board of directors of the target company will agree that it will recommend that shareholders tender into the take-over bid (or vote in favour of the merger or plan of arrangement transaction) and that the board will cause the target company to be run in the normal course of business until the proposed transaction has either been concluded or rejected by the shareholders. In addition, the board of the target company will usually agree not to solicit competing proposals to acquire the company but will reserve the right to respond to unsolicited inquiries and to recommend a competing transaction if it amounts to a "superior proposal" for the shareholders. Often, the first bidder will have the right to match any superior proposal and, if it chooses to do so, the support agreement remains in place and the directors of the target company must maintain their recommendation in favour of the original bidder. Should the original bidder choose not to match the superior proposal, the board of the target company is entitled to terminate the first support agreement, enter into a new support agreement with the second bidder and change its recommendation to the shareholders in favour of the superior proposal. In that event, the target company typically owes a break fee to the original bidder. Canadian courts have held that break fees are appropriate in the right circumstances, but that they must be reasonable. Generally, these fees tend to range between 2% and 4% of the aggregate equity value of the transaction.

If the target company has one or more shareholders with a significant number of shares, in addition to having a support agreement with the target company the bidder will seek a lock-up agreement with the significant shareholder. This agreement will provide that the bidder commits to making the bid on agreed terms and at an agreed price, and the significant shareholder agrees either to tender into the take-over bid or to vote at the target company’s shareholders’ meeting in favour of the merger or plan of arrangement. The lock-up agreement may be either "hard" or "soft". A hard lock-up agreement commits the shareholder irrevocably to support the proposed transaction. A soft lock-up agreement allows the shareholder to withdraw and move its support to a competing transaction if a superior proposal emerges.

If the transaction has been structured as a take-over bid, the key public documents will be (i) a take-over bid circular from the bidder which sets out the terms of the offer and other relevant information about the bidder, and (ii) a directors’ circular from the board of directors of the target company containing a recommendation from the board to either accept or reject the offer (in rare cases the board chooses not to make a recommendation). Both documents must be mailed to all target shareholders; the directors’ circular is required to be sent within 15 days of the mailing of the take-over bid circular. Where the take-over bid is a negotiated transaction and a support agreement has been signed, very often the take-over bid circular and the directors’ circular are prepared concurrently and sent to shareholders in one package. Where the target company has shareholders in the Province of Quebec, which is almost always the case, the take-over bid circular and directors’ circular must be translated into French.

Where the transaction is structured as a merger or a plan of arrangement, the key document that is provided to shareholders is the management information circular for the shareholders’ meeting that is required to be held by the target company. Although this document comes from the target company to its shareholders, it will be prepared as a collaborative effort by both the bidder and the target company. Again, as with a take-over bid circular and directors’ circular, the management information circular is required to be translated into French. Given that a merger or a plan of arrangement require the co-operation of the target company to call a shareholders’ meeting and prepare the management information circular, these acquisition structures tend not to be used for hostile acquisitions where the co-operation of the target company will not be available. A hostile bidder will almost always proceed by way of a take-over bid.

For securities exchange transactions where the consideration for the target company’s shares includes shares of the acquirer, the take-over bid circular or management information circular must contain, or incorporate by reference from documents previously filed with Canadian securities regulators, prospectus-level disclosure concerning both the acquirer and the target. If the acquirer is not already a Canadian reporting issuer, the preparation of this disclosure (which includes financial statements) in accordance with Canadian disclosure standards can add to the time required to launch the transaction.

Hostile or Friendly?

It is extremely unlikely that anyone interested in acquiring a Canadian public company would simply announce a hostile take-over bid. The preferred approach is almost always for the bidder to contact either the chairman or the chief executive officer of the target company and seek to open negotiations for a "friendly" transaction. The bidder will typically ask for a brief period to conduct due diligence on the target (likely two to four weeks) during which time the bidder will seek to negotiate a support agreement with the target leading to the announcement of a negotiated transaction.

In order to be allowed access to the target company’s confidential books and records for the purposes of conducting due diligence, the bidder will be asked to sign a confidentiality agreement. In many cases, the target company will insist on a standstill clause in the confidentiality agreement as the quid pro quo for the target company voluntarily disclosing its confidential, internal records. The standstill provision will prohibit the bidder from, among other things, purchasing shares of the target or publicly announcing an intention to propose a transaction involving the target, without the approval of the board of directors of the target company. Otherwise, the target company board risks the embarrassment of having the bidder make an offer directly to the shareholders at a price which the board considers inadequate, after the board has co-operated with the bidder by providing access to its innermost secrets. Some potential buyers will accept a standstill, others will not.

