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Avoiding Frostbite: A Primer on 
Northbound M&A 
Presented November 29th, 2011
New York, NY

             Presented by:
             Brad Allen         Laurel Hill Advisory Group
             Sander Grieve      Fraser Milner Casgrain LLP
             Jamie Moser        Joele Frank, Wilkinson Brimmer Katcher
             Kate Broer         Fraser Milner Casgrain LLP
Overview
• Overview of Canada’s economy and opportunities
• Regulatory environment update
   – Ontario Securities Commission overview
   – Foreign Investment Review
• Supported/Contested deals in Canada
   –   Poison pills
   –   Fairness opinions
   –   Contested situations
   –   Proxy contests
   –   Contested M&A
   –   Litigation issues/techniques regarding takeover bids/proxy contests
• Managing the media
• M&A Checklist

                                                                             2
Canada's Economic Update
• Forecast change in real GDP (2011):
       CDA: +2.3%     US: +1.5%(1)
• Forecast change in real GDP (2012):
       CDA: +2.0%     US: +1.6%(1)
• Forecast change in residential construction (2011):
       CDA: +3.3%     US: ‐2.4%(1)
• Forecast change in residential construction (2012): 
       CDA: +1.1%     US: +1.3%(1)



                                                         3
Canada's Economic Update
• Unemployment rate (August 2011):
      CDA: 7.3%(2)    US: 9.1%(3)
• Forecast budget deficit (2011):
        CDA: Cdn$36.2 billion(4)    US: US$1.3 trillion(5)
• Forecast budget deficit (2012):
        CDA: Cdn$32.3 billion(4) US: US$973 billion(5)
• Exchange rate (September 9, 2011):
        Cdn$1.00 = US$1.0040(6)

    Sources:   (1)   TD Economics, August 24, 2011
               (2)   Statistics Canada, September 9, 2011
               (3)   U.S. Bureau of Labor Statistics, September 2, 2011
               (4)   Financial Post, August 26, 2011
               (5)   Congressional Budget Office, August 2011
               (6)   Bank of Canada




                                                                          4
M&A
• Number of announced M&A deals:
      • 515 (H1 2011)
      • 528 (H1 2010)(9)

• Value of announced M&A deals:
      • Cdn$80.7 billion (H1 2011)
      • Cdn$60.6 billion (H1 2010)(9)




                                        5
M&A
• Top sectors (by number):
       • consumable fuels (111)
       • real estate (111)
       • industrial products (71)
       • metals & minerals (58)(9)

• Top sectors (by value):
       • metals & minerals (Cdn$13.7 billion)
       • industrial products (Cdn$12.2 billion)
       • consumable fuels (Cdn$11.8 billion)
       • financial services (Cdn$10.8 billion)(9)


                                                    6
M&A
• Canadians acquiring either (a) foreign companies, or (b) 
  Canadian companies from foreign companies: 154 deals valued 
  at Cdn$20.2 billion (H1 2011)(9)

• Foreigners acquiring either (a) Canadian companies, or (b) 
  foreign companies from Canadians: 65 deals valued at 
  Cdn$28.0 billion (H1 2011)(9)

• Top foreign acquiror of Canadian located companies: US ‐ 28 
  deals valued at Cdn$13.6 billion (H1 2011)(9)

   Source:   (9)   Crosbie & Company Inc.




                                                                 7
M&A
• There have been a number of recent decisions of Canadian 
  courts and provincial securities regulatory authorities that 
  have a material impact on public M&A transactions, 
  particularly with regard to the directors of target companies

• Directors of a target company must be mindful of both the 
  fiduciary duties under corporate law and the restrictions on 
  defensive tactics set out in National Policy 62‐202 ‐ Take‐over 
  Bids ‐ Defensive Tactics of the Canadian Securities 
  Administrators (NP 62‐202)


                                                                     8
M&A
• Very important judicial decision is BCE Inc. v. 1976 
  Debentureholders (Supreme Court of Canada, 2008)
• A consortium of purchasers, including US private equity firms, 
  contemplated the acquisition of BCE Inc. by statutory plan of 
  arrangement, with the total capital required for the 
  transaction of approximately Cdn$52 billion
• The transaction included the addition of a substantial amount 
  of new debt for which Bell Canada, a wholly‐owned subsidiary 
  of BCE Inc., would guarantee approximately Cdn$30 billion



                                                                    9
M&A
• Although the transaction was approved by 98% of the 
  shareholders of BCE Inc., it was opposed by a group of financial
  and other institutions that held debentures issued by Bell 
  Canada
• The Supreme Court of Canada (SCC) concluded that the 
  debentureholders failed to establish either oppression or that 
  the trial judge erred in approving the plan of arrangement
• The SCC made several significant holdings regarding the 
  fiduciary duty of corporate directors



                                                                    10
M&A
• The fiduciary duty of corporate directors is not confined to 
  short‐term profit or share value
• Where the corporation is an ongoing concern, the duty looks 
  to the long‐term interests of the corporation
• It is not mandatory to consider the impact of corporate 
  decisions on shareholders; there is no principle that the 
  interests of shareholders should prevail over any other set of 
  interests
• It is not acceptable to maximize profit and share value by 
  treating individual stakeholders unfairly

                                                                    11
Foreign Investment Review
• Governing statute is the Investment Canada Act (Canada) (ICA)
• Establishment of a new business in Canada, regardless of size, 
  normally requires no more than the filing of a short notice by 
  the foreign investor
• The notice is simply for information purposes
• Two exceptions are where the new business is in a culturally‐
  sensitive sector, such as publishing, or the new business 
  triggers a national security review



                                                                    12
Foreign Investment Review
• In a direct acquisition of control of an established Canadian 
  business, through a purchase of assets or voting interests of a 
  corporation, partnership, trust or joint venture, the foreign 
  acquirer may be required either to file a notice or an 
  application for review and approval, depending upon the 
  circumstances

• Neither obligation will arise if the transaction falls within one 
  of the general exceptions under the ICA (which general 
  exceptions are, in turn, subject to specific exceptions for 
  certain types of business)

                                                                       13
Foreign Investment Review
• If none of the exceptions apply, the transaction will be subject
  to pre‐closing review if the Canadian business has assets with a 
  book value in excess of:
   – Cdn$312 million (in 2011, with the threshold adjusted annually) if the 
     investor is from a country that is a member of the World Trade 
     Organization
   – Cdn$5 million otherwise
• As a result of recent amendments to the ICA, the review 
  threshold will increase upon the promulgation of new 
  regulations to: Cdn$600 million for that year and the following 
  year; Cdn$800 million for the next two years; subsequently 
  Cdn$1 billion indexed to inflation

