The Use of Global Depositary Receipts for an Acquisition of a Canadian Public Company - Part 2
In my previous post, I outlined some of the features of a Global Depositary Receipts (GDRs) program that was utilized by HRT Participações S.A. (HRT), a Brazilian-based and listed exploration and production company, in its acquisition of UNX Energy Corp., a Calgary-based TSXV listed exploration and production company with oil and gas assets located in offshore Namibia. GDRs can be a mechanism to overcome a number of issues that may be encountered in structuring an international public M&A deal. In this post, I will outline some of the potential pitfalls in implementing a GDR structure.
Another issue with the GDR structure is that regardless of how closely the parties want the rights of GDR holders to follow the rights of the underlying security, there can be some friction in the implementation of these structures which emerges either through the commercial terms of the deposit agreement governing the terms of the GDRs, the operation of relevant laws, or a combination thereof, all of which have the potential to dilute the rights of the GDR holder versus the holder of the underlying security. For example, a GDR program will involve a depositary bank which holds the underlying securities supporting the GDRs. This means that information, such as meeting materials for a shareholder meeting, is not distributed directly to the GDR holders, but rather to the depositary bank to then be distributed to the GDR holders. This has the potential to create a situation where GDR holders receive the meeting information from the company only a few days before a shareholder meeting, which could be past the time when GDR holders are permitted to vote. This has the potential to dilute the value of the GDRs as compared to the underlying securities.
acquisition foreign investment global depositary receipts public M&A