If the target company is not prepared to enter into negotiations for a sale, or the potential purchaser is not prepared to sign a standstill to be allowed access to a data room for due diligence, the buyer’s only option may be to make an offer directly to the target company shareholders without the benefit of a support agreement with the target company. This is the so-called "hostile" take-over bid.

The target company will commonly react to a hostile take-over bid by erecting whatever defences may be available. One option is usually to look for a "white knight" to make a competing, and hopefully superior, proposal. If a competing superior proposal is found, the board of directors of the target company may consider it to be in the best interests of the company and its shareholders to enter into a support agreement with the second bidder making the superior proposal. That would mean the second bidder proceeds with the benefit of a recommendation in favour of its transaction from the target company’s board and, perhaps more importantly, the benefit of a break fee and a right to match if the first bidder comes back with an improved offer. There have been many transactions in Canada where a hostile bidder lost out to a subsequent white knight that had the advantages conferred by a support agreement with the target company.

Timetable

While every take-over bid transaction is different, the timetable for a negotiated bid might be something like the following:

Time

Event

Days 1 – 10

Initial approach by bidder to target company and signing of a confidentiality agreement.

Next 30 days

Bidder completes due diligence.

Day 40

Support agreement signed following board approvals by bidder and target company; press release issued announcing the proposed transaction.

Day 50

Take-over bid circular and directors’ circular mailed to target shareholders.

Next 35 days

Offer open to be accepted by shareholders.

Day 85

If necessary, bid extended for one 10-day period to allow additional shares to be tendered.

Day 95

All conditions to take-over bid satisfied, press release issued announcing completion of bid.

Day 98

Bidder commences paying for tendered shares.

Day 120

If 90% tender has been achieved, bidder completes compulsory acquisition process to acquire 100% ownership of target.

Day 135

If less than 90% tender but greater than 66 2/3% tender has been achieved, bidder completes amalgamation squeeze-out process to acquire 100% ownership of target.

If the acquisition is proceeding by way of a merger or a plan of arrangement, the sequence of events is slightly different given the need to call a meeting of shareholders to vote on the transaction. The period of time between the mailing of the management information circular and the meeting is generally about 30 days. Closing of the transaction usually happens within a week or two of the shareholders having approved the transaction at the shareholders’ meeting.

Target Board Considerations

In the event that someone approaches a public company about potentially making an offer to buy it or to merge with it, there are a range of possible responses from the target company management and board of directors. The legal obligation of the board under the Canada Business Corporations Act (and other Canadian corporate statutes are substantially the same in this regard) is to:

  1. act honestly and in good faith with a view to the best interests of the corporation; and
  2. exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

One possibility is that the target company board could decline to negotiate with the potential bidder. If the price being proposed is clearly not in the best interests of the target company and its shareholders, the board might decide not to waste the company’s time and energy in pursuing a bid that does not recognize an appropriate value for the target company. A bid can be very disruptive to the day-to-day management of the target company, and just the fact that an approach has been made by some third party does not obligate the target company’s board to put the company up for sale.

If, on the other hand, the interested party is proposing a price that the board considers could be in the interests of the target company and its shareholders, perhaps after some negotiation, the board would be entitled to pursue negotiations with the interested party. That might be done either exclusively and confidentially for a relatively short period of time, or the board might decide that it should go public with the fact that it is considering a sale of the company. In that event, the target would issue a press release, its investment bankers would contact other potentially interested parties, and a public auction would be underway.

It is not mandatory that Canadian public companies be sold by way of an auction. Many companies are sold pursuant to a process whereby the target negotiates confidentially with one third party and then issues a press release after a support agreement has been entered into. At that point, the target company’s board is recommending to its shareholders that they accept the transaction, but whether or not the bidder succeeds will depend upon the reaction of the shareholders. In the case of a take-over bid, the bidder will have to mail its take-over bid circular to target shareholders and its bid must be open for a minimum of 35 days. In the case of a merger or plan of arrangement, there is a period of nearly a month between the mailing of the target’s management information circular and the holding of its shareholder meeting. In either case, during that time, potential competing bidders may come forward and are always entitled to talk to the target company about superior proposals. Depending on the terms of the support agreement, there may be large or not so large obstacles to someone else coming forward with a superior proposal. The size of the break fee and whether or not there is a "right to match" in the support agreement will be relevant to other potential bidders. Recently, some target companies have signed support agreements with "go shop" provisions whereby the target puts the bidder on notice that it intends to actively solicit higher offers from third parties.

