Chambers Global Practice Guide - Corporate M&A 2024 - Canadian M&A

CHAMBERS GLOBAL PRACTICE GUIDES
Corporate M&A
2024
Definitive global law guides offering
comparative analysis from top-ranked lawyers
Canada: Law & Practice and Trends & Developments
Kevin West, Andrea Hill, Priya Ratti and Tim Ross
SkyLaw

CANADA
2 CHAMBERS.COM
Law and Practice
Contributed by:
SkyLaw
Canada
Ottawa
USA
Greenland
Contents
1. Trends p.6
1.1 M&A Market p.6
1.2 Key Trends p.6
1.3 Key Industries p.7
2. Overview of Regulatory Field p.8
2.1 Acquiring a Company p.8
2.2 Primary Regulators p.8
2.3 Restrictions on Foreign Investments p.8
2.4 Antitrust Regulations p.9
2.5 Labour Law Regulations p.10
2.6 National Security Review p.10
3. Recent Legal Developments p.10
3.1 Significant Court Decisions or Legal Developments p.10
3.2 Significant Changes to Takeover Law p.11
4. Stakebuilding p.11
4.1 Principal Stakebuilding Strategies p.11
4.2 Material Shareholding Disclosure Threshold p.11
4.3 Hurdles to Stakebuilding p.12
4.4 Dealings in Derivatives p.13
4.5 Filing/Reporting Obligations p.13
4.6 Transparency p.13
5. Negotiation Phase p.13
5.1 Requirement to Disclose a Deal p.13
5.2 Market Practice on Timing p.14
5.3 Scope of Due Diligence p.14
5.4 Standstills or Exclusivity p.14
5.5 Definitive Agreements p.15

CANADA CONTENTS
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6. Structuring p.15
6.1 Length of Process for Acquisition/Sale p.15
6.2 Mandatory Offer Threshold p.16
6.3 Consideration p.16
6.4 Common Conditions for a Takeover Offer p.16
6.5 Minimum Acceptance Conditions p.17
6.6 Requirement to Obtain Financing p.17
6.7 Types of Deal Security Measures p.17
6.8 Additional Governance Rights p.18
6.9 Voting by Proxy p.19
6.10 Squeeze-Out Mechanisms p.19
6.11 Irrevocable Commitments p.19
7. Disclosure p.19
7.1 Making a Bid Public p.19
7.2 Type of Disclosure Required p.20
7.3 Producing Financial Statements p.20
7.4 Transaction Documents p.20
8. Duties of Directors p.21
8.1 Principal Directors’ Duties p.21
8.2 Special or Ad Hoc Committees p.21
8.3 Business Judgement Rule p.22
8.4 Independent Outside Advice p.22
8.5 Conflicts of Interest p.22
9. Defensive Measures p.22
9.1 Hostile Tender Offers p.22
9.2 Directors’ Use of Defensive Measures p.23
9.3 Common Defensive Measures p.23
9.4 Directors’ Duties p.24
9.5 Directors’ Ability to “Just Say No” p.24
10. Litigation p.24
10.1 Frequency of Litigation p.24
10.2 Stage of Deal p.24
10.3 “Broken-Deal” Disputes p.24
11. Activism p.25
11.1 Shareholder Activism p.25
11.2 Aims of Activists p.25
11.3 Interference With Completion p.25

CANADA Law and Practice
Contributed by: Kevin West, Andrea Hill, Priya Ratti and Tim Ross, SkyLaw
4 CHAMBERS.COM
SkyLaw is a premier corporate and securities
firm in Canada. The SkyLaw team has an un-
paralleled practice in international M&A, gov-
ernance and corporate finance. SkyLaw law-
yers have worked at top-tier global law firms in
Toronto, New York, London, Sydney and Dubai,
providing the firm with a unique reach into major
global financial centres. The firm excels in major
acquisitions, bespoke equity and debt invest-
ments, joint ventures and reorganisations. The
majority of SkyLaw’s M&A work involves acqui-
rors based in the USA, the Middle East, Aus-
tralia, China, Europe and elsewhere around the
world. Recent engagements include high-pro-
file private equity investments and strategic ac-
quisitions by Fortune 500 companies. The firm
has once again been voted as one of Canada’s
Top 10 corporate law boutiques.
Authors
Kevin West is a senior corporate
and securities lawyer with 25
years of experience. Kevin has
led countless corporate
transactions, including mergers
and acquisitions, financings and
joint ventures. He also has significant
experience advising companies on corporate
governance, disclosure and compliance
issues. Prior to launching SkyLaw in 2010,
Kevin was a partner at Davies Ward Phillips &
Vineberg LLP, where he represented a number
of foreign companies making acquisitions in
Canada. Before joining Davies, he practised
with Sullivan & Cromwell LLP in New York and
Sydney, Australia, and clerked for Justice Ian
Binnie at the Supreme Court of Canada.
Andrea Hill is a corporate and
securities lawyer at SkyLaw with
a decade of experience in a
broad corporate practice. Her
areas of expertise include
establishing, structuring and
governing corporations, raising capital,
mergers and acquisitions, and general
corporate and securities matters. Andrea has
published multiple articles in national Canadian
media and is a repeat contributor by invitation
to the Globe and Mail’s Report on Business.

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Priya Ratti is a corporate and
securities lawyer with a focus on
M&A transactions. Prior to
joining SkyLaw, she ran her own
practice, representing clients in
a wide range of civil litigation
and corporate matters. Priya completed her
law degree at the University of Ottawa, where
she worked with a select team to establish
Canada’s first national, bilingual and student-
run business law clinic providing pro bono
legal services to local entrepreneurs and
start-ups. Priya currently manages
SkyCounsel, SkyLaw’s practice support
platform for independent legal professionals,
and is an active contributor to the firm’s Our
Insights blog.
Tim Ross is a senior lawyer at
SkyLaw, and has a 25-year track
record of building tier-one legal
services businesses
internationally, while helping
clients navigate corporate,
finance, restructuring and regulatory matters.
Tim spent 14 years as an expat based in
London and Dubai. He served as partner, and
in progressive leadership roles at Linklaters,
Latham & Watkins, and Bennett Jones. Tim
was General Editor of Oxford University Press
Publication Financial Services Regulation in the
Middle East. His charitable and non-profit
involvements include serving as Chair of the
Foundation for Environmental Stewardship, a
national, award-winning, youth-led and youth-
serving charitable foundation.
SkyLaw Professional
Corporation
3 Bridgman Avenue
Suite 204
Toronto
Ontario M5R 3V4
Canada
Tel: +1 416 759 5299
Email: kevin.west@skylaw.ca
Web: www.skylaw.ca

6 CHAMBERS.COM
1. Trends
1.1 M&A Market
Canada is expected to have a robust M&A
market this year, driven primarily by a pent-up
demand for deals.
After a blockbuster year for M&A transactions
in 2021, Canada saw a steady decline in activ-
ity throughout 2022. This past year the number
of M&A transactions remained low as markets
grappled with the post-pandemic, inflationary
environment.
More recently, however, investor confidence
has recovered, driven by the expectation that
interest rates and inflation will not climb further.
Stock markets have leapt each time there has
been a hint of an interest rate cut from a central
banker.
2024 should bring more deals involving private
equity firms and pension plans, as they execute
long-awaited plans to deploy capital or exit their
portfolio companies. Canada is also experienc-
ing a massive intergenerational wealth transfer
as the baby boomer generation retires and firms
change hands. Canada has started the year with
new-found optimism and deal-making is expect-
ed to be strong throughout 2024, albeit perhaps
more complex and cautious as compared to the
heady days of 2021.
1.2 Key Trends
Key trends that are affecting M&A activity in
Canada include the following:
• High interest rates, stubborn inflation, and a
weakened exchange rate caused dramatic
economic disruption, but these factors are
expected to ease in 2024. The Bank of
Canada was the first central bank across the
G10 group of large economies to pause its
rate-tightening cycle in 2023, and stated in
March 2024 that if the economy and inflation
evolve as expected, it will be able to cut inter-
est rates sometime this year.
• Looming fears of a global recession have
abated, with new expectations of a “soft
landing” or “no landing”. For the most part,
investors and businesses have adjusted to
the post-pandemic world and confidence has
been significantly restored.
• With soaring stock market valuations, buyers
and sellers will be better able to bridge the
valuation gap, while we expect to see contin-
ued use of tools such as earn-outs.
• Retiring business owners are increasingly
looking for ways to sell their firms.
• On 16 April 2024, the Canadian federal
government announced a significant change
to the capital gains inclusion rate from 50%
to 66.6% effective 25 June 2024, potentially
creating an urgency to close deals before
the deadline and increasing the potential
uncertainty and increased complexity for tax
planning.
• Canada has announced significant invest-
ments in domestic initiatives, particularly for
the green economy. The Canadian govern-
ment continues to invest in, and take steps
to protect, critical minerals firms as global
demand for electric vehicles and batteries
continues to grow.
• Canada continues to showcase its AI leader-
ship, with the world’s first national AI strategy,
CAN2 billion invested in the industry since
2017, and CAN2.4 billion in new federal fund-
ing announced in April 2024.
• Canadian regulators continue to be wary of
certain foreign states and actors. The list of
sanctioned entities and persons grew.
• Corporate insolvencies persist, especially
in the retail sector. Restructuring provisions