                                                                               14
Foreign Investment Review

• Indirect acquisitions are treated differently
• Recent amendments to the ICA established a national security 
  review process similar to the national security screening for 
  foreign investment in the US
• If a transaction is reviewable, the key test under the ICA is 
  whether the transaction is of “net benefit to Canada”




                                                                   15
Foreign Investment Review
• Outside of the cultural industry, there have been only two 
  transactions that have been rejected under the ICA:
   – In 2008, the proposed acquisition of the geospatial business of 
     MacDonald, Dettwiler and Associates Ltd. by the American company, 
     Alliant Techsystems
   – In 2010, the proposed acquisition of Potash Corporation of 
     Saskatchewan by the Australian company, BHP Billiton


• The rejections do not seem to represent a sea‐change in 
  Canada’s openness to foreign investment



                                                                          16
Foreign Investment Review
• However, they have provided key lessons to potential 
  foreign investors:
  – Underscore the broad latitude given under the ICA to the 
    Minister of Industry when determining what constitutes a “net 
    benefit to Canada”; the concept is an elastic one based generally 
    on economic considerations as well as individual and policy 
    objectives of Canada and the provinces likely to be significantly 
    affected by the investment
  – Highlight the potential for Canadian stakeholders affected by the 
    transaction to lobby the federal government; in the case of the 
    Potash Corporation of Saskatchewan transaction, the Premier of 
    Saskatchewan spearheaded an intense public relations campaign 
    characterising potash as a “strategic asset”


                                                                     17
Case Study: BHP Billiton / PotashCorp
            • In August 2010, BHP Billiton made a premium, all cash bid for PotashCorp, which the Board rejected 
              as inadequate
                   -   PotashCorp was at an inflection point, and its stock price at the time did not reflect the 
Challenge              fundamental value of the company 
                   -   Incorporation in Canada reduced defensive options
                   -   Few likely alternative bidders; none emerged


            • Media Outreach: Explained fundamentals of fertilizer industry and strong growth prospects of 
              PotashCorp
  Our       • Global Communications Campaign: Disciplined, on‐message outreach to shareholders; analysts; 
              employees; customers; federal and provincial governments; and Canadian, Australian, UK, and US 
Approach      press
            • Litigation Support: Placed articles highlighting BHP’s efforts to introduce false and misleading 
              information into the marketplace



            • Successfully conveyed the Company’s value proposition
            • Secured Regulator Endorsement: On November 3rd, Canadian government announced that BHP’s
 Results      offer “is not likely to be of net benefit to Canada within meaning of the Investment Canada Act”
            • Favorable Resolution: BHP did not appeal government’s ruling, effectively ending pursuit of 
              PotashCorp.  BHP withdrew its offer on November 14th



                                                                                                                     18
M&A
• Directors of a public company in Canada that is involved 
  in an M&A transaction are faced with different mandates:
   – Under corporate law, a fiduciary duty to the corporation
   – Under securities law, scrutiny by securities commissions 
     that consider the public interest, fair and efficient capital 
     markets and investor confidence
• The differences in these mandates become particularly 
  relevant in the context of a "poison pill" as a take‐over 
  defense


                                                                      19
Canadian Poison Pills, eh?
• There are 3,518 companies currently listed on Canadian 
  exchanges.
• 920 (26%) of these companies have some form of corporate 
  defense, with 437 (12%) companies having an active poison pill 
  provision.




                                                                20
Canadian Poison Pills, eh?
• Following on the lead of the US, poison pills became the 
  standard take‐over defense in Canada in the late 1980s
• The poison pill rules now found in NP 62‐202 were first 
  introduced in Canada in 1986. The rules were not engaged 
  when a target company adopted a poison pill, but were 
  engaged when the target company tried to use the pill
• TSX required shareholder approval of a poison pill within six 
  months of adoption
• Poison pills were scrutinized by securities commissions, rather 
  than by the courts

                                                                     21
Canadian Poison Pills, eh?
• Before 2007, securities commissions took the view that 
  the "pill must go", with shareholder approval being only 
  one of many factors in determining when a poison pill 
  should be cease traded.
• Even then, shareholder approval was only relevant in 
  determining how long the poison pill could remain in 
  place.




                                                              22
Canadian Poison Pills, eh?
• In 2007 and 2009, there were two decisions where poison pills 
  that had been approved by shareholders during the take‐over 
  were allowed to remain in place even though the target 
  company’s board had no intention of seeking alternative 
  transactions to the take‐over bid:
   – Re Pulse Data Inc. (Alberta Securities Commission, 2007)
   – Re Neo Material Technologies Inc. and Pala Investment Holdings 
     Limited (Ontario Securities Commission, 2009), where specific 
     reference was made to the decision of the SCC in BCE Inc. v. 1976 
     Debentureholders




                                                                          23
Canadian Poison Pills, eh?
• However, in the 2010 decision Re Lions Gate Entertainment 
  Corp., the British Columbia Securities Commission adopted the 
  pre‐2007 approach to poison pills. 
   – The Commission issued a cease trade order against a poison pill in 
     connection with the hostile bid by entities controlled by Carl C. Icahn.
   – Although a shareholders’ meeting to approve the poison pill had been 
     called, the Commission would not allow the poison pill to remain in 
     place indefinitely even if the shareholders were to approve it.
   – The Commission’s decision was upheld by the British Columbia Court 
     of Appeal.




                                                                                24
Canadian Poison Pills, eh?
• Re Baffinland Iron Mines Corp. (Ontario Securities Commission, 2010)
   – The Ontario Securities Commission cease traded the poison pill because the 
     pill had already served its purpose in facilitating an auction. There were now 
     two competing bidders at the table, and the target’s Board of Directors were 
     no longer soliciting further bids.
   – A poison pill will “go” when it is unlikely to achieve any further benefits for 
     shareholders.
   – There is no definitive test or primary consideration for deciding when a poison 
     pill should remain in place. Shareholder approval is just one consideration.
   – Whether a target’s Board of Directors is acting in the best interests of the 
     corporation in perpetuating a poison pill is a relevant but secondary 
     consideration. It does not determine whether a poison pill should remain in 
     place.




                                                                                        25
Canadian Poison Pills, eh?
• Re Afexa Life Sciences Inc. (Alberta Securities Commission, 
  2011)
   – Shareholders have a fundamental right to be allowed to decide for 
     themselves whether to tender to a take‐over bid.
   – A poison pill may interfere with that right, but absent unusual 
     circumstances, eventually a poison pill “must go”.
   – A degree of deference is given to the target’s Board of Directors in 
     deciding to rely on a poison pill, but ultimately it is within the authority 
     of the Commission, and not the directors, to determine when the pill 
     has served its purpose and should be terminated.