Be Prepared

Any widely-held public company with a depressed share price is vulnerable to a take-over. The private equity funds have clearly demonstrated in the past few years that a large market capitalization is not a defence to a hostile acquisition. An aggressive bidder has the advantage of choosing the time at which he will approach the target company, and all of its planning and preparations will have been completed before that initial approach. Once a bid is made, it is only required to be open for acceptance for 35 days, which can be an uncomfortably short period of time for the target company to react. It is important that widely-held public companies think about takeover issues during quiet times and prepare for an uninvited takeover proposal to the extent practicable. If the company does not have a shareholder rights plan, it probably should (see discussion below under "Defensive Measures"). An electronic data room should be established and kept up-to-date so as to be readily available if the company wants to respond to an unsolicited offer by soliciting white knights. A takeover bid response team should be formed with members of senior management, possibly a committee of the board of directors, legal and financial advisers, public relations advisers, and proxy solicitation experts. Many widely-held public companies compile a "black book" with strategic plans, draft legal agreements, precedent disclosure documents and other materials that could be needed very quickly in the event of an unexpected bid.

Defensive Measures

A full discussion of the possible defensive measures that are available to a target company faced with a hostile takeover bid is beyond the scope of this article. There are, however, a few points worth noting in summary.

The general principle that emerges from the securities regulators and the case law is that it is up to the shareholders of the target public company, and not its management or board of directors, to decide whether or not a bid for their company should succeed. Usually, the response of a target company to an unwelcome bid is to seek out an alternative transaction that generates more value for the shareholders.

In the United States, where the board of the target can demonstrate that it has reasonable grounds to believe that a hostile bid is a threat to its previously established long-term business plan, and that it is in the best interests of the shareholders for the company to stick to that plan, then the courts have tended to permit the target company to use its shareholder rights plan to "just say no" and block the hostile bid. In Canada, the law is different. The board of the target can recommend to shareholders that they should not tender, and can seek out alternatives that present greater value, but a Canadian shareholder rights plan cannot be used to indefinitely block a hostile bid.

It is possible for a target company to adopt a shareholder rights plan as a tactical response to an outstanding or imminent take-over bid, but more often such plans are adopted without there being any identifiable take-over threat by companies which perceive themselves as potentially vulnerable to acquisition. Under a Canadian-style shareholder rights plan, the company issues to its shareholders a "right" for each outstanding share. Each right entitles the holder to purchase one or more additional shares of the company at a deep discount if anyone, acting alone or with others, exceeds a 20% share ownership threshold without the approval of the target company’s board, unless they comply with certain "permitted bid" provisions of the plan. Once triggered, these rights may be exercised by all shareholders except the hostile bidder, thereby effectively preventing the bidder from buying more than 20% of the outstanding shares because of the massive dilution the bidder would suffer. Bidders will occasionally make a "permitted bid" under a target’s rights plan, but this is relatively rare because one of the requirements for a permitted bid is usually that the bid be open for a minimum of 60 days, and bidders can be reasonably confident that the target company will not be allowed by Canadian securities commissions to maintain its rights plan in place for much more than a 45 to 60 day period.

The securities commissions in Canada have been clear that a shareholder rights plan can be used by a target company, in the appropriate circumstances, to slow down a bid so that shareholders are not coerced into tendering before the target has had an opportunity to canvass alternatives, but that the decision to sell or not is ultimately up to the target company’s shareholders and eventually the commissions will order that the rights plan be terminated.

If the target and its advisers are unable to bring forward a "white knight" to make a higher bid, the company will look at other structuring alternatives that may create value. Special dividends, the spin-out of a division, creative financing structures and entering into a strategic alliance with a third party have all been pursued at various times.

Disclosure Issues

Canadian public companies are required by securities laws to issue a press release and file a material change report whenever a material change occurs. The possibility of a take-over bid can usually be expected to impact the share price of the target company sufficiently to constitute a material change, so careful consideration must be given to the appropriate time for a public announcement. Premature disclosure can be just as damaging as late disclosure. A public company does not want to cause excitement in its share price based on a premature announcement, and then have the share price collapse when a transaction fails to materialize. Not only can this be damaging to the company’s reputation in the capital markets, it can be very disruptive amongst employees, customers and suppliers.

The preferred approach is for the initial contact and any early discussions to be conducted confidentially, with no press release or other disclosure by either the bidder or the target. If there is a leak and rumours of an impending transaction appear in the press, the target company may be forced to make a public statement earlier than it would have preferred; a typical statement is to the effect that "Preliminary discussions are underway, but there can be no assurance a transaction will result".