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under corporate statutes are being used to
recapitalise at an earlier stage in the process.
• Shareholder activism has roared back from
pandemic lulls. Regulators continue to look
for ways to support shareholder participation,
including encouraging hybrid shareholder
meetings over fully virtual events.
• The strong demand for minerals, technol-
ogy, alternative energy and financial services
plus the pent-up interest in deals from private
equity and pension funds will likely lead to a
higher M&A deal count in 2024.
1.3 Key Industries
Key industries for Canadian M&A include mining,
oil and gas, and information technology.
Mining
Approximately 40% of all publicly traded mining
companies in the world are listed on a Canadian
stock exchange. In 2023, the materials sector led
M&A activity by sheer number of transactions.
However, Canadian mining companies continue
to face unique challenges such as increased
government scrutiny on foreign investment, geo-
political risks, and environmental hurdles.
Canada is a key producer of copper, nickel,
cobalt, lithium, graphite and vanadium. As global
demand increases for critical minerals used in
batteries and other clean technology, Canada
continues to look for ways to invest in, and pro-
tect, this key resource.
The deal outlook for 2024 is optimistic. A few
notable headlines in the sector include Canada
Nickel Co Inc.’s announcement of its CAN1 bil-
lion Ontario project to develop North America’s
largest nickel processing plant and Glencore
group’s CAN9 billion acquisition of Canadian
coal mining company Teck Resources, which is
expected to close in Q3 of 2024.
Oil and Gas
The oil and gas sector accounts for approxi-
mately 4% of Canada’s real gross domestic
product. Canada is the world’s third-largest pro-
ducer of oil and sixth-largest producer of natural
gas, and is expected to set a global record for
crude oil production with an increase of 300,000
to 500,000 barrels per day mainly due to the
(near) completion of the Trans Mountain Pipeline.
Oil industry M&A remained active in 2023 with
notable transactions such as the ConocoPhillips
purchase of Surmont for approximately CAN2.7
billion; the Crescent Point Energy acquisition of
Hammerhead Energy for CAN2.5 billion; and the
recent acquisition of East Ohio Gas Company by
Enbridge for CAN19 billion.
Looking ahead, M&A in the oil and gas sector
appears promising. Deals already underway
include Tourmaline Oil’s purchase of Bonavista
Energy for CAN1.45 billion and Suncor Energy’s
acquisition of TotalEnergies Canada for CAN1.5
billion.
Technology
Canada has a solid presence within the technol-
ogy sector. It is home to leading technology hubs
and companies, such as Shopify Inc., as well as
to market leaders in numerous sectors, includ-
ing cleantech. The federal government recently
introduced five new cleantech tax credits to fur-
ther support the sector.
Technology companies have lost a lot of their
value from the stock market highs of 2021, and
more going-private transactions are expected,
such as the recent announcement by Montreal-
based Nuvei Corp. that it will be taken private by
a US private equity firm, valuing the company at
USD6.3 billion.

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Telecommunications experienced a significant
jump in enterprise value in 2023 with the CAN26
billion Rogers acquisition of Shaw Communica-
tions.
In 2024, we expect to see Canada maintain a
leading position in the AI space and continue
focusing on cybersecurity, as the global threat
of cyber-attacks continues to increase.
2. Overview of Regulatory Field
2.1 Acquiring a Company
Most public company acquisitions in Canada will
be conducted by way of:
• a takeover bid, either hostile (unsolicited) or
friendly (solicited and/or negotiated); or
• a negotiated, court-approved plan of arrange-
ment.
Companies can also be acquired by way of:
• an asset or share purchase; or
• an amalgamation or other corporate reorgani-
sation.
2.2 Primary Regulators
M&A activity in Canada is primarily regulated by:
• the Canadian federal government, particularly
where the target is in a regulated industry or
the acquiror is non-Canadian;
• provincial securities regulators; and
• stock exchanges.
Reporting issuers, including all issuers with
securities listed on a Canadian stock exchange,
must file continuous disclosure documents on
SEDAR+, a web-based platform for electronic
filing and public data access for Canada’s capi-
tal markets. Reporting insiders – including direc-
tors, officers and 10% beneficial owners of a
class of securities of a reporting issuer – must
file trade reports on the System for Electronic
Disclosure by Insiders (SEDI) unless an exemp-
tion is available.
There is no single national securities regulator in
Canada and multiple attempts at creating one
have failed. At present, there are 13 securities
regulators in Canada, across its ten provinces
and three territories.
2.3 Restrictions on Foreign Investments
Investment Canada Act (ICA) and National
Security Review
Canada has traditionally welcomed foreign
investment and has a reputation as an attractive
and trusted destination for investors. However,
like most countries, the Canadian government
may restrict the ability of a non-Canadian to
acquire or start a business in Canada, in par-
ticular if the investment relates to a cultural busi-
ness (for example, broadcasting and publishing)
or raises national security concerns. The govern-
ment may block proposed foreign investments,
allow them to proceed with conditions, or order
divestiture if an investment has already been
made.
A transaction by a non-Canadian is reviewable
if the enterprise value of the target business
exceeds certain financial thresholds (for WTO
investors that are not state-owned enterprises,
the threshold is an enterprise value of CAN1.326
billion). If a transaction is reviewable, the foreign
investor must prove to the Canadian government
that the transaction is of “net benefit” to Canada.
If not reviewable, a notification under the ICA
must be filed within 30 days after commencing
a new business activity or acquiring control of
an existing Canadian business.

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Separately, the Canadian government may
review any acquisition on national security
grounds under the ICA, whether or not it is sub-
ject to a net benefit review. There is no definition
of “national security” in the ICA, nor are there
specific monetary thresholds that automatically
trigger a national security review. Any foreign
investments in businesses involved in the Cana-
dian oil sands, the critical minerals sector, and
certain other protected industries are likely to be
subject to greater scrutiny. In particular, the gov-
ernment has stated that any investment (regard-
less of size or industry) into a Canadian business
from an investor with direct or indirect ties to
Russia, and any investment by a foreign state-
owned enterprise into Canada’s critical minerals
sector, will trigger a national security analysis.
Effective 2 August 2022, a new voluntary pre-
closing filing mechanism came into force, per-
mitting certain investors to confirm in advance
whether a proposed investment would be sub-
ject to a national security review. If a pre-closing
filing is not made, the government will have up
to five years after becoming aware of a transac-
tion (changed from 45 days) to initiate a national
security review.
In March 2024, significant amendments to the
ICA were passed that include a new pre-clos-
ing filing requirement for certain investments in
“prescribed businesses” (not yet defined) and
stronger penalties for non-compliance. The
amendments provide that the national security
review provisions can apply to acquisitions even
where there is a limited connection to Canada.
New policies have also been announced affect-
ing the interactive digital media sector.
Sanctions
Canada has sanctioned countries, individuals
and entities that it considers to be connected
to human rights violations, corruption, or ter-
rorist activities. Canada currently has sanctions
in place against 25 countries and has enacted
measures to freeze or restrain the property of
certain politically exposed foreign persons.
Sanctions can require, among other things,
restrictions on trade, and disclosure and/or
divestiture of assets in sanctioned jurisdictions.
Industries with Limits on Foreign Ownership
Ownership by non-Canadians is restricted in
certain sectors, including the airline, banking,
telecommunications and insurance industries. In
2022, the federal government imposed a tempo-
rary ban (with some exceptions) on foreign own-
ership of Canadian non-recreational residential
property, which was recently extended until 1
January 2027.
2.4 Antitrust Regulations
Competition Act
Foreign investment is also subject to pre-merger
notification under the Competition Act if it meets
both of the size thresholds summarised below:
• size of parties – the parties to the transaction,
together with their affiliates, have combined
assets in Canada or total annual gross rev-
enues from sales in, from or into Canada with
a value in excess of CAN400 million; and
• size of transaction – the aggregate value of
the Canadian assets or annual gross rev-
enues from sales in or from Canada of the
target exceed CAN93 million.
Regardless of whether notification is required,
the Competition Bureau reserves the right to
review any transaction for up to one year post-
closing to determine whether it is likely to lessen
or prevent competition substantially. In addition,
all business activity in Canada is subject to scru-
tiny for anti-competitive behaviour.

