Canadian Going Private Transactions: Practices and Procedures
In the recent years, there has been increased interest among investors based in Asia to invest in publicly-listed companies in Canada. This blog post is the first of a series of articles regarding how going private transactions involving public company targets are conducted in Canada. The law in this area is complex. As such, our articles series will provide a summary rather than a detailed analysis of the relevant statutory provisions, case law and precedent transactions.
The Chinese version is to follow shortly.
There are two commonly-used methods to acquire a public company in Canada: a take-over bid and a business combination. This article provides the general practices and procedures for a take-over bid. We will summarize the procedures for a business combination in our next article.
Take-over bid is the most straightforward approach, whereby the bidder makes its offer directly to the target company shareholders.
A take-over bid is defined generally as an offer made to a person in Canada to acquire outstanding voting or equity securities of a class of securities, which, if accepted, would result in the bidder (together with persons acting in concert with the bidder) owning 20% or more of such class.
Most commonly, the bidder will make an offer to all of the shareholders of the target company to buy their securities for cash, non-cash consideration (typically, securities of the bidder), or a combination of cash and non-cash consideration. All holders of the same class of securities must be offered identical consideration. This means that it is not permissible to have collateral agreements with, for example, a controlling shareholder or a shareholder who is a senior officer that would result in additional consideration flowing to that shareholder (subject to certain exceptions covering, for example, employment contracts or severance arrangements). In addition, any purchases made by the bidder of securities that are of the same class as the securities that are subject to the bid and that were effected during the 90 days prior to the bid will be “integrated” into the bid. This means that the bidder will be required to offer to acquire the same percentage of securities and offer to pay the same amount and form of consideration as was offered in any pre-bid acquisitions, excluding normal course purchases on a stock exchange.
The offer must remain open for shareholders to accept for at least 105 days (referred to as the “bid period”), subject to a target board’s ability to reduce the bid period by either:
- issuing a news release announcing a shorter bid period for a specific take-over bid (which cannot be less than 35 days), in which case all outstanding or subsequent take-over bids will also become subject to the shorter minimum bid period from the date of their respective bid, provided that the bid must not expire before 10 days from the date of variation (a bidder can, of course, elect to keep its bid open for longer); or
- issuing a news release indicating that it has agreed to enter into, or determined to effect, a specified alternative transaction (generally, a plan of arrangement or other business combination requiring shareholder approval), in which case all outstanding or subsequent take-over bids will become subject to a 35-day minimum bid period from the date of their respective bid.
A take-over bid must be subject to a non-waivable condition that more than 50% of all outstanding target securities, excluding securities owned or held by the bidder and its joint actors (the “minimum tender requirement”), be tendered and not withdrawn before the bidder can take up any securities under the take-over bid. The take-over bid must also be extended by the bidder for at least an additional 10 days after the bidder achieves the minimum tender condition and all other terms and conditions of the bid have been complied with or waived.
After the take-over bid expires, the bidder is prohibited from acquiring additional securities of the same class for 20 business days, except for normal course purchases over a stock exchange.
Certain take-over bids are exempt from compliance with the foregoing requirements, including:
- normal course purchases on an exchange, at the prevailing market price for the securities, not exceeding 5% of the outstanding securities of the class (whether acquired in reliance on this exemption or otherwise) in a 12-month period (referred to as the de minimis exemption);
- transactions involving the acquisition of securities from not more than five shareholders of the target company, provided that the price paid does not exceed 115% of the prevailing market price (referred to as the private agreement exemption);
- the acquisition of securities for which there is no published market of a company that is not a reporting issuer and has fewer than 50 shareholders exclusive of current or former employees; and
- foreign take-over offers where, inter alia, the number of securities held beneficially by Canadian shareholders is reasonably believed to be less than 10% of the total outstanding securities, and Canadian shareholders are entitled to participate on terms at least as favourable as other shareholders.
Second Step Takeout Transactions
If the bidder succeeds in acquiring at least 90% of the target company securities within 120 days of the commencement of the bid (other than securities 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 securities 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. Depending on the target company’s jurisdiction of incorporation, the bidder’s exercise of its compulsory acquisition right may trigger “dissent rights” for the non-tendering shareholders, which would entitle them to have the “fair value” of their securities determined by a court.
Alternatively, if the bidder acquires at least two-thirds of the outstanding securities, but less than 90%, the bidder may call a special meeting of the shareholders of the target company (including the bidder) for the purposes of voting on an amalgamation with an affiliate of the bidder, 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. Subject to certain conditions, the votes attached to securities acquired under the bid may be included as votes in favour of the amalgamation for purposes of determining whether the required minority approval has been obtained. This second step take-out transaction (which is often referred to as a “squeeze-out merger”) 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.
- 收购非发行方公司的证券，并且此类证券无公开市场，并且该公司股东人数少于50位（不包括现在或以前的雇员）； 以及
- 外国要约收购: 如果要约收购所涉证券中，加拿大居民持有的证券比例不足10%，加拿大股东应有权按照与适用于全体股东的条款同样有利的条款，参与要约收购。