                                                                                 26
Fairness Opinions
• Another area of scrutiny by securities commissions has been in 
  relation to fairness opinions. The Ontario Securities 
  Commission (OSC) considered fairness opinions in two recent 
  cases:
   – Re HudBay Minerals Inc. (2009) in connection with its proposed plan of 
     arrangement to acquire Lundin Mining Corporation
   – Re Magna International Inc. (2010) in connection with its plan of 
     arrangement to eliminate its dual class share structure of multiple and 
     subordinate voting shares, with the controlling shareholder holding 
     the multiple voting shares to receive an 1800% premium relative to 
     the market price of the subordinate voting shares



                                                                            27
Fairness Opinions: Re HudBay Minerals Inc.
• In Re HudBay Minerals Inc., the OSC determined that HudBay 
  Minerals Inc.’s acquisition of Lundin Mining Corporation 
  required shareholder approval
• What attracted considerable attention was a comment in the 
  OSC’s decision about the success fee that was payable to the 
  financial advisor providing a fairness opinion to the Special 
  Committee of HudBay Minerals Inc.’s Board of Directors.




                                                                   28
Fairness Opinions: Re HudBay Minerals Inc.
• The OSC said that a success fee throws into question the entire 
  fairness opinion, in light of the conflict of interest that the 
  success fee creates.
• In a subsequent speech, the chair of the OSC panel in that 
  decision narrowed the application of the panel's comments on 
  success fees to the facts of the case and said the panel's 
  comments did not suggest that success fees must not be paid 
  to providers of fairness opinions.




                                                                 29
Fairness Opinions: Re Magna International Inc.
• In Re Magna International Inc., a Special Committee of the 
  Board of Directors of Magna International Inc. retained a 
  financial advisor
• The terms of engagement of the financial advisor did not 
  require the delivery of a fairness opinion or a valuation, and so 
  the financial advisor did not deliver one.
• The Special Committee recommended to the Board of 
  Directors that the transaction be submitted for shareholder 
  approval, with no recommendation as to how they should 
  vote; the Board of Directors adopted the recommendation.


                                                                   30
Fairness Opinions: Re Magna International Inc.
• The OSC staff objected to the Special Committee and the 
  Board of Directors’ process, as well as the disclosure that was 
  provided to the shareholders in the management circular.
• Although the OSC did not stop the transaction, it ordered 
  additional disclosure to be provided to the shareholders as to:
   – How the financial advisor assessed the proposed transaction from a 
     financial perspective.
   – Why the financial advisor could not opine as to the fairness of the 
     transaction from a financial perspective.




                                                                            31
Contested Situations
• “Falling stock prices awakening activist shareholders” Financial Post, 
  November 21, 2011
• “Proxy battles loom as Canadian activists grow edgy… Global market slump 
  brings wave of activism to Canada” Reuters.com Nov 20, 2011
• Marked increase in activism, proxy contests and unsolicited M&A, including 
  interlopers on friendly transactions
• Canadian Pacific Railway/Pershing Square Capital, Viterra Inc./Alberta 
  Investment Management Corp., Research in Motion, Toronto Stock 
  Exchange/London Stock Exchange/Maple Group, Inmet Mining/Lundin 
  Mining/ Equinox Minerals/China Minmetals/Barrick Gold; Microsemi
  Corp/Zarlink Semiconductor



                                                                            32
Proxy Contest Observations
• Proxy contests for board control can be utilized as a takeover vehicle with 
  no control premium paid 
• Inverse correlation between stock market performance and proxy contest 
  activity
• Canadian proxy fight activity has increased significantly over the past 5 
  years, led at times by increasing US hedge fund interest
• Staggered boards very uncommon in Canada, can target entire slate at one 
  time
• Minimum 5% ownership threshold to requisition meeting
• Very short, proscribed timelines for target to respond & set a meeting date 
  (21 days), else dissident calls & controls meeting


                                                                                 33
Global Proxy Voting is a complex process with many steps, very few standards, 
and many different “owners” of information




                                                                                 34
Proxy Contest Observations
• Over the past few years, dissidents have been increasingly 
  successful at attaining partial or complete victory – approx 
  50%+ success rate
• Proxy Advisory firms (ISS, Glass Lewis) can have meaningful 
  influence on outcome
• If <15 shareholders solicited, no circular required and 
  opportunity for ambush (stealth) attack at meeting (CBCA)




                                                                  35
Contested M&A Observations
• Strategic acquirers and private equity firms sitting on massive 
  amounts of cash reserves
• Increasing willingness to go direct to shareholders with deal if
  cannot get board support – valuation gap
• While a varying degree of uncertainty exists with global 
  economic factors, the courageous are spotting potential 
  advantage and pouncing on targets (ie. Chinese state owned 
  Shandong Gold Group recent $1Bn unsolicited offer for Jaguar 
  Mining)
• Others also looking at same targets and don't want to be left 
  behind so an increase in interlopers and white knights

                                                                     36
Dealing with A Contested Situation
What’s different about communications?
• Opposition
   –   Company, Board and management team go under a microscope
   –   Greater scrutiny by investors and media
   –   No strategy or statement goes unchallenged
   –   Directors and management open to public criticism

• Similar to a political campaign
   –   Battle for shareholder support/votes
   –   Rhetoric can often be heated
   –   Third party advocates needed
   –   Strategic, “rapid response” communications required

• Critical to stay on message and control the forum for delivery
• Need optimal coordination to succeed
            Everything you say can and will be used against you
                                                                   37
IR/PR Advance Preparation
• IR – proverbial “canary in the coal mine”
• Maintain polite dialogue with dissidents and avoid “preemptive strikes”
   – Direct contact via one‐on‐ones and telephone calls
   – Indirect conversations via large, supportive shareholders
   – Does the shareholder have legitimate concerns that can be addressed?
• Consider need to ramp‐up investor and public relations efforts
   – Goal is to ensure large base of supportive shareholders who understand the Company’s 
     value proposition and management’s track record
   – Use regular channels (e.g. earnings) to communicate messages and reinforce progress
   – Consider increasing frequency of momentum announcements (e.g. M&A milestones, 
     new product developments, new customer wins)
• Identify and cultivate third party supporters
   – Institutional investors, sell‐side analysts, customers, business partners, industry analysts, 
     politicians, business/trade organizations
   – Traditional shareholder advocates (aka the “corporate governance gurus”)


                                                                                                  38
IR Tactics and Considerations in a Contest
• Regular, targeted one‐on‐one meetings
   – Major vehicle for communicating with investors and sell‐side analysts
   – No substitute for in‐person meeting with the CEO and/or executive team
   – Controlled forum for delivering messages
• Large format or group meetings must be carefully considered
   –   Limit group meetings (including dinners and lunches)
   –   Level of control is significantly diminished
   –   Company can be exposed to a “mob” mentality
   –   Easy for opposition to cause trouble
• Monitor conference call participants
• Sell‐side needs to be educated about proxy fights
• Arbs are a special case in change of control situation
   – Source of information
   – Likely to vote with dissident