More often, assuming that there are no leaks which result in unusual market trading activity, a public announcement will be made either that the target company has signed a support agreement and its board is recommending that shareholders accept the proposed transaction, or (if the announcement is made earlier in the process) that the public company has decided to put itself up for sale and has retained investment bankers to canvass the market for transactions that would be in the interests of the target company and its shareholders.

Establishing a Toe-Hold

In Canada, it is permissible for a third party considering a take-over bid to purchase up to 10% of the target company’s outstanding shares in the market without any requirement to identify itself and its holdings through disclosure. This is in contrast to similar requirements in the United States which arise at the 5% level. Once the third party purchases shares taking it over the 10% threshold, it must immediately issue a press release and promptly file "early warning" and insider reports with securities regulators disclosing its shareholdings and its intentions with respect to the target company. The third party could potentially continue purchasing shares up to the 20% level before being required to make a formal take-over bid, although it will be required to report any further acquisitions of 2% or more in a similar manner and, in practice, the stock price typically jumps when the press release is issued at 10% making further purchases less attractive.

Any accumulation of target company shares by a bidder in advance of a formal take-over bid should be done carefully to avoid the bidder inadvertently being caught by Canadian "pre-bid integration" rules. These rules provide that if a formal bid is launched and, during the 90 days preceding the bid the bidder acquired target shares in any transaction not generally available to all target shareholders (including both market purchases and private agreements with target shareholders), then the consideration offered in the formal take-over bid must be at least equal to the highest consideration that was paid on a per share basis under any of the prior transactions. If the share price of the target has been fluctuating significantly and the bidder acquired any shares during this period at a high point in trading, this can have consequences for both the timing of the bid and the offer price.

A bidder will be contractually prohibited from purchasing shares of the target once it signs a confidentiality agreement that includes a standstill provision. Where the strategic decision is taken to acquire a toe-hold, it is usually done before the initial contact with the target company and the negotiation of a confidentiality agreement commences.

A public company that is worried about the possibility of a take-over bid, hostile or otherwise, will monitor trading in its shares for any unusual volume that may indicate that someone is assembling a toe-hold.

A potential purchaser that acquires over 10% of the target company in preparation for a formal take-over bid becomes an "insider" when the 10% threshold is exceeded. Insiders that make take-over offers or propose "related party transactions" can be subject to heightened disclosure and shareholder approval requirements. See the discussion below under "Rule 61-501 and Q-27".

Exempt Take-over Bids

Generally, if a bidder is offering to purchase outstanding shares of a public company which, together with shares already owned by the bidder and related parties, constitute 20% or more of the target’s outstanding shares, that offer must be made by way of a take-over bid circular delivered to all of the shareholders of the target company. There are a limited number of statutory exceptions to this rule. The "private agreement exemption" allows such a purchaser to buy additional shares provided the transaction meets various requirements including that there be no offer to the public generally, fewer than five vendors involved, and the price must be less than a 15% premium to the average market price calculated in accordance with securities legislation. Another exemption is available where a shareholder seeks to accumulate not more than an additional 5% of the target’s outstanding shares in any 12 month period in normal course stock exchange transactions.

There are special rules that apply to cross-border transactions. Take-over bids for non-Canadian companies, where there are relatively few shareholders in Canada, may be exempt from the timing and disclosure requirements of Canadian securities law. In addition, depending on the circumstances, a private offer to acquire target shares that is made to a non-resident of Canada, even if it does not qualify as an exempt offer under one of the statutory exemptions referred to above, may not be considered a take-over bid over which Canadian securities commissions will assume jurisdiction.

Financing the Bid

In Canada, unlike in the United States, it not permissible to make a take-over bid conditional on arranging financing. Section 96 of the Ontario Securities Act provides that before a bidder makes a cash take-over bid, it must have made "adequate arrangements" for its financing. Typically, the bidder will have signed a binding commitment letter with a bank or other source of funds prior to launching its take-over bid. The bidder will seek to have the conditions to the availability of the financing set out in the bank commitment letter as similar as possible to the conditions in the take-over bid circular that is sent to the target company’s shareholders. The law requires that the bidder must be confident that if the conditions to the bid are satisfied, the financing will be available.

