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Osler, Hoskin & Harcourt LLP
How the New Take-over Bid Rules will
Change Canadian M&A for Buyers and
Targets
May 25, 2016
2
HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
Introduction
• Mergers and acquisitions ...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
Overview
In addition to helping you stay...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
New Take-Over Bid Regime: 50-10-105
Legi...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
New Take-Over Bid Regime: 50-10-105
Exte...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
New Take-Over Bid Regime: 50-10-105
Mini...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
Implications of New Take-over Bid Regime...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
Implications of New Take-over Bid Regime...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
Contested Transactions – Timing Implicat...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
Contested Transactions – Timing Implica...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
Implications for Existing Rights Plans
...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
Implications for Existing Rights Plans ...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
Considerations for Buyers
• More Risk i...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
Considerations for Target
• Know Your S...
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HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS
Considerations for Both Buyers/Targets
...
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How the new take over bid rules will change Canadian M&A for Buyers and Targets

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As a Canadian business looking to engage in M&A transactions you need to understand how to navigate current regulatory issues. View our presentation to learn more.

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How the new take over bid rules will change Canadian M&A for Buyers and Targets

  1. 1. Osler, Hoskin & Harcourt LLP How the New Take-over Bid Rules will Change Canadian M&A for Buyers and Targets May 25, 2016
  2. 2. 2 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS Introduction • Mergers and acquisitions (M&A) transactions have inherent complexities that need to be clearly understood and properly addressed • Canadian businesses looking to engage in M&A transactions must navigate through various regulatory issues as it stands • Recent amendments to the take-over bid rules are changing the Canadian M&A landscape • Both buyers and targets need to stay abreast of ongoing rules and regulations in order to stay compliant
  3. 3. 3 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS Overview In addition to helping you stay abreast of regulatory compliance issues, this presentation arms both buyers and targets with the strategic framework to drive informed decisions based on the following: • An overview of amendments to Canadian take-over bid rules • How buyers may approach targets differently • How you can structure/time transactions to take advantage of the new rules • What to do with Rights Plans • What other tactics should be considered • How the new regime may change the Canadian M&A landscape How the new take-over bid rules will change Canadian M&A for buyers and targets, from Osler, Hoskin & Harcourt LLP. For more information, please contact Simone Knott at sknott@osler.com or 403-592-7280
  4. 4. 4 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS New Take-Over Bid Regime: 50-10-105 Legislative Instruments • National Instrument 62-104 – Take-Over Bids and Issuer Bids ◦ Full harmonization and replaces OSC Rule 62-504 – Take-Over Bids and Issuer Bids • National Policy 62-203 – Take-Over Bids and Issuer Bids (Bid Regime) • National Policy 62-202 – Take-Over Bids – Defensive Tactics (unchanged) Minimum Tender Requirement • Mandatory more than 50% minimum tender requirement by shareholders other than the bidder and its joint actors (non-waivable) • Prevents acquisition of control of the offeree without the majority supporting the bid • Collective action of the majority comparable to a vote on the bid
  5. 5. 5 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS New Take-Over Bid Regime: 50-10-105 Extension Periods • Mandatory 10-day extension after minimum tender requirement satisfied and satisfaction or waiver of all other terms and conditions • “Pressure to tender” eliminated • Once a shareholder knows how the majority has decided then have a second chance to not be “left behind” • Optional further extension after expiry of mandatory 10-day extension is permitted for full take-over bids
  6. 6. 6 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS New Take-Over Bid Regime: 50-10-105 Minimum Deposit Period • 105-day minimum deposit period, • Effectively results in a mandatory 105-day “permitted bid” regime for hostile bids • To provide offeree boards with opportunity to seek value maximizing alternatives or to develop and articulate their views of the merits of the bid • Two exceptions to the 105-day deposit period: ◦ If target issues a “deposit period news release” in respect of a proposed or commenced bid providing for a bid period shorter than 105 days but not less than 35 days, then all other outstanding or subsequent bids would also be entitled to the shorter period counted from the date that other bid is made ◦ If target issues a news release that it has entered into an “alternative transaction” – effectively a friendly change of control transaction – then all other outstanding or subsequent bids would be entitled to a minimum 35-day deposit period counted from the date that other bid is made – no longer a need for a 105 day minimum deposit period as offeree has determined that an alternative transaction is appropriate