                                                                              39
Current Environment in M&A (Media Landscape)
• Fierce competition among M&A press, especially for “scoops”
   – Some publications factor “scoops” into overall compensation
   – “Strategic placements” more challenging and less prevalent 
• Only a handful of influential M&A reporters
• M&A reporters more interested in deal terms, tactics, “backstories”
  and potential obstacles to completion than industry sector dynamics
• “Second day” commentaries now often come on first day of coverage: 
   – BreakingViews (Reuters, NYT), Deal Professor (NYT), Deal Journal (WSJ), 
     Dealpolitik (WSJ), Heard on the Street (WSJ), Lex column (FT) 
• Media focused on CEO reputation to personalize M&A stories
• Lawyers and bankers can be very helpful in background briefings with 
  reporters
                                                                                40
Current Environment in M&A (Investor Relations)
• Well‐established trust and confidence between CEOs and shareholders 
  imperative to deal acceptance on both sides
• Investors hate surprises
• Deal must clearly fit into articulated strategy
• Shareholders must be convinced that strategic rationale represents better 
  use vs. returning to shareholders through buybacks, dividends, investing in 
  organic growth 
• Challenge to strike balance between fair price (for buyer) vs. attractive 
  premium (for target)
• Market checks and deal processes must hold up to close scrutiny 
• Arbs must be carefully managed and can help inform IR and PR strategy –
  “canaries in the coal mine”
• ISS impact is not consistent but still important consideration

                                                                                 41
The PR Guide to M&A
• Plan launch day to generate favorable comment and maximum 
  support
• Strategic placements can be dangerous
• Deliver key messages in forums that provide maximum control
• Brief sell‐side analysts early – they can set the tone
• Anticipate hard questions and decide (in advance) how far to go 
• Broaden support for client’s position and underscore company’s 
  strengths with media, shareholders and other key constituencies
• Advisor perspective can be a key factor in shaping the story with 
  media

                                                                       42
Case Study: Lionsgate Entertainment
Synopsis
• March 2009: Discussions end between Lionsgate and Icahn over representation on the 
  Company's Board, which included Icahn’s son, Brett Icahn
• Within 10 days, Icahn commences a TO for all of Lionsgate’s Convertible Senior Subordinated 
  Notes – a deminimus number of shares are tendered into Icahn’s offer
• March 2010: Icahn launches partial TO to acquire up to approx 10% of the shares for $6 per 
  share in cash in attempt to own a total of 29.9% of the outstanding shares
• Board rejects offer and implements a Rights Plan to be voted on at a scheduled special 
  meeting
• Icahn amended TO for 50.1% or up to all Lionsgate’s shares followed by a $1 bump in offer 
  price to $7 per share
• Lionsgate and Icahn engage in a proxy contest over the vote on the Rights Plan
• Glass Lewis and Egan‐Jones support Lionsgate's Rights Plan
• British Columbia Securities Commission (BCSC) cease trade Rights Plan and Lionsgate loses in 
  court of appeal
• Despite BCSC decision, Lionsgate conducts special meeting ‐‐ shareholders vote FOR the Rights 
  Plan 


                                                                                               43
Case Study: Lionsgate Entertainment
Synopsis (cont’d)
• May 2010: Lionsgate announces willingness to engage in discussions w/ Icahn 
  re: potential negotiations
• Icahn extended his offer numerous times with dwindling support from 
  shareholders
• July 2010: Icahn commenced a second TO, which Lionsgate’s Board again 
  rejected
• Lionsgate completes a deleveraging transaction. Lawsuits are filed in Canada 
  and the United States
• November 2010: Icahn nominated five directors for election to Lionsgate’s 
  Board
• Four days before shareholder meeting, the NY Supreme Court denies Icahn’s 
  motion for preliminary injunction, allowing the deleveraging transaction to 
  remain in effect. Icahn withdraws his second TO.


                                                                            44
Case Study: Lionsgate Entertainment
Synopsis (cont’d)
• At shareholder meeting, Lionsgate shareholders voted to elect ALL of the 
  Company’s director nominees
• Icahn’s lawsuits were dismissed in Canada and the US
• August 2011: Lionsgate and Icahn reach agreement under which Icahn will 
  sell substantially all of his position
• As part of agreement, all pending litigation involving Lionsgate, Icahn 
  and/or Mark Rachesky is dismissed
• October 2011: Icahn’s public filings reveal reduced stake in Lionsgate of 
  approximately 3%




                                                                               45
Case Study: Lionsgate Entertainment
     Communications Opportunities
• June 2009: In exchange for board seat, Dr. Mark Rachesky (head of the 
  MHR Group, former protégé of Carl Icahn and Lionsgate’s largest 
  shareholder (19.9%) agreed to vote all shares in favor of Lionsgate’s slate 
  of directors
• Icahn contradicted himself regarding his intentions for Lionsgate:
   – Initially, Mr. Icahn stated: “We are not looking to take control of Lionsgate. To begin 
     with, that is not in the picture for a number of reasons. One, Americans and old 
     Canadian companies are frowned upon as far as taking control and we respect Canada 
     and we are not in any way saying we want to control it, so I want to make that clear. We 
     just want to have a say at the table…”


   – Later Mr. Icahn said:  “We intend to replace Lions Gate’s board of directors with our 
     nominees. I am hopeful that the new board will act expeditiously to replace top 
     management with individuals who are more likely to enhance value for all shareholders.”

                                                                                             46
Case Study: Lionsgate Entertainment
     Communications Opportunities (cont’d)
• Icahn also changed his position with regard to Lionsgate’s operations:
   – Initially, Mr. Icahn expressed that management “should stick to what they know best 
     which is buying these small companies ‐‐ and distributing them and also producing TV.”
   – Later Mr. Icahn believes that “You don’t make a lot of money on these TV 
     productions…TV does not make a company a lot of money” and he implied that the 
     Company should limit itself to distribution only. 