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Significant amendments to the Canadian
Competition Act have been made in recent
years, although some of them are not yet in
effect. Among other things, these amendments
expanded the non-exhaustive list of acts that
may be considered an abuse of dominant posi-
tion and increased the applicable penalties.
The amendments also removed the efficiency
defence for anti-competitive collaborations and
in merger reviews.
2.5 Labour Law Regulations
Employment legislation varies by jurisdiction in
Canada. Minimum statutory employment stand-
ards, such as notice requirements on termina-
tion, generally cannot be contracted out of or
waived. For example, an employment agreement
providing for “termination at will” would not be
enforceable.
Other legislation applies to the employment rela-
tionship, including the applicable human rights
code, pay equity statute and occupational health
and safety legislation.
Canada supports the principles of collective bar-
gaining. Each jurisdiction in Canada has a labour
code.
Ontario also prohibits non-competition provi-
sions in employment agreements and requires
certain employers to have a written policy with
respect to “disconnecting from work”.
Acquirors should conduct due diligence to
understand the potential severance costs asso-
ciated with a target’s key employees and con-
sider whether any future plans (for example, a
return-to-office policy) could be construed as
constructive dismissal requiring severance pay-
ments.
In the context of M&A transactions, while there
is no requirement to engage with employees
(eg, Canada does not have the equivalent of a
“works council” such as in Germany) or pension
trustees, target company directors in discharg-
ing their fiduciary duties are encouraged to take
the interests of these stakeholders into account.
In addition, if a target business is unionised or
about to become unionised, a potential acquiror
may wish to learn more about the current collec-
tive bargaining agreement and any negotiation
process that is underway.
2.6 National Security Review
See 2.3 Restrictions on Foreign Investments.
3. Recent Legal Developments
3.1 Significant Court Decisions or Legal
Developments
NorthWest Copper Corp.
In a win for shareholder democracy, three share-
holders were not “acting jointly or in concert”
merely by having a common goal or concern;
not even the payment by one of the legal bills
of the others met this threshold. The bar for a
joint actor relationship, which can trigger dis-
closure obligations, is set “appropriately high”,
and requires a plan of action or a mutual under-
standing about how shareholders will vote their
shares. The British Columbia Securities Com-
mission determined it would rather take the
chance that some shareholder groups would
fly under the radar than stifle the free flow of
information and opinion among public company
shareholders.
Kraft (Re)
The “necessary course of business” exemp-
tion to the securities law prohibition on “tip-
ping” (sharing material non-public information

11 CHAMBERS.COM
by a person who is in a “special relationship”
with an issuer) requires that the disclosure be
“essential”, “indispensable”, or “requisite” to
the business. It is helpful if the issuer’s board
or management can show that it considered the
need for disclosure and took protective steps,
such as documenting the issuer’s engagement
of the recipient, and putting a confidentiality
agreement in place.
1843208 Ontario Inc. v. Baffinland Iron Mines
Corporation
Real markets are better than theoretical mar-
kets: deal price is strong evidence of fair value
of a company’s shares, even if potential future
cash flows would suggest the firm is worth much
more. Dissenting shareholders of each company
who had hoped for a higher price per share were
reminded that valuation based on discounted
cash flow analyses is an inherently frail tech-
nique, especially when the company could not
tackle the logistics of developing its resources
alone.
Leeder Automotive Inc. v. Warwick
A minority shareholder could not be forced to
sell his shares under a buy-sell provision (also
known as a “shotgun” provision) by the com-
pany when it did not follow the requirements
of the valuation provisions of the shareholder
agreement.
3.2 Significant Changes to Takeover Law
Takeover Bid Amendments
The last significant amendments to the takeover
bid rules in Canada were implemented in 2016.
These amendments included:
• the extension of the minimum bid period from
35 days to 105 days (which may be short-
ened in certain circumstances) to allow target
boards adequate time to respond to hostile
bids;
• the introduction of a mandatory 50% mini-
mum tender condition (at least 50% of the
shares not already owned by the acquiror and
its joint actors must be tendered before any
shares can be taken up by the acquiror); and
• a mandatory ten-day extension to the bid
period if, at the end of the initial deposit
period, all terms and conditions of the bid
have been complied with or waived and the
minimum tender requirement has been met.
Securities regulators are inclined to strictly
enforce these rules in order to promote predict-
ability in the takeover bid regime. Exemptions
and variations are rare.
4. Stakebuilding
4.1 Principal Stakebuilding Strategies
It is common in Canada for prospective acqui-
rors to accumulate shares of their target prior to
launching a takeover bid or change of control
transaction. An acquiror may establish a “toe-
hold” through open market purchases or private
transactions with other shareholders.
Acquirors may also seek support from other
shareholders through accumulation of proxies
or lock-up or voting agreements in support of
a transaction.
4.2 Material Shareholding Disclosure
Threshold
An acquiror must publicly disclose its ownership
of a reporting issuer once it directly or indirectly
beneficially owns, or has control or direction
over, 10% or more of a class of securities (in
contrast to the USA, where the threshold is 5%).
This threshold is reduced to 5% in Canada if a

12 CHAMBERS.COM
takeover bid for the relevant securities is out-
standing.
Beneficial ownership of securities is calculated
on a partially diluted basis by class and includes:
• all securities of that class that could be
acquired within 60 days upon the conversion
or exercise of convertible securities; and
• all securities of that class beneficially owned
by any joint actors of the acquiror.
Control or direction generally is established by
the ability to vote, or direct the voting of, shares
or the ability to acquire or dispose of, or direct
the acquisition or disposition of, shares.
Equity equivalent derivatives, such as equity
swaps, generally are not included in determining
whether the 10% ownership threshold has been
crossed, although interests in these and other
related financial instruments must be disclosed
in reporting required once the 10% ownership
threshold has been crossed.
Early Warning Disclosure
Upon crossing the 10% ownership threshold, the
acquiror is subject to the early warning regime
and must file a press release and an early warn-
ing report (similar to a Schedule 13D in the USA).
Eligible institutional investors, which include
financial institutions, pension funds, mutual
funds, investment managers and SEC-registered
investment advisers, may file a less onerous
alternative monthly report (similar to a Schedule
13G in the USA).
Insider Reporting
Directors, officers, 10% beneficial owners and
other “reporting insiders” of reporting issuers
must file insider reports disclosing any change
to their beneficial ownership of, or control or
direction over, the reporting issuer’s securities
or interest in a related financial instrument.
4.3 Hurdles to Stakebuilding
Unlike in the USA, structural defences to stake-
building in constating documents or by-laws are
not common in Canada because they are not
required or would be ineffective under Canadian
law.
Early Warning Standstill
An acquiror that is obligated to file an early warn-
ing report may not acquire any more securities
of that class (or securities convertible into such
securities) until the expiry of one business day
after the early warning report is filed.
Takeover Bid Rules
Once an acquiror has beneficial ownership of,
or control or direction over, 20% or more of the
outstanding voting or equity securities of a class,
any further acquisitions of outstanding securities
of that class would constitute a takeover bid that
requires an offer to be made to all security hold-
ers unless an exemption is available.
Rights Plans/Poison Pills
Before the 2016 takeover bid regime amend-
ments, the primary structural defence mecha-
nism for an issuer in Canada was a shareholder
rights plan (commonly known as a “poison pill”).
Rights plans are still in use, albeit with some dif-
ferences to pre-2016 plans. Typical features of a
rights plan include the following:
• upon an acquiror’s acquisition of, or
announcement of its intent to acquire, benefi-
cial ownership of a specified percentage (typi-
cally 20% or more) of the company’s shares,
all other shareholders will be given the right
to purchase shares at a significant discount

13 CHAMBERS.COM
to the market price, substantially diluting the
acquiror; and
• rights plans may allow for a “permitted
bid”, which typically now means one that is
required to stay open for at least 105 days
and includes a minimum tender condition.
The primary value of a tactical rights plan adopt-
ed following the emergence of a bid traditionally
has been to buy time for a board and sharehold-
ers to consider an offer and (where appropriate)
seek alternatives to the bid.
Because amendments to the takeover bid
rules in 2016 now require a takeover bid offer
to remain open for at least 105 days (up from
the previous minimum of 35 days), it is generally
expected that regulators will cease-trade a rights
plan after that timeframe. Even where a regulator
permits a rights plan to remain in place, certain
Canadian stock exchanges may refuse a plan if
it does not receive shareholder approval within
six months of being implemented, which often
functions as a de facto termination date for tacti-
cal rights plans.
Other Hurdles to Stakebuilding
Acquisitions of shares generally cannot be made
if a person is in a special relationship with an
issuer and possesses inside information (infor-
mation that has not been generally disclosed
and could reasonably be expected to significant-
ly affect the market price or value of a security
of the issuer).
Most private companies have restrictions on
share transfers in their articles or in unanimous
shareholder agreements that would prevent a
third party from acquiring shares without board
or shareholder approval.
For reporting issuers with a public float, it would
not be possible to restrict share transfers in the
articles or by-laws, but individual shareholders
may agree to a standstill as part of a negotiated
transaction.
4.4 Dealings in Derivatives
Dealings in derivatives are permitted in Canada.
4.5 Filing/Reporting Obligations
Disclosure by 10% holders must be made of the
material terms of any “related financial instru-
ment” involving the issuer’s securities as well as
any other “agreement, arrangement or under-
standing that has the effect of altering, directly
or indirectly”, the investor’s economic exposure
to the issuer’s securities. Disclosure is also
required of any securities lending arrangements.
See 2.4 Antitrust Regulations for filing require-
ments under competition laws.
4.6 Transparency
Early warning reports and alternative monthly
reports require disclosure of any plans or future
intentions that the investor and any joint actors
may have relating to any changes in their secu-
rity ownership, their voting intentions or any
material transaction they may propose.
An eligible institutional investor will be disquali-
fied from filing alternative monthly reports if the
investor intends to propose a transaction that
would result in it acquiring effective control.
5. Negotiation Phase
5.1 Requirement to Disclose a Deal
Reporting issuers must immediately disclose all
“material changes”. In the context of a proposed
transaction, the threshold for a material change