  7. 7. 7 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS Implications of New Take-over Bid Regime for Buyers and Targets Positive Implications: 1) Greater time for offeree issuer to respond to, and consider alternatives to, a bid  Gives board more time to assess bid information, attract competing offers or seek value- maximizing strategic alternatives 2) Elimination of any-or-all bids ◦ Minimum tender requirement means that shareholders as a collective body decide on adequacy of bid (i.e. the majority of the non-offeror group required to accept) 3) Mitigation of coercive aspects of prior tender process ◦ Ability of offeree shareholders to tender whether or not they support the bid in the first instance (given the mandatory 10-day extension period) 4) Preserves ability to complete friendly deals in 35 days
  8. 8. 8 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS Implications of New Take-over Bid Regime for Buyers and Targets (cont.) Negative Implications: 1) Potential higher costs and risks to hostile bidders ◦ Higher financing costs and greater risk of an interloper 2) More difficult to complete partial bids due to 50% minimum tender requirement
  9. 9. 9 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS Contested Transactions – Timing Implications Where Hostile Bid Is First: • 105-day initial hostile bid can be abridged by offeree board if white knight transaction emerges • If white knight transaction is a bid, hostile bidder is entitled to same bid period ◦ For example, if 40 day white knight bid, hostile bidder may abridge from 105 to 40 days (provided at least 10 days’ notice of the new expiry date) • If white knight transaction is an “alternative transaction”, such as an arrangement, hostile bidder may abridge from 105 to 35 days (provided at least 10 days’ notice of new expiry date) • Hostile bidder in theory maintains timing advantage over white knight in both cases • Potential for “gaming” if white knight transaction structured as 105-day bid and white knight abridges when ready to take up ◦ White knight receives regulatory approvals and can close on day 90 ◦ Could equalize timing or gain slight advantage by providing 10 days’ notice of abridgement on day 80 ◦ Hostile bidder may not be able to send notice of variation same day so would be at least one day behind
  10. 10. 10 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS Contested Transactions – Timing Implications Where Friendly Transaction Is First: • Timing implications for hostile bidder vary depending on structure of friendly transaction ◦ If structured as a bid, hostile bid must be kept open for at least as long as friendly bid ◦ If structured as an “alternative transaction,” hostile bid must be open for minimum of 35 days • May create incentive to structure friendly transactions as bids rather than arrangements ◦ Assume friendly transaction requires regulatory approval (Investment Canada Act or Competition Act) expected to take up to 105 days ◦ If structured as an arrangement, hostile bidder without the same (or with shorter) regulatory requirement could make a 35-day bid (say on day 20), and potentially obtain a timing advantage over the friendly bidder (by being in a position to close on day 55) ◦ If structured as a 105-day bid, hostile bidder also subject to 105-day bid period from the date the hostile bid was launched (say on day 20), which preserves timing advantage of friendly bidder (105 days as opposed to 125 days) • Practically there is low risk that a topping bid would be unsupported
  11. 11. 11 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS Implications for Existing Rights Plans • CSA did not explicitly address how rights plans will be treated under the new regime (or defensive tactics more generally) • We expect that, absent unusual circumstances, a rights plan will be cease traded following a “50-10-105” bid ◦ Securities regulators will be called upon less frequently to hold hearings as to when “the pill must go” ◦ Will result in greater certainty as to timing of bids than under the prior regime • Given 105-day minimum bid period, there is less incentive for issuers to adopt rights plans either “strategically” at their annual meetings or “tactically” in the face of a bid
  12. 12. 12 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS Implications for Existing Rights Plans (cont.) • Continued role for rights plans in protecting against exempt “creeping” bids (e.g., bids made through the normal course purchase and private agreement exemptions) • Given absence of guidance from proxy advisory firms such as ISS, we recommend that issuers not rush to implement changes to their rights plans ◦ Expect ISS will endorse rights plans that define a “Permitted Bid” as a bid made in compliance with new rules
  13. 13. 13 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS Considerations for Buyers • More Risk in Unsolicited Bids ◦ Less options to withdraw bid after launch ◦ Higher financing costs/risks whether cash or share consideration ◦ Higher chance of interloper ◦ One chance to get to compulsory squeeze • More Attempts to Get Target Board to Negotiate ◦ Bear hug letters (private and public) ◦ Activism for board seats ◦ Creative conditions ◦ Pressure to waive down deposit period • More Analysis of Target Shareholder Base ◦ Difficult hurdle if high retail base ◦ More risk of blocking positions ◦ Impact on toehold and private agreement strategies
  14. 14. 14 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS Considerations for Target • Know Your Shareholder Base ◦ More information about shareholders in Early Warning Reports ◦ Shareholder engagement is a two way street • Director Circular Still Required After 15 Days ◦ Likely more first circulars with “no recommendations” and “Stop, wait and listen” ◦ More substance in circulars later in the bid period • More Emphasis on Alternatives ◦ Longer auction periods ◦ Private placements ◦ Asset sales • Impact on Operations ◦ Costs over a longer period ◦ Board involvement ◦ More reporting during bid period ◦ Longer period of uncertainty for stakeholders (customers, suppliers, bankers, employees)
  15. 15. 15 HOW THE NEW TAKE-OVER BID RULES WILL CHANGE CANADIAN M&A FOR BUYERS AND TARGETS Considerations for Both Buyers/Targets • It’s now a Marathon; not a Sprint ◦ Impact on messaging, IR/media plan • Battlefield Revert to Courts? ◦ Regulators may be disappointed • Impact on Arbitrage Engagement? ◦ When do they take positions • Knowledge is Power, Timing is Control ◦ Pendulum swung back to targets in hostile transactions ◦ Structural considerations more nuanced in friendly transactions

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