• Icahn would have violated Lionsgate’s credit facilities if his ownership 
  crossed the 20% threshold, which would have forced Lionsgate to repay all 
  amounts then outstanding under its credit facilities and potentially lose its 
  primary source of liquidity to fund operations
• The BCSC’s Decision Broke Precedent: In cease trading Lionsgate’s Rights 
  Plan, the BCSC deviated from recent decisions by other Canadian Securities 
  Commissions in similar cases
   – Previously the Commissions emphasized the importance of deferring to the board and 
     considering shareholder voting



                                                                                              47
M&A Checklist
• Once target identified assemble tactical team (legal counsel, proxy 
  solicitor, PR)
• Identify & ascertain target shareholder composition – institutional/retail, 
  US/Cdn/Foreign
• For solicited transactions, determine pro’s/con’s of structure ‐ tender offer 
  vs plan of arrangement
• Obtain lock‐ups, voting agreements
• If a vote (proxy fight, plan of arrangement) measure potential ISS/Glass 
  Lewis influence and develop presentation
• Develop communications plan – media, shareholders, government, 
  analysts
• Be prepared for potential significant shareholder turnover on offer 
  announcement  ‐ entrance of timing/momentum players


                                                                               48
Questions?
Contact

Brad Allen      Laurel Hill Advisory Group               ballen@laurelhill.com
Sander Grieve   Fraser Milner Casgrain LLP               sander.grieve@fmc‐law.com
Jamie Moser     Joele Frank, Wilkinson Brimmer Katcher   jmoser@joelefrank.com
Kate Broer      Fraser Milner Casgrain LLP               kate.broer@fmc‐law.com
The preceding presentation contains examples of the kinds of 
issues companies dealing with mergers and acquisitions could 
face. If you are faced with one of these issues, please retain  
professional assistance as each situation is unique.

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Avoiding Frostbite: A Primer on Northbound M&A