14 CHAMBERS.COM
requiring disclosure is typically met when both
parties have decided to proceed with a potential
transaction and there is a substantial likelihood
that the transaction will be completed. There is
no bright-line test for this determination.
Issuers listed on certain Canadian stock
exchanges must also forthwith disclose all
“material information”, which generally includes
both material changes and material facts. Con-
fidential material change filings and trading halts
may be made in certain circumstances.
The acquisition by a reporting issuer of a pri-
vate company will require disclosure only if the
transaction is a material change for the reporting
issuer. A transaction between two private com-
panies carries no public disclosure obligation.
5.2 Market Practice on Timing
Most acquisitions are announced publicly only
once definitive acquisition agreements are
signed. Companies tend to avoid disclosing a
potential transaction at the non-binding letter of
intent stage because it could affect the share
price or give potential competitors or stakehold-
ers time to mobilise in opposition. If the transac-
tion is announced prematurely, the target could
suffer reputational harm or face questions from
regulators.
5.3 Scope of Due Diligence
Significant business combinations usually
involve a thorough scope of due diligence. Such
diligence often includes searches of public bank-
ruptcy, lien and litigation registries, obtaining a
corporate profile, and a review of public filings
on SEDAR+, SEDI and other databases.
Searches are typically run against the target
company and its management and material sub-
sidiaries; for privately held companies, they are
also run against the selling shareholders.
Diligence documents, such as financial state-
ments and material contracts, will typically be
supplied by the target to the buyer and its coun-
sel via an electronic dataroom.
Common factors that can affect the scope of
appropriate due diligence can include the nature
of the target’s industry, the jurisdiction where
assets are located, whether the target competes
with the buyer, and the access to sensitive infor-
mation the target is willing to grant.
5.4 Standstills or Exclusivity
Most letters of intent and acquisition agree-
ments include exclusivity obligations on the
target. Acquirors will usually want to know that
the target has ceased all negotiations and is not
shopping their deal to third parties.
Most targets will want a standstill arrangement
in place with the acquiror.
For the acquisition of a reporting issuer, it is
common for exclusivity obligations to contain
a “fiduciary out” clause allowing the target to
terminate the agreement and accept a superior
proposal if doing so would be consistent with
the target board’s fiduciary duties. The acquiror
would typically have a right to match the superior
proposal or would be entitled to be paid a break
fee (as described in 6.7 Types of Deal Security
Measures) if the agreement is terminated.
A “superior proposal” will typically need to satis-
fy very specific negotiated conditions, including:
• that it is for all the target’s shares (or in some
cases substantially all assets);

15 CHAMBERS.COM
• that it is reasonably capable of being com-
pleted without undue delay with regard to all
financial, legal, regulatory and other aspects
of the competing transaction;
• that it is not subject to any financing condi-
tion; and
• that the target board make a determination
that it is a more favourable transaction.
The existence of “hard” lock-up agreements (ie,
the shareholder is not permitted to withdraw
and tender its shares to, or vote in favour of,
any other competing transaction) with target
shareholders holding a significant percentage of
shares could render an offer incapable of being a
“superior proposal” because it is not reasonably
capable of being completed.
5.5 Definitive Agreements
The documentation used to set out the terms of
a deal is determined by the nature of a transac-
tion.
If the transaction is a takeover bid, the acqui-
ror must publicly file a takeover bid circular that
describes the terms of its offer and includes other
required disclosure. If the terms of the takeover
bid subsequently change, further notices must
be filed. For friendly takeover bids, the acquiror
would typically enter into a support agreement
with the target prior to launching the bid setting
out the process of the bid, conditions and cer-
tain deal protections.
If the transaction is a plan of arrangement or oth-
er negotiated business combination, the acqui-
ror and the target would enter into an arrange-
ment or combination agreement. The agreement
would set out the process of the transaction
(including shareholder, court and other approv-
als), conditions and certain deal protections.
6. Structuring
6.1 Length of Process for Acquisition/
Sale
Parties typically will first enter into a non-bind-
ing letter of intent setting out the proposed deal
terms with binding provisions regarding exclu-
sivity, expenses and confidentiality.
The parties then conduct due diligence and
negotiate a definitive acquisition agreement. The
time required varies greatly depending on the
size and nature of the target and the involvement
of third parties, such as lenders.
The timeline for a friendly takeover bid gener-
ally is 50–65 days beginning from the start of
preparation of the takeover bid circular to the
completion of the transaction, assuming the tar-
get waives the minimum bid period of 105 days
(shortening it to no less than 35 days).
A hostile takeover bid must remain open for at
least 105 days. The bid period may be short-
ened by the target or reduced to no less than
35 days if the target announces an alternative
transaction, such as a plan of arrangement,
requiring approval by the target’s sharehold-
ers. A mandatory ten-day extension period will
apply if the bidder satisfies the minimum tender
condition and is required to take up securities
that were tendered under the bid. Depending on
the defensive tactics used by the target, once a
target is “in play”, it is hard to predict how long
it might take to successfully complete the bid.
Typically, following a successful takeover bid,
the acquiror will conduct a second-step trans-
action to obtain 100% of the outstanding shares.
If the target is a private company, the parties
may sign the definitive documents and close the

16 CHAMBERS.COM
transaction on the same day. Otherwise, closing
may take 30–60 days or longer depending on the
extent to which shareholder, court or regulatory
approvals are required.
Complex transactions often will have outside
dates that may be extended to accommodate
regulatory approvals.
6.2 Mandatory Offer Threshold
A shareholder cannot acquire any outstanding
voting or equity securities of a reporting issuer
if such acquisition would cause the shareholder
to, together with any joint actors, have benefi-
cial ownership of and/or control or direction over
20% or more of the outstanding securities (cal-
culated on a partially diluted basis) unless:
• the shareholder makes an offer to all share-
holders of the same class by way of a takeo-
ver bid; or
• an exemption from the takeover bid rules is
available.
The takeover bid exemptions include:
• certain purchases by private agreement from
not more than five persons; and
• normal course market purchases of no more
than 5% of the outstanding securities in any
12-month period.
6.3 Consideration
Both cash and shares of the acquiror are com-
monly used in Canada as consideration in M&A
transactions.
The takeover bid rules require that identical con-
sideration be provided to all target shareholders,
with limited exceptions. Generally, no collateral
benefits are allowed to be offered selectively to
certain shareholders.
Plans of arrangement offer flexibility on consid-
eration, so long as the arrangement overall is fair
and reasonable.
In private M&A, particularly in industries with
high valuation uncertainty, tools commonly used
to bridge value gaps between parties include
holdbacks and earn-outs.
• With a “holdback”, an acquiror will hold on to
some of the purchase price until after clos-
ing in order to satisfy indemnity or breach of
warranty claims. This holdback amount may
be provided to an escrow agent, particularly
in cases where the seller has concerns about
the creditworthiness of an acquiror.
• With an “earn-out”, part of the purchase price
will remain subject to performance require-
ments or other milestones that must be satis-
fied after closing and may also be used to set
off indemnity or breach of warranty claims.
The most common criterion is financial per-
formance.
Sellers may also provide some or all of the
financing, or reinvest proceeds in the purchaser,
to facilitate the closing.
6.4 Common Conditions for a Takeover
Offer
Common conditions for takeover bids include:
• there is no shareholder rights plan in effect or
the rights plan will be waived;
• regulatory approvals (including, where
required, approvals under the Competition
Act and the ICA) and third-party approvals or
consents have been obtained;
• there has not been a material adverse
change;

17 CHAMBERS.COM
• there is no existing, pending or threatened
litigation involving the target that would lead
to a material adverse effect; and
• there are no laws that would prevent the bid-
der from taking up or paying for the securi-
ties subject to the bid and there are no laws
in effect or proposed that would have an
adverse effect on the target.
Takeover bids cannot be subject to a financing
condition as discussed in 6.6 Requirement to
Obtain Financing.
6.5 Minimum Acceptance Conditions
Since 2016, the takeover bid rules in Canada
require that all bids, even partial bids, must pro-
vide for a mandatory minimum tender condition
that more than 50% of securities owned by secu-
rity holders other than the bidder be tendered to
the bid. This minimum tender requirement must
be met before the bidder may acquire any of the
securities subject to the bid.
Bids for all of the outstanding shares may
include a higher minimum tender condition to
ensure that the bidder, through a second-step
business combination, can obtain the remain-
ing shares that are not deposited. This condition
will usually require a deposit of at least 66⅔%
of the outstanding shares and sufficient shares
to obtain approval of a majority of the minority
shareholders for the second-step transaction.
Canadian securities regulations allow securities
that were obtained under a lock-up to be voted
as part of the majority of the minority vote if the
locked-up security holder is treated identically
to all others under the offer.
If a bidder is only seeking control, it may include
a minimum tender requirement of, for example,
51% of the outstanding shares instead. Parties
may apply to Canadian securities regulators to
waive or vary the minimum tender condition,
although regulators will only allow such a waiver
in rare cases.
6.6 Requirement to Obtain Financing
In an arrangement, amalgamation and other
business combinations, there is no regulatory
requirement or restriction on financing condi-
tions. However, the target will generally require
that the acquiror show evidence that it will be
able to fund the cash consideration.
In Canada, as in the UK but unlike in the USA,
there is a fully financed rule for takeover bids that
offer cash consideration. The bidder must have
pre-arranged financing before launching the bid.
The financing itself may be conditional at the
time the bid is commenced, if the bidder reason-
ably believes that the possibility is remote that
it will not be able to pay for securities deposited
under the bid.
6.7 Types of Deal Security Measures
Acquirors may seek a wide variety of deal protec-
tion measures, examples of which are described
below.
Support Agreements and Lock-Ups
In a friendly takeover, before launching the bid,
the bidder and the target may enter into a sup-
port agreement whereby the target agrees to
recommend that its shareholders tender to the
bid and the bidder agrees to launch the bid on
terms specified in the support agreement, sub-
ject to conditions such as a fiduciary out (as
described below).
The directors, officers or significant shareholders
of a target may also enter into lock-up or voting
agreements with the acquiror to deposit their
shares to the bid or vote their shares in favour
of an arrangement. These agreements may be