Income Trusts

Not all of the large publicly held businesses in Canada operate through the legal structure of a corporation. Many of the largest real estate businesses are structured as trusts and are governed by a declaration of trust, which is essentially a contract between the trust and a trust company, rather than a statute like the Canada Business Corporations Act. Trusts are also common structures for oil and gas businesses, and there are many other business trusts carrying on a wide variety of activities from refining sugar (Rogers Sugar Income Fund) to collecting garbage (BFI Canada Income Fund). There are also a number of public entities whose legal structure is a limited partnership and whose activities are run by a general partner.

All of these entities are subject to the same securities laws as corporations in the event of a take-over bid for their voting or equity securities. Where the legal vehicle is a trust or limited partnership, particular attention will need to be paid by bidders to the governing declaration of trust or limited partnership agreement instead of the corporate law statute that would govern a corporation. These contracts may contain provisions for the compulsory acquisition or squeeze-out of minorities following a take-over bid which differ from the provisions of corporate law statutes, or they may not provide for them at all. Where the applicable provisions are less favourable to a bidder, one technique which has been used successfully in the relatively small number of take-over bids for income trusts that have been undertaken so far is for tendering unitholders to grant the bidder, in a document delivered at the time they accept the bid, the right to vote their units in favour of an amendment to the trust instrument which accommodates the bidder’s plans to acquire 100% of the units of the target following the bid.

Rules 61-501 and Q-27

Rules 61-501 in Ontario and Q-27 in Quebec impose additional requirements on some acquisitions of public companies where the transaction involves a significant conflict of interest on the part of an insider. A common example occurs where a controlling shareholder who also sits on the board of directors of the public company offers to purchase the shares held by the minority shareholders. The rules assume that the insider has better information about the target company than the public shareholders and that he or she has a conflict of interest as both a proposed purchaser of the stock and a director on the board of the target company (with a fiduciary duty to maximize value for the shareholders of the target).

To protect minority shareholders in these circumstances, Rules 61-501 and Q-27 require that the target company board of directors obtain an independent valuation of the target company shares, prepared under the supervision of a committee of independent directors. This valuation is then provided to the minority shareholders with the other take-over bid documentation so that they have an independent assessment of the value of the target company.

Where a significant transaction between a public company and an insider requires a vote of the shareholders, Rules 61-501 and Q-27 require that in addition to the usual vote required by corporate law (usually 50% or 66.6%, depending upon the circumstances) it will also be necessary for the transaction to be approved by a majority of the minority shareholders.

There are a number of exemptions available from these rules, generally premised on some aspect of the proposed transaction providing assurance that the insider has been treated as an arm’s length party for the purposes of the transaction.

Investment Canada Act

A merger transaction may require approval under the Investment Canada Act if, among other things, a non-Canadian entity acquires control (which is presumed for this purpose at 33 1/3%) of a Canadian business and the consolidated assets of the target have a book value exceeding a threshold level which in most cases is C$281 million. This threshold will be much lower (C$5 million) if the acquirer is not controlled in a country that is a member of the World Trade Organization or if the target operates in certain sensitive industries such as uranium production, financial services or publishing. Approval from the federal Minister of Industry must be obtained in advance of closing of the transaction. The usual review period for applications is 45 days but that period can be extended unilaterally by the Minister for a further 30 days. Approval will sometimes be conditional on the acquirer giving written undertakings to the Minister relating to such matters as Canadian employment levels, capital expenditures, research and development to be conducted in Canada and the like.

Competition Act (Canada)

A merger transaction must be pre-notified to the Canadian Competition Bureau if both (i) the combined assets in Canada or gross revenues from sales in, from and into Canada of the acquirer and the target (as shown on their latest audited financial statements), together with their affiliates, exceed C$400 million and (ii) the assets in Canada or revenues in and from Canada of the target’s business exceed C$50 million. The transaction cannot be completed until the notification is filed and the applicable waiting period (which can range from 2 to 8 weeks) has expired.

Because the Bureau can challenge a transaction for up to three years after closing, the parties will not normally complete a transaction until the Bureau completes its review and notifies the parties that it will not challenge the merger. The review process can range from two weeks to several months depending on the complexity of the competition issues involved. The Bureau will signal its approval of the transaction by the issuance of a "no-action" letter or an advance ruling certificate (ARC) which precludes challenges to the merger during the three years following completion when such a challenge may otherwise be made.

Other Statutory Regimes

Some Canadian businesses are regulated by statutes that affect them uniquely and are therefore highly relevant to a potential acquirer. Banks and insurance companies, for example, have ownership limits imposed by law. Other businesses that are subject to a high level of regulation in Canada include, for example, the broadcasting and telecommunications industries.

Expertise