  • 1. Avoiding Frostbite: A Primer on  Northbound M&A  Presented November 29th, 2011 New York, NY Presented by: Brad Allen Laurel Hill Advisory Group Sander Grieve Fraser Milner Casgrain LLP Jamie Moser Joele Frank, Wilkinson Brimmer Katcher Kate Broer Fraser Milner Casgrain LLP
  • 2. Overview • Overview of Canada’s economy and opportunities • Regulatory environment update – Ontario Securities Commission overview – Foreign Investment Review • Supported/Contested deals in Canada – Poison pills – Fairness opinions – Contested situations – Proxy contests – Contested M&A – Litigation issues/techniques regarding takeover bids/proxy contests • Managing the media • M&A Checklist 2
  • 3. Canada's Economic Update • Forecast change in real GDP (2011): CDA: +2.3%     US: +1.5%(1) • Forecast change in real GDP (2012): CDA: +2.0%     US: +1.6%(1) • Forecast change in residential construction (2011): CDA: +3.3%     US: ‐2.4%(1) • Forecast change in residential construction (2012):  CDA: +1.1%     US: +1.3%(1) 3
  • 4. Canada's Economic Update • Unemployment rate (August 2011): CDA: 7.3%(2)    US: 9.1%(3) • Forecast budget deficit (2011): CDA: Cdn$36.2 billion(4)    US: US$1.3 trillion(5) • Forecast budget deficit (2012): CDA: Cdn$32.3 billion(4) US: US$973 billion(5) • Exchange rate (September 9, 2011): Cdn$1.00 = US$1.0040(6) Sources: (1) TD Economics, August 24, 2011 (2) Statistics Canada, September 9, 2011 (3) U.S. Bureau of Labor Statistics, September 2, 2011 (4) Financial Post, August 26, 2011 (5) Congressional Budget Office, August 2011 (6) Bank of Canada 4
  • 5. M&A • Number of announced M&A deals: • 515 (H1 2011) • 528 (H1 2010)(9) • Value of announced M&A deals: • Cdn$80.7 billion (H1 2011) • Cdn$60.6 billion (H1 2010)(9) 5
  • 6. M&A • Top sectors (by number): • consumable fuels (111) • real estate (111) • industrial products (71) • metals & minerals (58)(9) • Top sectors (by value): • metals & minerals (Cdn$13.7 billion) • industrial products (Cdn$12.2 billion) • consumable fuels (Cdn$11.8 billion) • financial services (Cdn$10.8 billion)(9) 6
  • 7. M&A • Canadians acquiring either (a) foreign companies, or (b)  Canadian companies from foreign companies: 154 deals valued  at Cdn$20.2 billion (H1 2011)(9) • Foreigners acquiring either (a) Canadian companies, or (b)  foreign companies from Canadians: 65 deals valued at  Cdn$28.0 billion (H1 2011)(9) • Top foreign acquiror of Canadian located companies: US ‐ 28  deals valued at Cdn$13.6 billion (H1 2011)(9) Source: (9) Crosbie & Company Inc. 7
  • 8. M&A • There have been a number of recent decisions of Canadian  courts and provincial securities regulatory authorities that  have a material impact on public M&A transactions,  particularly with regard to the directors of target companies • Directors of a target company must be mindful of both the  fiduciary duties under corporate law and the restrictions on  defensive tactics set out in National Policy 62‐202 ‐ Take‐over  Bids ‐ Defensive Tactics of the Canadian Securities  Administrators (NP 62‐202) 8
  • 9. M&A • Very important judicial decision is BCE Inc. v. 1976  Debentureholders (Supreme Court of Canada, 2008) • A consortium of purchasers, including US private equity firms,  contemplated the acquisition of BCE Inc. by statutory plan of  arrangement, with the total capital required for the  transaction of approximately Cdn$52 billion • The transaction included the addition of a substantial amount  of new debt for which Bell Canada, a wholly‐owned subsidiary  of BCE Inc., would guarantee approximately Cdn$30 billion 9
  • 10. M&A • Although the transaction was approved by 98% of the  shareholders of BCE Inc., it was opposed by a group of financial and other institutions that held debentures issued by Bell  Canada • The Supreme Court of Canada (SCC) concluded that the  debentureholders failed to establish either oppression or that  the trial judge erred in approving the plan of arrangement • The SCC made several significant holdings regarding the  fiduciary duty of corporate directors 10
  • 11. M&A • The fiduciary duty of corporate directors is not confined to  short‐term profit or share value • Where the corporation is an ongoing concern, the duty looks  to the long‐term interests of the corporation • It is not mandatory to consider the impact of corporate  decisions on shareholders; there is no principle that the  interests of shareholders should prevail over any other set of  interests • It is not acceptable to maximize profit and share value by  treating individual stakeholders unfairly 11
  • 12. Foreign Investment Review • Governing statute is the Investment Canada Act (Canada) (ICA) • Establishment of a new business in Canada, regardless of size,  normally requires no more than the filing of a short notice by  the foreign investor • The notice is simply for information purposes • Two exceptions are where the new business is in a culturally‐ sensitive sector, such as publishing, or the new business  triggers a national security review 12
  • 13. Foreign Investment Review • In a direct acquisition of control of an established Canadian  business, through a purchase of assets or voting interests of a  corporation, partnership, trust or joint venture, the foreign  acquirer may be required either to file a notice or an  application for review and approval, depending upon the  circumstances • Neither obligation will arise if the transaction falls within one  of the general exceptions under the ICA (which general  exceptions are, in turn, subject to specific exceptions for  certain types of business) 13
  • 14. Foreign Investment Review • If none of the exceptions apply, the transaction will be subject to pre‐closing review if the Canadian business has assets with a  book value in excess of: – Cdn$312 million (in 2011, with the threshold adjusted annually) if the  investor is from a country that is a member of the World Trade  Organization – Cdn$5 million otherwise • As a result of recent amendments to the ICA, the review  threshold will increase upon the promulgation of new  regulations to: Cdn$600 million for that year and the following  year; Cdn$800 million for the next two years; subsequently  Cdn$1 billion indexed to inflation 14
  • 15. Foreign Investment Review • Indirect acquisitions are treated differently • Recent amendments to the ICA established a national security  review process similar to the national security screening for  foreign investment in the US • If a transaction is reviewable, the key test under the ICA is  whether the transaction is of “net benefit to Canada” 15
  • 16. Foreign Investment Review • Outside of the cultural industry, there have been only two  transactions that have been rejected under the ICA: – In 2008, the proposed acquisition of the geospatial business of  MacDonald, Dettwiler and Associates Ltd. by the American company,  Alliant Techsystems – In 2010, the proposed acquisition of Potash Corporation of  Saskatchewan by the Australian company, BHP Billiton • The rejections do not seem to represent a sea‐change in  Canada’s openness to foreign investment 16
  • 17. Foreign Investment Review • However, they have provided key lessons to potential  foreign investors: – Underscore the broad latitude given under the ICA to the  Minister of Industry when determining what constitutes a “net  benefit to Canada”; the concept is an elastic one based generally  on economic considerations as well as individual and policy  objectives of Canada and the provinces likely to be significantly  affected by the investment – Highlight the potential for Canadian stakeholders affected by the  transaction to lobby the federal government; in the case of the  Potash Corporation of Saskatchewan transaction, the Premier of  Saskatchewan spearheaded an intense public relations campaign  characterising potash as a “strategic asset” 17
  • 18. Case Study: BHP Billiton / PotashCorp • In August 2010, BHP Billiton made a premium, all cash bid for PotashCorp, which the Board rejected  as inadequate - PotashCorp was at an inflection point, and its stock price at the time did not reflect the  Challenge fundamental value of the company  - Incorporation in Canada reduced defensive options - Few likely alternative bidders; none emerged • Media Outreach: Explained fundamentals of fertilizer industry and strong growth prospects of  PotashCorp Our  • Global Communications Campaign: Disciplined, on‐message outreach to shareholders; analysts;  employees; customers; federal and provincial governments; and Canadian, Australian, UK, and US  Approach press • Litigation Support: Placed articles highlighting BHP’s efforts to introduce false and misleading  information into the marketplace • Successfully conveyed the Company’s value proposition • Secured Regulator Endorsement: On November 3rd, Canadian government announced that BHP’s Results offer “is not likely to be of net benefit to Canada within meaning of the Investment Canada Act” • Favorable Resolution: BHP did not appeal government’s ruling, effectively ending pursuit of  PotashCorp.  BHP withdrew its offer on November 14th 18
  • 19. M&A • Directors of a public company in Canada that is involved  in an M&A transaction are faced with different mandates: – Under corporate law, a fiduciary duty to the corporation – Under securities law, scrutiny by securities commissions  that consider the public interest, fair and efficient capital  markets and investor confidence • The differences in these mandates become particularly  relevant in the context of a "poison pill" as a take‐over  defense 19