18 CHAMBERS.COM
“hard” or “soft” (see 6.11 Irrevocable Commit-
ments).
Stock exchange rules may require that disinter-
ested securityholders approve of voting agree-
ments requiring shareholders to vote their shares
in accordance with management recommenda-
tions. Negative voting agreements (those requir-
ing a shareholder to not vote against manage-
ment’s recommendations), on the other hand,
are not required to be approved by disinterested
securityholders.
Break-Up/Break/Termination Fees
A common deal protection measure in Canada is
a break-up fee paid by the target to the acquiror
if an arrangement or other business combination
is not completed. These types of fees usually
range from 2% to 4% of the target’s equity value.
Reverse break fees requiring a payment by the
acquiror to the target if the acquiror breaches the
acquisition agreement or is not able to complete
the sale may also be provided for.
No-Shop/Go-Shop Clauses
No-shop clauses prohibit a target from soliciting
other takeover offers or providing information to
other third parties that might be used to make
an offer. These provisions will typically include
a “fiduciary out” that allows directors (in so far
as they are required by their fiduciary duties) to
negotiate with a third-party offeror if the alter-
native offer in the good faith estimation of the
directors represents a superior proposal.
Go-shop clauses, on the other hand, allow a
target to negotiate or “shop” a transaction with
third parties for a specific amount of time after
the execution of the agreement. Go-shops are
less common but may be desirable if the acqui-
ror wants to publicly announce the deal before
the target tests the market.
Matching Rights
While a fiduciary out for the target board to
accept a superior proposal is commonly pro-
vided for in a friendly acquisition agreement, the
acquiror may also be provided the right to match
the superior proposal and hence complete the
transaction.
Managing Risk During the Interim Period
Once a definitive acquisition agreement is
signed or a takeover bid launched, the acquiror
is bound to complete the transaction unless one
of the expressly stated conditions is not satis-
fied. The pandemic has put the focus on a num-
ber of these conditions.
Definitive acquisition agreements now contain
specific COVID-19 provisions, including rep-
resentations about the impact of public health
measures on the business and the extent to
which government support has been relied on.
Material adverse effect and ordinary course
of business provisions have garnered greater
attention in recent years.
6.8 Additional Governance Rights
If an acquiror is not seeking 100% ownership of
a target, it may negotiate for additional govern-
ance rights with respect to a target outside its
shareholdings. These may include:
• the right to nominate individuals to the
target’s board and/or to sit on board commit-
tees;
• board observer rights;
• the right to participate in, or require, a public
offering of the target’s equity securities; and

19 CHAMBERS.COM
• the right to approve of change of control
transactions, issuances of shares and other
major decisions.
6.9 Voting by Proxy
Shareholders are permitted to vote by proxy in
Canada.
6.10 Squeeze-Out Mechanisms
If an acquiror wishes to obtain 100% of the
shares of a target and is not able to do so through
the bid process, there are two other methods
that can be used to acquire the remaining shares
depending on the holdings of the acquiror after
the bid is complete.
Second-Step Business Combination/Going-
Private Transaction
A second-step business combination or a going-
private transaction can be implemented if the
bidder holds between 66⅔% and 90% of the
outstanding shares after the bid is complete.
Following the bid, the bidder will be able to take
the company private through an amalgamation
or a plan of arrangement.
Such a business combination will need to be
approved by a special majority of the sharehold-
ers at a shareholder meeting and will be sub-
ject to certain minority shareholder protections.
For instance, a majority of the minority of the
shareholders will be required to approve of the
business combination. However, as the major-
ity shareholder, the bidder can participate and
vote the shares that were acquired under the
takeover bid. Thus, if the bidder acquires 66⅔%
of the outstanding shares, in most cases, it will
have sufficient votes to obtain the majority of the
minority approval.
Compulsory Acquisition
Under corporate law, if a bidder obtains 90% of
the outstanding shares subject to the bid within
120 days of the commencement of the bid, it can
acquire all of the shares that remain outstanding
for the same price as was offered under the bid.
This compulsory acquisition procedure does not
require a shareholder vote.
Shareholders that did not tender to the bid are
provided with dissent rights that allow them
to apply to a court to fix the fair value of their
shares.
6.11 Irrevocable Commitments
Before launching a bid, it is common for the bid-
der to enter into lock-up agreements with major
target shareholders whereby the shareholders
agree that they will tender to the bid. A “soft”
lock-up allows a shareholder the right to with-
draw and accept a higher offer, while a “hard”
or irrevocable lock-up does not. Hard lock-ups
are less common.
7. Disclosure
7.1 Making a Bid Public
A takeover bid in Canada is launched by:
• mailing the bid materials to the target share-
holders directly; or
• placing an advertisement in at least one daily
newspaper in each applicable province in
Canada and, concurrently with or prior to
such publication, filing the bid documents
and delivering them to the target.
The advertisement method is typically used in
hostile bids when the acquiror does not have
access to the shareholder lists to complete the
mailing itself and does not want to request the

20 CHAMBERS.COM
list in advance for fear of tipping off the target.
Once the advertisement is placed, the acquiror
must request the shareholder list from the target
and mail the circular to target shareholders.
In the context of an amalgamation, arrange-
ment or other business combination, public
companies in Canada are required to disclose
material changes, which may include the deci-
sion to implement these kinds of transactions at
the board level or by senior management if they
believe board approval is probable.
7.2 Type of Disclosure Required
If the consideration for a bid is to be shares or
partly shares, the bidder must provide prospec-
tus-level disclosure.
The target must publicly file a directors’ circu-
lar, prepared by its board, which includes the
board’s recommendations regarding the bid and
other information.
7.3 Producing Financial Statements
An acquiror providing share consideration must
provide its audited financial statements for the
past three years as well as interim financial
statements if available, and pro forma financial
statements that give effect to the acquisition.
The financials must include a statement of the
financial position of the issuer as at the begin-
ning of the earliest comparative period for which
financial statements that are included comply
with the International Financial Reporting Stand-
ards (IFRS) in certain cases. If the statements are
the first IFRS financial statements prepared by
the issuer, the issuer must include the opening
IFRS statement of financial position at the date
of transition to IFRS.
The pro forma financial statements must be
those that would be required in a prospectus,
assuming that the likelihood of the acquisition
is high and that the acquisition is a significant
acquisition for the acquiror.
If the acquiror is a reporting issuer, it may incor-
porate by reference its existing continuous dis-
closure.
More generally, securities laws in Canada require
that annual and quarterly financial statements
of reporting issuers be prepared in accordance
with Canadian generally accepted accounting
principles (GAAP). GAAP, in the context of Cana-
dian securities regulation, must be determined in
accordance with the Handbook of the Canadian
Institute of Chartered Accountants.
7.4 Transaction Documents
In the context of a takeover bid, the following
transaction documents are required to be dis-
closed in full:
• the takeover bid circular, including prospec-
tus-level disclosure, if required, and any
documents incorporated by reference;
• the directors’ circular;
• any lock-up agreements; and
• any support agreement.
In the context of a plan of arrangement or other
business combination, the following documents
are required to be disclosed in full:
• the management information circular deliv-
ered with the meeting materials, including
prospectus-level disclosure, if required, and
any documents incorporated by reference;
• any support agreements; and
• the arrangement or business combination
agreement.

21 CHAMBERS.COM
Reporting issuers are also generally required to
meet certain continuous disclosure obligations
and file material contracts on SEDAR+.
8. Duties of Directors
8.1 Principal Directors’ Duties
Directors’ duties in Canada include the follow-
ing:
• to act honestly and in good faith, with a view
to the best interests of the corporation; and
• to exercise the care, diligence and skill of a
reasonably prudent person in comparable
circumstances.
In discharging their fiduciary duties, directors
must exercise their powers for the benefit of the
corporation and not for an improper purpose.
These duties are owed to the corporation even
in the context of a business combination or a
hostile bid. However, the Supreme Court of
Canada has confirmed that directors are per-
mitted to consider the interests of a variety of
stakeholders in fulfilling their responsibilities.
This stakeholder-friendly corporate governance
model has been codified in the Canadian federal
corporate statute.
The common law provides guidance as to which
stakeholders’ interests may be considered by
directors, but does not provide guidance on
whose interests, if any, should be prioritised.
Although directors do not owe a fiduciary duty
to shareholders and the “Revlon duty” (ie, when
a break-up or change of control transaction is
inevitable, the board’s fiduciary duty is to max-
imise shareholder value) has not been upheld
by Canadian courts, directors are not prohibited
from taking steps to maximise shareholder value
or prioritise shareholders over other stakehold-
ers.
8.2 Special or Ad Hoc Committees
Special committees comprised of target direc-
tors who are independent of a proposed trans-
action are often established to evaluate and con-
sider the terms of the transaction. Their mandate
often also includes:
• considering strategic alternatives;
• negotiating the proposed transaction;
• providing a recommendation to the rest of the
board about the proposed transaction; and
• if applicable, supervising a valuation or fair-
ness opinion.
It is common for target boards to establish
special committees in business combinations
involving a related party. Special committees
are required by Multilateral Instrument 61-101
(MI 61-101) in certain circumstances when one
or more directors have a conflict of interest.
Members of the special committee must be free
of real or perceived conflicts. MI 61-101 also
encourages the formation of a special commit-
tee in a broader range of circumstances than
what is legally required.
Special committees and the timing of their for-
mation are important ways to show that direc-
tors’ decisions have been made without con-
flicts. Courts will often consider whether and
at what time in the process of a transaction a
special committee was formed and the proce-
dures it followed in evaluating the transaction.
A special committee should be established as
soon as possible and before the material terms
of a transaction are in place.

