Canadian Going Private Transactions: Practices and Procedures - Hostile or Friendly?

Hostile or Friendly?

See Chinese version below [中文版参阅下文].

In recent years, it has become less common for anyone interested in acquiring a Canadian public company to simply announce a hostile take-over bid. This is primarily because of the significant minimum bid period of 105 days and the fact that a friendly target board has the power to shorten the period to as little as 35 days. 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 securities 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 that the board considers inadequate, after the board has cooperated 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.







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