  • 20. Canadian Poison Pills, eh? • There are 3,518 companies currently listed on Canadian  exchanges. • 920 (26%) of these companies have some form of corporate  defense, with 437 (12%) companies having an active poison pill  provision. 20
  • 21. Canadian Poison Pills, eh? • Following on the lead of the US, poison pills became the  standard take‐over defense in Canada in the late 1980s • The poison pill rules now found in NP 62‐202 were first  introduced in Canada in 1986. The rules were not engaged  when a target company adopted a poison pill, but were  engaged when the target company tried to use the pill • TSX required shareholder approval of a poison pill within six  months of adoption • Poison pills were scrutinized by securities commissions, rather  than by the courts 21
  • 22. Canadian Poison Pills, eh? • Before 2007, securities commissions took the view that  the "pill must go", with shareholder approval being only  one of many factors in determining when a poison pill  should be cease traded. • Even then, shareholder approval was only relevant in  determining how long the poison pill could remain in  place. 22
  • 23. Canadian Poison Pills, eh? • In 2007 and 2009, there were two decisions where poison pills  that had been approved by shareholders during the take‐over  were allowed to remain in place even though the target  company’s board had no intention of seeking alternative  transactions to the take‐over bid: – Re Pulse Data Inc. (Alberta Securities Commission, 2007) – Re Neo Material Technologies Inc. and Pala Investment Holdings  Limited (Ontario Securities Commission, 2009), where specific  reference was made to the decision of the SCC in BCE Inc. v. 1976  Debentureholders 23
  • 24. Canadian Poison Pills, eh? • However, in the 2010 decision Re Lions Gate Entertainment  Corp., the British Columbia Securities Commission adopted the  pre‐2007 approach to poison pills.  – The Commission issued a cease trade order against a poison pill in  connection with the hostile bid by entities controlled by Carl C. Icahn. – Although a shareholders’ meeting to approve the poison pill had been  called, the Commission would not allow the poison pill to remain in  place indefinitely even if the shareholders were to approve it. – The Commission’s decision was upheld by the British Columbia Court  of Appeal. 24
  • 25. Canadian Poison Pills, eh? • Re Baffinland Iron Mines Corp. (Ontario Securities Commission, 2010) – The Ontario Securities Commission cease traded the poison pill because the  pill had already served its purpose in facilitating an auction. There were now  two competing bidders at the table, and the target’s Board of Directors were  no longer soliciting further bids. – A poison pill will “go” when it is unlikely to achieve any further benefits for  shareholders. – There is no definitive test or primary consideration for deciding when a poison  pill should remain in place. Shareholder approval is just one consideration. – Whether a target’s Board of Directors is acting in the best interests of the  corporation in perpetuating a poison pill is a relevant but secondary  consideration. It does not determine whether a poison pill should remain in  place. 25
  • 26. Canadian Poison Pills, eh? • Re Afexa Life Sciences Inc. (Alberta Securities Commission,  2011) – Shareholders have a fundamental right to be allowed to decide for  themselves whether to tender to a take‐over bid. – A poison pill may interfere with that right, but absent unusual  circumstances, eventually a poison pill “must go”. – A degree of deference is given to the target’s Board of Directors in  deciding to rely on a poison pill, but ultimately it is within the authority  of the Commission, and not the directors, to determine when the pill  has served its purpose and should be terminated. 26
  • 27. Fairness Opinions • Another area of scrutiny by securities commissions has been in  relation to fairness opinions. The Ontario Securities  Commission (OSC) considered fairness opinions in two recent  cases: – Re HudBay Minerals Inc. (2009) in connection with its proposed plan of  arrangement to acquire Lundin Mining Corporation – Re Magna International Inc. (2010) in connection with its plan of  arrangement to eliminate its dual class share structure of multiple and  subordinate voting shares, with the controlling shareholder holding  the multiple voting shares to receive an 1800% premium relative to  the market price of the subordinate voting shares 27
  • 28. Fairness Opinions: Re HudBay Minerals Inc. • In Re HudBay Minerals Inc., the OSC determined that HudBay  Minerals Inc.’s acquisition of Lundin Mining Corporation  required shareholder approval • What attracted considerable attention was a comment in the  OSC’s decision about the success fee that was payable to the  financial advisor providing a fairness opinion to the Special  Committee of HudBay Minerals Inc.’s Board of Directors. 28
  • 29. Fairness Opinions: Re HudBay Minerals Inc. • The OSC said that a success fee throws into question the entire  fairness opinion, in light of the conflict of interest that the  success fee creates. • In a subsequent speech, the chair of the OSC panel in that  decision narrowed the application of the panel's comments on  success fees to the facts of the case and said the panel's  comments did not suggest that success fees must not be paid  to providers of fairness opinions. 29
  • 30. Fairness Opinions: Re Magna International Inc. • In Re Magna International Inc., a Special Committee of the  Board of Directors of Magna International Inc. retained a  financial advisor • The terms of engagement of the financial advisor did not  require the delivery of a fairness opinion or a valuation, and so  the financial advisor did not deliver one. • The Special Committee recommended to the Board of  Directors that the transaction be submitted for shareholder  approval, with no recommendation as to how they should  vote; the Board of Directors adopted the recommendation. 30
  • 31. Fairness Opinions: Re Magna International Inc. • The OSC staff objected to the Special Committee and the  Board of Directors’ process, as well as the disclosure that was  provided to the shareholders in the management circular. • Although the OSC did not stop the transaction, it ordered  additional disclosure to be provided to the shareholders as to: – How the financial advisor assessed the proposed transaction from a  financial perspective. – Why the financial advisor could not opine as to the fairness of the  transaction from a financial perspective. 31
  • 32. Contested Situations • “Falling stock prices awakening activist shareholders” Financial Post,  November 21, 2011 • “Proxy battles loom as Canadian activists grow edgy… Global market slump  brings wave of activism to Canada” Reuters.com Nov 20, 2011 • Marked increase in activism, proxy contests and unsolicited M&A, including  interlopers on friendly transactions • Canadian Pacific Railway/Pershing Square Capital, Viterra Inc./Alberta  Investment Management Corp., Research in Motion, Toronto Stock  Exchange/London Stock Exchange/Maple Group, Inmet Mining/Lundin  Mining/ Equinox Minerals/China Minmetals/Barrick Gold; Microsemi Corp/Zarlink Semiconductor 32
  • 33. Proxy Contest Observations • Proxy contests for board control can be utilized as a takeover vehicle with  no control premium paid  • Inverse correlation between stock market performance and proxy contest  activity • Canadian proxy fight activity has increased significantly over the past 5  years, led at times by increasing US hedge fund interest • Staggered boards very uncommon in Canada, can target entire slate at one  time • Minimum 5% ownership threshold to requisition meeting • Very short, proscribed timelines for target to respond & set a meeting date  (21 days), else dissident calls & controls meeting 33
  • 35. Proxy Contest Observations • Over the past few years, dissidents have been increasingly  successful at attaining partial or complete victory – approx  50%+ success rate • Proxy Advisory firms (ISS, Glass Lewis) can have meaningful  influence on outcome • If <15 shareholders solicited, no circular required and  opportunity for ambush (stealth) attack at meeting (CBCA) 35
  • 36. Contested M&A Observations • Strategic acquirers and private equity firms sitting on massive  amounts of cash reserves • Increasing willingness to go direct to shareholders with deal if cannot get board support – valuation gap • While a varying degree of uncertainty exists with global  economic factors, the courageous are spotting potential  advantage and pouncing on targets (ie. Chinese state owned  Shandong Gold Group recent $1Bn unsolicited offer for Jaguar  Mining) • Others also looking at same targets and don't want to be left  behind so an increase in interlopers and white knights 36
  • 37. Dealing with A Contested Situation What’s different about communications? • Opposition – Company, Board and management team go under a microscope – Greater scrutiny by investors and media – No strategy or statement goes unchallenged – Directors and management open to public criticism • Similar to a political campaign – Battle for shareholder support/votes – Rhetoric can often be heated – Third party advocates needed – Strategic, “rapid response” communications required • Critical to stay on message and control the forum for delivery • Need optimal coordination to succeed Everything you say can and will be used against you 37