22 CHAMBERS.COM
8.3 Business Judgement Rule
Directors are provided a high level of deference
at common law. Like in the USA, Canadian
courts have recognised the “business judge-
ment rule”. According to the business judge-
ment rule, a court should not substitute its own
decisions for those decisions made by directors,
and deference should be accorded to business
decisions of directors provided they are taken in
good faith and within a range of reasonableness
in the performance of the functions the directors
were elected to perform by the shareholders.
If directors are acting independently, in good
faith and on an informed basis in a way that they
reasonably believe is in the best interests of the
corporation, courts generally will defer to their
judgement.
8.4 Independent Outside Advice
Independent outside advice is commonly given
to directors in a business combination from:
• investment bankers;
• outside legal counsel;
• financial and tax advisers;
• public relations firms; and
• proxy solicitation firms.
8.5 Conflicts of Interest
Both Canadian corporate statutes and securities
laws contain conflict of interest provisions.
Under Canadian corporate law, if a director is a
party to a transaction with the corporation, is a
director or officer of a party to the transaction or
has material interest in a party to transaction, the
director must disclose the nature and extent of
this interest and may be required to refrain from
voting on the matter.
In securities law, MI 61-101 regulates transac-
tions where potential conflicts of interest are
present. This instrument provides procedural
protections for minority shareholders. Depend-
ing on the type of transaction, the following may
be required under MI 61-101:
• a formal valuation by an independent valuator
supervised by a special committee;
• majority of the minority shareholder approval;
and
• enhanced disclosure, including disclosure
of prior valuations prepared for, and offers
received by, the target in the past two years.
MI 61-101 encourages, but does not require,
targets to form special committees and encour-
ages the formation of a special committee in any
transaction to which MI 61-101 applies.
Conflicts of interest of directors, managers,
shareholders or advisers have been the sub-
ject of judicial and regulatory scrutiny as well.
Securities regulators in Canada have, in particu-
lar, examined the question of whether a party is
a joint actor with the acquiror. This is a factual
analysis, and its finding may have an impact
on whether the transaction is an insider bid or
related party transaction and hence subject to
the additional requirements under MI 61-101 set
forth above. See the NorthWest Copper Corp.
decision in 3.1 Significant Court Decisions or
Legal Developments.
9. Defensive Measures
9.1 Hostile Tender Offers
Hostile takeover bids are permitted in Cana-
da but have not been very common since the
implementation of the 2016 takeover bid amend-

23 CHAMBERS.COM
ments, which made the takeover bid regime
more target friendly.
9.2 Directors’ Use of Defensive
Measures
Canadian securities laws allow directors to use
measures to defend against hostile takeovers.
Regulators may intervene when defensive meas-
ures are likely to deny or severely limit the ability
of shareholders to respond to a takeover bid.
9.3 Common Defensive Measures
There does not appear to have been a change in
the use of defensive measures during the pan-
demic, but some examples of defensive meas-
ures are as follows.
Shareholder Rights Plans/Poison Pills
Shareholder rights plans or poison pills are often
used by target companies to defend against
hostile bids. Many companies have continued to
adopt poison pills even after the 2016 takeover
bid amendments, despite speculation that the
amendments might eliminate the use of poison
pills in Canada because of the longer minimum
bid period. Rights plans will not block hostile
bids entirely but are instead a way to encour-
age the fair treatment of shareholders in con-
nection with a bid and to allow the target board
and shareholders to respond to and consider the
bid. They also allow time for the target board to
seek available alternatives and prevent creeping
takeovers. See 4.3 Hurdles to Stakebuilding.
Crown Jewel/Scorched Earth
A target may attempt to restructure or recapi-
talise so as to provide shareholders with cash
value, for instance, by selling a significant asset
in order to become less attractive to a bidder.
The directors must undertake a “crown jewel”
transaction with a view to the best interests
of the corporation, and the sale must have a
demonstrable business purpose. The board of a
target may also decide to substantially increase
long-term debt and concurrently declare special
dividends to distribute cash to its shareholders.
Defensive Private Placements
Private placements that have the effect of block-
ing a bid have been recognised by Canadian
securities regulators as a possible defensive tac-
tic, but they could be found to be inappropriate if
they are abusive or frustrate the ability of share-
holders to respond to a bid or competing bids.
Golden Parachutes
Golden parachutes for key employees may be
triggered if such employees are terminated after
a third-party acquisition.
White Knight
Targets may seek an alternative transaction with
a friendly party or a “white knight” that might
offer more value (or in some cases more prefer-
ential terms or deal certainty) to its shareholders
than the original bidder.
Issuer Bid
If a target is unable to find a white knight, it may
offer to repurchase its outstanding shares itself.
Pac-Man
A target might flip the script and make a bid for
the shares of the hostile bidder.
Advance Notice By-Law
A target’s by-laws or other constating docu-
ments may be amended to require advance
notice of shareholder nominations for members
to the board of directors, thereby giving the tar-
get the time to strategically respond to a proxy
fight in the context of a hostile bid.

24 CHAMBERS.COM
9.4 Directors’ Duties
Canadian directors owe the same duties when
they are enacting defensive measures as in any
other context. Boards in Canada owe a fiduciary
duty to the corporation, not to the shareholders,
and are not required to conduct an auction once
a company is “in play”.
Canadian courts have held that the conduct of
directors will be analysed on an objective stand-
ard of what a reasonably prudent person would
do in comparable circumstances. A court gen-
erally will not replace the decisions of directors
if they acted independently, in good faith and
on an informed basis and such decisions were
selected from a range of reasonable alternatives.
9.5 Directors’ Ability to “Just Say No”
Target boards in Canada cannot “just say no” in
the same way that this strategy is understood in
the USA. Canadian directors of public compa-
nies, while they may implement defensive meas-
ures, are not able to indefinitely prevent a bid
from being presented to the shareholders.
10. Litigation
10.1 Frequency of Litigation
M&A litigation in Canada is not as prevalent as in
other jurisdictions such as the USA. Class action
securities litigation is relatively new in Canada.
Parties involved in private acquisitions will often
choose arbitration over litigation to provide them
with greater efficiency and confidentiality.
10.2 Stage of Deal
Litigation can occur at any stage of a trans-
action. A plan of arrangement requires court
approval, which provides a forum for aggrieved
stakeholders.
Other remedial avenues for stakeholders include
a cease-trade order or other relief preventing the
consummation of a takeover bid from a securi-
ties regulator.
10.3 “Broken-Deal” Disputes
Canadian courts have reinforced that signed
documents may not be necessary to enforce
a proposed transaction. In a 2023 decision in
favour of Lithium Royalty Corporation, the court
held that an email response “OK, sounds good”
to an offer to purchase an 85% royalty interest
in a mine for USD18.7 million was enforceable.
However, in Frye v. Sylvestre, an Ontario court
held that where all essential deal terms of a
transaction, such as the method of payment,
are not agreed upon, a binding agreement for
the sale of shares was not reached.
In Ponce v Société d’investissements Rhéaume
ltée, the directors entered into an incentive
agreement with the majority shareholders to sell
the shares of the company. Subsequently, the
directors entered into a confidentiality agreement
with a buyer that prevented them from disclosing
the potential acquisition to other majority share-
holders. The directors purchased the shares of
the majority shareholders without disclosing the
acquisition, and resold the shares to the buyer
for a profit of CAN24 million.
The Supreme Court of Canada found that the
duty of good faith under Quebec civil law may
include a positive obligation to inform (and under
common law this might fall under the obliga-
tion of honest contractual performance), which
includes that contracting parties not omit critical
details. Further, the court held that the duty of
good faith requires a minimum level of honest
conduct.

25 CHAMBERS.COM
In Bhatnagar v. Cresco Labs Inc., the Ontario
Court of Appeal held that a seller that became
aware of a potential acquisition of the buyer had
to prove its loss, and that the breach of the con-
tractual duty of honest performance does not
create an automatic presumption of loss.
As arbitration continues to be an increasing-
ly favoured option for M&A disputes, we may
expect to see less jurisprudence in Canadian
courts and look to case law in Delaware (a juris-
diction that Canadian corporate law tends to
follow).
See 3.1 Significant Court Decisions or Legal
Developments for further details.
11. Activism
11.1 Shareholder Activism
Although Canada is seen by some as an activist-
friendly jurisdiction, levels of shareholder activ-
ism tend to lag behind levels of activity in the
USA and Europe, particularly among large-cap
Canadian issuers.
11.2 Aims of Activists
Typically, an activist’s first step is to approach a
board confidentially with their demands, with the
implicit or explicit threat of a public battle if the
requests are not met. From there, activism can
take many forms.
Board activism and proxy fights are prominent
forms of activism in Canada, in which sharehold-
ers seek to have their nominees put forward for
election to the board.
Shareholder proposals also continue to be an
important form of activism. While shareholder
proposals on matters within the board’s purview
are only advisory and not binding, the publicity
they attract can create pressure for change.
Transactional activists sometimes demand stra-
tegic reviews, divestitures, share buy-backs or
increased dividends. They might requisition a
shareholder meeting, wage a public broadcast
campaign in the media or on social media, or
launch their own competing tender offer. Some-
times the goal is to see an alternative transac-
tion implemented; other times, activists try to
improve the terms of the original deal.
11.3 Interference With Completion
In transactional shareholder activism, announced
transactions are frequently a target for cam-
paigns. In some of the most notable recent
examples, shareholders issued open letters
advocating for higher values for their shares and
engaged securities regulators to address claims
of unequal treatment, called on a board to launch
strategic reviews of fossil-fuel assets, and req-
uisitioned a shareholder meeting in response to
a REIT’s plan to sell off some real estate assets.

CANADA Trends and Developments
26 CHAMBERS.COM
Trends and Developments
Contributed by:
SkyLaw
SkyLaw is a premier corporate and securities
firm in Canada. The SkyLaw team has an un-
paralleled practice in international M&A, gov-
ernance and corporate finance. SkyLaw law-
yers have worked at top-tier global law firms in
Toronto, New York, London, Sydney and Dubai,
providing the firm with a unique reach into major
global financial centres. The firm excels in major
acquisitions, bespoke equity and debt invest-
ments, joint ventures and reorganisations. The
majority of SkyLaw’s M&A work involves acqui-
rors based in the USA, the Middle East, Aus-
tralia, China, Europe and elsewhere around the
world. Recent engagements include high-pro-
file private equity investments and strategic ac-
quisitions by Fortune 500 companies. The firm
has once again been voted as one of Canada’s
Top 10 corporate law boutiques.
Authors
Kevin West is a senior corporate
and securities lawyer with 25
years of experience. Kevin has
led countless corporate
transactions, including mergers
and acquisitions, financings and
joint ventures. He also has significant
experience advising companies on corporate
governance, disclosure and compliance
issues. Prior to launching SkyLaw in 2010,
Kevin was a partner at Davies Ward Phillips &
Vineberg LLP, where he represented a number
of foreign companies making acquisitions in
Canada. Before joining Davies, he practised
with Sullivan & Cromwell LLP in New York and
Sydney, Australia, and clerked for Justice Ian
Binnie at the Supreme Court of Canada.
Andrea Hill is a corporate and
securities lawyer with a decade
of experience in a broad
corporate practice. Her areas of
expertise include establishing,
structuring and governing
corporations, raising capital, mergers and
acquisitions, and general corporate and
securities matters. Andrea has published
multiple articles in national Canadian media
and is a repeat contributor by invitation to the
Globe and Mail’s Report on Business. She was
also one of the first corporate lawyers in
Canada to advise regulated cannabis firms,
and she has spoken about Canadian cannabis
laws at some of the industry’s highest profile
conferences.

27 CHAMBERS.COM
Priya Ratti is a corporate and
securities lawyer with a focus on
M&A transactions. Prior to
joining SkyLaw, she ran her own
practice, representing clients in
a wide range of civil litigation
and corporate matters. Priya completed her
law degree at the University of Ottawa, where
she worked with a select team to establish
Canada’s first national, bilingual and student-
run business law clinic providing pro bono
legal services to local entrepreneurs and
start-ups. Priya currently manages
SkyCounsel, SkyLaw’s practice support
platform for independent legal professionals,
and is an active contributor to the firm’s Our
Insights blog.
Tim Ross has a 25-year track
record of building tier-one legal
services businesses
internationally, while helping
clients navigate corporate,
finance, restructuring and
regulatory matters. Tim spent 14 years as an
expat based in London and Dubai. He served
as partner and in progressive leadership roles
at Linklaters, Latham & Watkins, and Bennett
Jones. Tim was General Editor of the Oxford
University Press publication Financial Services
Regulation in the Middle East. His charitable
and non-profit involvements include serving as
Chair of the Foundation for Environmental
Stewardship, a national, award-winning,
youth-led and youth-serving charitable
foundation.
SkyLaw Professional
Corporation
3 Bridgman Avenue
Suite 204
Toronto
Ontario M5R 3V4
Canada
Tel: +1 416 759 5299
Email: kevin.west@skylaw.ca
Web: www.skylaw.ca

28 CHAMBERS.COM
On 30 March 2020, The Economist ran a story
under the headline: “The coronavirus may sink
the cruise-ship business”. Passengers on some
ships were quarantined for lengthy periods due
to COVID-19. Countries like Canada banned
entry to cruise ships. Governments refused
cruise lines the generous pandemic assistance
provided to other industries like airlines. Public
sentiment seemed to be that no one would ever
want to cruise again, and the industry was sink-
ing fast.
Less than four years later, the Icon of the Seas
made her official maiden voyage on 27 January
2024 from the Port of Miami, following a chris-
tening by uber-star footballer Lionel Messi. The
ship can carry a world-leading 7,600 passen-
gers, has 20 decks with seven swimming pools
and boasts the largest water park of any cruise
ship. The Wall Street Journal ran a story on 8
March 2024 with a picture of the Icon of the Seas
under the headline: “Cruises are more popular
than ever – and investors are late to the party”.
According to the Journal, this year’s “wave sea-
son” will break revenue records for cruise lines,
but investors are not yet diving in.
The COVID-19 pandemic rocked the boat in
ways that are still being felt today. The waves of
free cash from governments around the world
increased the money supply, causing inflation
to surge around the globe. Central banks rapidly
increased interest rates in response. The higher
costs, valuation gaps and recession fears in
2023 contributed to a continued slowdown in
deal-making.
So far in 2024, investor morale appears to have
turned the corner. Any hint of a central bank
reducing its key lending rate can send stock
markets soaring. For the most part, investors
and businesses appear to have adjusted to the
post-pandemic world and confidence has been
significantly restored.
However, as can be seen with the cruise indus-
try, the disruptions from the pandemic continue
to impact valuations and investor sentiment, and
deal makers continue to proceed cautiously as
they navigate the post-pandemic waters.
The Outlook for M&A in Canada in 2024
While M&A activity in Canada declined signifi-
cantly in recent years from the blockbuster activ-
ity of 2021, the number of announced transac-
tions is beginning to increase, lending support to
the view that market participants have adjusted
to the current macroeconomic challenges and
valuations have reset in line with the current
environment. The authors anticipate that the
increase in M&A transactions will be driven by
pent-up demand from private equity and pen-
sion plans and founders looking to exit. As an
example, on 1 April 2024, Canadian digital pay-
ments processor Nuvei Corp. announced that it
would be taken private by a US private equity
firm in a transaction valuing the company at
USD6.3 billion, with the founder, a Canadian pri-
vate equity firm and a Quebec-based pension
plan each retaining a significant shareholding.
However, the global economy continues to face
significant uncertainty. Some investors are plan-
ning to wait a little longer on the sidelines as
macro-economic factors – including the risk of
further disruptions from wars and protectionist
governments – influence decision-making.
Canada is well placed to manage the global eco-
nomic turmoil through the strength of its labour
market, banks and natural resources, as well as
increased government investment in key indus-
tries. The Canadian government continues to
invest in, and take steps to protect, critical min-