  • 38. IR/PR Advance Preparation • IR – proverbial “canary in the coal mine” • Maintain polite dialogue with dissidents and avoid “preemptive strikes” – Direct contact via one‐on‐ones and telephone calls – Indirect conversations via large, supportive shareholders – Does the shareholder have legitimate concerns that can be addressed? • Consider need to ramp‐up investor and public relations efforts – Goal is to ensure large base of supportive shareholders who understand the Company’s  value proposition and management’s track record – Use regular channels (e.g. earnings) to communicate messages and reinforce progress – Consider increasing frequency of momentum announcements (e.g. M&A milestones,  new product developments, new customer wins) • Identify and cultivate third party supporters – Institutional investors, sell‐side analysts, customers, business partners, industry analysts,  politicians, business/trade organizations – Traditional shareholder advocates (aka the “corporate governance gurus”) 38
  • 39. IR Tactics and Considerations in a Contest • Regular, targeted one‐on‐one meetings – Major vehicle for communicating with investors and sell‐side analysts – No substitute for in‐person meeting with the CEO and/or executive team – Controlled forum for delivering messages • Large format or group meetings must be carefully considered – Limit group meetings (including dinners and lunches) – Level of control is significantly diminished – Company can be exposed to a “mob” mentality – Easy for opposition to cause trouble • Monitor conference call participants • Sell‐side needs to be educated about proxy fights • Arbs are a special case in change of control situation – Source of information – Likely to vote with dissident 39
  • 40. Current Environment in M&A (Media Landscape) • Fierce competition among M&A press, especially for “scoops” – Some publications factor “scoops” into overall compensation – “Strategic placements” more challenging and less prevalent  • Only a handful of influential M&A reporters • M&A reporters more interested in deal terms, tactics, “backstories” and potential obstacles to completion than industry sector dynamics • “Second day” commentaries now often come on first day of coverage:  – BreakingViews (Reuters, NYT), Deal Professor (NYT), Deal Journal (WSJ),  Dealpolitik (WSJ), Heard on the Street (WSJ), Lex column (FT)  • Media focused on CEO reputation to personalize M&A stories • Lawyers and bankers can be very helpful in background briefings with  reporters 40
  • 41. Current Environment in M&A (Investor Relations) • Well‐established trust and confidence between CEOs and shareholders  imperative to deal acceptance on both sides • Investors hate surprises • Deal must clearly fit into articulated strategy • Shareholders must be convinced that strategic rationale represents better  use vs. returning to shareholders through buybacks, dividends, investing in  organic growth  • Challenge to strike balance between fair price (for buyer) vs. attractive  premium (for target) • Market checks and deal processes must hold up to close scrutiny  • Arbs must be carefully managed and can help inform IR and PR strategy – “canaries in the coal mine” • ISS impact is not consistent but still important consideration 41
  • 42. The PR Guide to M&A • Plan launch day to generate favorable comment and maximum  support • Strategic placements can be dangerous • Deliver key messages in forums that provide maximum control • Brief sell‐side analysts early – they can set the tone • Anticipate hard questions and decide (in advance) how far to go  • Broaden support for client’s position and underscore company’s  strengths with media, shareholders and other key constituencies • Advisor perspective can be a key factor in shaping the story with  media 42
  • 43. Case Study: Lionsgate Entertainment Synopsis • March 2009: Discussions end between Lionsgate and Icahn over representation on the  Company's Board, which included Icahn’s son, Brett Icahn • Within 10 days, Icahn commences a TO for all of Lionsgate’s Convertible Senior Subordinated  Notes – a deminimus number of shares are tendered into Icahn’s offer • March 2010: Icahn launches partial TO to acquire up to approx 10% of the shares for $6 per  share in cash in attempt to own a total of 29.9% of the outstanding shares • Board rejects offer and implements a Rights Plan to be voted on at a scheduled special  meeting • Icahn amended TO for 50.1% or up to all Lionsgate’s shares followed by a $1 bump in offer  price to $7 per share • Lionsgate and Icahn engage in a proxy contest over the vote on the Rights Plan • Glass Lewis and Egan‐Jones support Lionsgate's Rights Plan • British Columbia Securities Commission (BCSC) cease trade Rights Plan and Lionsgate loses in  court of appeal • Despite BCSC decision, Lionsgate conducts special meeting ‐‐ shareholders vote FOR the Rights  Plan  43
  • 44. Case Study: Lionsgate Entertainment Synopsis (cont’d) • May 2010: Lionsgate announces willingness to engage in discussions w/ Icahn  re: potential negotiations • Icahn extended his offer numerous times with dwindling support from  shareholders • July 2010: Icahn commenced a second TO, which Lionsgate’s Board again  rejected • Lionsgate completes a deleveraging transaction. Lawsuits are filed in Canada  and the United States • November 2010: Icahn nominated five directors for election to Lionsgate’s  Board • Four days before shareholder meeting, the NY Supreme Court denies Icahn’s  motion for preliminary injunction, allowing the deleveraging transaction to  remain in effect. Icahn withdraws his second TO. 44
  • 45. Case Study: Lionsgate Entertainment Synopsis (cont’d) • At shareholder meeting, Lionsgate shareholders voted to elect ALL of the  Company’s director nominees • Icahn’s lawsuits were dismissed in Canada and the US • August 2011: Lionsgate and Icahn reach agreement under which Icahn will  sell substantially all of his position • As part of agreement, all pending litigation involving Lionsgate, Icahn  and/or Mark Rachesky is dismissed • October 2011: Icahn’s public filings reveal reduced stake in Lionsgate of  approximately 3% 45
  • 46. Case Study: Lionsgate Entertainment Communications Opportunities • June 2009: In exchange for board seat, Dr. Mark Rachesky (head of the  MHR Group, former protégé of Carl Icahn and Lionsgate’s largest  shareholder (19.9%) agreed to vote all shares in favor of Lionsgate’s slate  of directors • Icahn contradicted himself regarding his intentions for Lionsgate: – Initially, Mr. Icahn stated: “We are not looking to take control of Lionsgate. To begin  with, that is not in the picture for a number of reasons. One, Americans and old  Canadian companies are frowned upon as far as taking control and we respect Canada  and we are not in any way saying we want to control it, so I want to make that clear. We  just want to have a say at the table…” – Later Mr. Icahn said:  “We intend to replace Lions Gate’s board of directors with our  nominees. I am hopeful that the new board will act expeditiously to replace top  management with individuals who are more likely to enhance value for all shareholders.” 46
  • 47. Case Study: Lionsgate Entertainment Communications Opportunities (cont’d) • Icahn also changed his position with regard to Lionsgate’s operations: – Initially, Mr. Icahn expressed that management “should stick to what they know best  which is buying these small companies ‐‐ and distributing them and also producing TV.” – Later Mr. Icahn believes that “You don’t make a lot of money on these TV  productions…TV does not make a company a lot of money” and he implied that the  Company should limit itself to distribution only.  • Icahn would have violated Lionsgate’s credit facilities if his ownership  crossed the 20% threshold, which would have forced Lionsgate to repay all  amounts then outstanding under its credit facilities and potentially lose its  primary source of liquidity to fund operations • The BCSC’s Decision Broke Precedent: In cease trading Lionsgate’s Rights  Plan, the BCSC deviated from recent decisions by other Canadian Securities  Commissions in similar cases – Previously the Commissions emphasized the importance of deferring to the board and  considering shareholder voting 47
  • 48. M&A Checklist • Once target identified assemble tactical team (legal counsel, proxy  solicitor, PR) • Identify & ascertain target shareholder composition – institutional/retail,  US/Cdn/Foreign • For solicited transactions, determine pro’s/con’s of structure ‐ tender offer  vs plan of arrangement • Obtain lock‐ups, voting agreements • If a vote (proxy fight, plan of arrangement) measure potential ISS/Glass  Lewis influence and develop presentation • Develop communications plan – media, shareholders, government,  analysts • Be prepared for potential significant shareholder turnover on offer  announcement  ‐ entrance of timing/momentum players 48
  • 49. Questions? Contact Brad Allen Laurel Hill Advisory Group ballen@laurelhill.com Sander Grieve Fraser Milner Casgrain LLP sander.grieve@fmc‐law.com Jamie Moser Joele Frank, Wilkinson Brimmer Katcher jmoser@joelefrank.com Kate Broer Fraser Milner Casgrain LLP kate.broer@fmc‐law.com
  • 50. The preceding presentation contains examples of the kinds of  issues companies dealing with mergers and acquisitions could  face. If you are faced with one of these issues, please retain   professional assistance as each situation is unique.