29 CHAMBERS.COM
erals to strengthen its position along the electric
vehicle supply chain as global demand contin-
ues to grow.
Canada continues to showcase its leadership
in AI development, with CAD2.4 billion in new
federal funding for the industry announced on
16 April 2024. Canada also has the world’s first
national AI strategy, and our AI firms file patents
at three times the G7 average rate. As of 2023,
Canada had over 140,000 actively engaged pro-
fessionals in the AI industry, an increase of 29%
over the prior year, and AI companies attract
nearly a third of all venture capital investment
in the country. Canada recently hosted the ALL
IN conference, attended by representatives from
over 20 countries, the Prime Minister and the
Minister of Innovation, Science and Industry.
The Bank of Canada recently released its busi-
ness outlook survey for the first quarter of 2024
and found that business sentiment and sales
growth expectations have stopped falling, while
overall there are some signs of returning opti-
mism. The Bank of Canada expects it will cut
rates this year, provided the economy and infla-
tion evolve in line with the bank’s projections.
Canada faces economic headwinds from its
weak labour productivity and historic household
debt.
A Senior Deputy Governor of the Bank of Cana-
da sounded the alarm on Canada’s productivity
woes in a speech in March 2024: “I’m saying that
it’s an emergency – it’s time to break the glass”
the central bank’s second in command told a
business audience. Weak productivity makes it
more difficult to control inflation.
Household debt also climbed in 2023 and for
the first time it is higher than Canada’s GDP. This
can make Canada increasingly vulnerable to a
financial crisis, particularly when combined with
the higher costs of carrying a mortgage. Cana-
dians have predominantly chosen five-year fixed
rate mortgages, a large number of which will be
coming due in the near future. Real estate ana-
lysts are worried about a “mortgage cliff” when
mortgage holders find they are unable to renew
their mortgages.
In addition, developments in the United States
can have a significant impact on Canada. As
Pierre Trudeau, the former Prime Minister of Can-
ada, famously described to US President Rich-
ard Nixon in 1969, living next door to the United
States “is like sleeping with an elephant; one is
affected by every twitch and grunt”. At the time
of writing, Donald Trump has a more than even
chance of becoming president again in Novem-
ber 2024, raising the possibility of increased
tariffs and trade wars and greater uncertainty
for businesses. A second Trump administration
could dramatically affect the economy in Can-
ada. The Economist has declared that “Donald
Trump poses the biggest danger to the world in
2024”.
Nevertheless, Canada has started 2024 with
new-found optimism. Barring any further global
shocks, the authors anticipate that this trajec-
tory will continue as confidence increases and
that deal-making will be strong throughout 2024,
albeit perhaps more complex and cautious when
compared to 2021.
Significant Changes to the Foreign
Investment Regime in Canada
There has been a sea change in the federal gov-
ernment’s approach toward foreign investment
and national security review.

30 CHAMBERS.COM
Under the Investment Canada Act, the acquisi-
tion of control of a Canadian business by a non-
Canadian, depending on its value and structure,
is either notifiable or reviewable. The establish-
ment of a new Canadian business by a non-
Canadian, regardless of its value or structure,
may be subject to mandatory notification.
In 2022, a new voluntary pre-closing filing
mechanism came into force, permitting certain
non-Canadian investors to confirm in advance
whether a proposed investment would be sub-
ject to a national security review. If a pre-closing
filing is not made, the government will have up
to five years after becoming aware of a transac-
tion (changed from 45 days) to initiate a national
security review.
Since 2022, investments by entities with ties
to Russia and China, and any foreign invest-
ments into the critical minerals sector and cer-
tain other protected industries, have been more
closely scrutinised on national security grounds.
In November 2022, the government ordered
three Chinese firms to divest their investments
in Canadian lithium companies on national secu-
rity grounds. More recently, a Canadian-based
mining firm, SRG Mining Inc., announced plans
to redomicile to the United Arab Emirates in con-
nection with a deal to sell nearly 20% of the com-
pany to a Chinese investor. On 4 March 2024, in
general remarks at a Toronto mining conference,
the Industry Minister warned companies not to
try to circumvent foreign investment rules. SRG
Mining said the following day that it had can-
celled the proposed investment.
On 1 March 2024, several federal ministries
announced new policies that all foreign invest-
ments in the interactive digital media sec-
tor (including online gaming as well as certain
interactive technology platforms and augment-
ed reality devices) will be subject to enhanced
scrutiny under the ICA. The Ministries cited the
risk, particularly from unnamed “hostile states”,
of state-sponsored or influenced information
manipulation, and noted the importance of
maintaining the Canadian intellectual property
and creative independence of such firms.
Investment Canada Act amendments
Significant amendments to the Investment
Canada Act were enacted on 22 March 2024.
Foreign investors will need to give careful con-
sideration to these changes at an early stage.
Notably, the amendments include a new pre-
closing filing requirement for certain invest-
ments in prescribed businesses, even if they fall
below the prescribed thresholds. While the list
of prescribed businesses has not yet been pub-
lished, the authors expect the list to be lengthy.
Prescribed businesses could include those
involved in AI, biotechnology and manufactur-
ing, particularly in aerospace, critical minerals,
pharmaceuticals and energy generation, storage
and transmission.
The amendments provide that the national
security review provisions can apply to acquisi-
tions even where there is a limited connection
to Canada.
The government will have greater powers to
impose conditions on investments, accept
undertakings and share information with foreign
governments. There will also be stronger pen-
alties for non-compliance with the Investment
Canada Act.
There will be stronger penalties for non-compli-
ance with the Investment Canada Act.

31 CHAMBERS.COM
Change to the Capital Gains Inclusion Rate
On 16 April 2024, the Canadian federal govern-
ment announced a significant change to the
capital gains inclusion rate from 50% to 66.6%
effective 25 June 2024. The change applies to
corporations, individuals and trusts (except that
for individuals, the first CAN250,000 of gains will
continue to be included into income at a rate
of 50%). This change is expected to raise an
additional CAN19.3 billion of taxes during the
period 2024-2029.
The change means that for tax years ending on
or after 25 June 2024, two different inclusion
rates would apply. We expect further govern-
ment guidance to come regarding transitional
rules to separately identify capital gains and
losses realised before and after the effective
date.
The change is likely to have an immediate
impact on M&A activity as sellers will rush to
close their deals prior to the 25 June deadline.
Many details are yet to be finalised, resulting in
potential uncertainty and increased complexity
for tax planning.
The change may also impact business invest-
ments in Canada. When Canada last changed
the capital gains inclusion rate in 2000 from 75%
to 50%, the stated purpose was to encourage
risk taking and provide greater access to financ-
ing. This latest tax change may have the oppo-
site effect.
Say What You Mean and Mean What You Say
Courts in Canada appear to be increasingly find-
ing binding agreements in the absence of the
traditional signed document.
A court found that an email response “OK,
sounds good” upon receipt of a letter of intent
created a binding contract for the sale of an 85%
royalty interest in a mine for USD18.7 million.
In another decision, a court found that a thumbs-
up emoji conveyed the texter’s agreement to be
bound to a sales contract, despite the texter
arguing that he simply intended to acknowledge
receipt.
While these decisions are highly fact-specific
and the prior course of conduct between the
parties was an important factor, these cases are
a cautionary tale for market participants in Can-
ada: be sure to state your intentions expressly,
and avoid texting emojis.
What Should Potential Acquirors Consider in
2024?
• Soaring inflation and rising interest rates
made companies whose profits lie in the dis-
tant future look less attractive, pushing down
valuations and slowing the rate of investment,
particularly in tech companies and start-ups.
With the surge in stock market valuations and
the expectation that interest rates are likely to
fall (or, at least, will not rise further), the valu-
ation gap between buyers and sellers is likely
to shrink.
• The importance of planning and assessing
risk will continue to be a focus in corporate
transactions. Buyers are expected to continue
to proceed cautiously, with longer and more
complex pre-announcement steps being tak-
en as compared to the heady days of 2021.
• Who bears the risk of a pandemic or war?
The relevant transaction document should
make clear how the risk of a future shock
should be allocated. Canadian courts have
generally found that buyers cannot escape
their obligations by pointing to the impact of
COVID-19 on the target business, but in each

32 CHAMBERS.COM
case, it turns on the language used in the pur-
chase agreement.
• Foreign acquirors need to carefully consider
the recent changes to the Investment Canada
Act and determine whether the new voluntary
pre-closing filing mechanism should be used.
The March 2024 amendments to the Invest-
ment Canada Act could significantly impact
the timetable for closing an acquisition of a
prescribed business. The expanded scope of
the national security provisions could impact
a greater number of transactions.
• Recent changes to the taxation of capital
gains may add uncertainty and increased
complexity.
• Earn-out provisions continue to grow in popu-
larity to bridge the valuation gap and mitigate
against the economic risks post-closing.
• Parties should take time to perform detailed
due diligence on counterparties to ensure
compliance with the evolving list of sanctions
and anti-money laundering legislation.
• Canada’s move to “friend-shoring” will impact
acquisitions and trade. Many Canadian busi-
nesses are dependent on cross-border trade.
Rising protectionism in the United States and
other trading parties, exacerbated by geopo-
litical tensions, can limit the growth poten-
tial of Canadian businesses. There may be
greater political risk to transactions in politi-
cally sensitive industries.
• Insolvencies are expected to continue to
rise, making buyers more cautious but also
creating an opportunity to acquire attractive
distressed assets.
• Canadian businesses are increasingly restruc-
turing under the arrangement provisions of
corporate statutes instead of the traditional
insolvency proceedings, providing more flex-
ibility to recapitalise at an earlier stage in the
process.
Looking Forward
The authors believe that business confidence
has returned and there will be increased deal-
making in 2024. The pent-up demand for deals,
particularly in private equity, should put more tar-
gets in play. A rising tide lifts all boats, so with the
surging stock market in the first quarter of 2024
and the expectation of interest rate reductions
by central banks, there will likely be increased
deal-making across all sectors. Just as cruise
passengers have dusted off their cabana wear
and hit the high seas, the authors expect market
participants will be sharpening their pencils and
getting deals done.

CHAMBERS GLOBAL PRACTICE GUIDES
Chambers Global Practice Guides bring you up-to-date, expert legal
commentary on the main practice areas from around the globe.
Focusing on the practical legal issues affecting businesses, the
guides enable readers to compare legislation and procedure and
read trend forecasts from legal experts from across key jurisdictions.
To find out more information about how we select contributors,
email Katie.Burrington@chambers.com

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