The document outlines the framework for cross-border mergers and acquisitions (M&A) in Canada, emphasizing key compliance aspects such as due diligence, securities laws, tax implications, and competition law thresholds. It details regulations regarding toehold acquisitions, early warning disclosures, and acquisition structures like take-over bids and plans of arrangement. Additionally, it highlights the regulatory review processes under the Competition Act and the Investment Canada Act, as well as potential outcomes for transactions.

1. Cross-Border M&A
Canada is Open for Business

2. www.gowlings.com
2

3. Building Your
Acquisition Model
3

4. Building Your Acquisition Model – Due Diligence
4
Public company due
diligence
www.sedar.com
www.sedi.com

5. Building Your Acquisition Model – Toeholds
Toehold
• Permitted: watch out for pre-bid
integration rules
• Stop before you reach 10%: early
warning rules require a toehold
position to be disclosed when the
acquirer’s ownership exceeds
10%
• Takeover bid rules are triggered
when acquirer accumulates 20%
or more ownership
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6. Building Your Acquisition Model – Early Warning
• Canadian securities laws require “early warning” public
disclosure at 10% or more, plus accumulations of 2%
or more. (Note that U.S. laws (if applicable) require
early warning disclosure at 5%)
• 10% threshold reduced to 5% if the target is already
the subject of a bid
• Typically, an acquirer may accumulate in the market a
toehold that is just below the disclosure level
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7. Building Your Acquisition Model – Joint Actors
7
Watch out for the “joint actor” rules:
Canadian securities laws contain an anti-avoidance
scheme, the effect of which is to include in the 20%
(and the securities subject to the 10% early warning
disclosure), securities owned directly, or indirectly, by,
among others, persons or companies acting jointly
or in concert with a bidder, under an agreement,
commitment or understanding

8. Tax Losses
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9. Tax Losses
“Acquisitions of control” gives rise to:
• Restrictions on access to business losses and tax
pools
• Expiring of capital losses
• Write-down to fair market value from of capital and
depreciable property
9

10. 10
The Right Structure

11. The Right Structure
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• Take-over bid
• offer made directly to shareholders, not
necessarily with agreement of the target
• Amalgamation
• a “merger” made by agreement with the
target, filed with a government ministry for
routine processing, after approval has been
obtained at a special shareholders meeting
• Plan of arrangement
• a “merger” made by agreement with the
target, submitted for court approval after the
shareholders approve at a special meeting

12. Tax Structuring
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13. Tax Structuring
Use of cross-border Canco is generally the best
approach for both share and asset purchase
13

14. 14
Tax for the
Shareholders

15. Withholding Tax
• Withholding tax on dividends is 25%, generally
reduced by treaty to 5% or 15%
• Withholding tax on interest
• 0% if parties are arm’s length
• 25% reduced to 0% in Canada–US Treaty if parties
are NAL
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16. Competition Law and
Investment Canada
Act
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17. Competition Act
Notification Threshold:
Party size exceeds C$400million and acquired
business size exceeds C$82 million
• More specifically, the parties, together with their
affiliates, have assets in Canada, or annual gross
revenues from sales in, from or into Canada, exceeding
C$400 million and the assets in Canada of the acquired
business, or the annual gross revenues from sales in or
from Canada generated by such assets, exceed C$82
million’
• C$82 million threshold likely to be increased to C$86
million soon
17

18. Investment Canada Act
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Review Threshold: Book value of target exceeds
C$354 million
• lower thresholds apply to non-WTO investors or
if target caries on a cultural business;
• C$354 million threshold to be increased to
C$369 million soon

19. Review Process and Timing
19
Competition Act:
• Where prescribed form submitted: 30 days,
subject to extension if the Competition Bureau
issues a Supplementary Information Request
(SIR)
• Where ARC Request Submitted: Bureau will
classify as “non-complex” or “complex”
• If “non-complex” Bureau will endeavor but is
not required, to complete its review within 14
days; 45 days if “complex”
Investment Canada Act:
• 45 days, subject to extensions
• large transactions with significant political
implications tend to take several months

20. Tests in assessing a transaction
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Competition Act:
• Is the transaction likely to prevent or lessen
competition substantially?
Investment Canada Act:
• Is the transaction likely to be of net benefit to
Canada? (Finding based on undertakings given
by investor. Tend to focus on employment,
capex, and Canadian involvement in
management)

21. Competition Act
21
Possible Outcomes:
• Competition Bureau does not challenge transaction
(vast majority)
• Competition Bureau does not challenge transaction
based on concessions made by the parties, such
as the divestiture of certain assets (rare)
• Competition Bureau challenges transaction (very
rare)

22. Investment Canada Act
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Possible Outcomes:
• Most transactions are approved. Very few have
been formally rejected
• For transactions that could raise significant political
concerns, investors should not underestimate the
importance an effective government relations
strategy
• SOEs: Special rules apply
• National Security: Government can review and
reject or condition any investment that could be
injurious to national security
• It appears to have exercised this power
conservatively

23. Take-Over
Bid ?
Plan of
Arrangement?
23

24. Take-Over Bid
• Compulsory Acquisition
• If reach 90% acceptance, then the rest of the shares
can be compulsorily acquired at the same price
relatively quickly
• Second-Step Transaction
• Step One: acquire up to 66-2/3% of shares
• Step Two: shareholder meeting to acquire the
balance
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25. Take-Over Bid
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Bid Conditions
In a take-over bid, the acquirer can specify
conditions that must be met or waived before it is
required to complete the offer or the bid lapses,
for example:
Acquisition of shares: Typically the
minimum specified is two-thirds of the
outstanding shares not owned by the
acquirer
Receipt of required regulatory approvals
No material adverse change
BUT
Financing must be in place before a bid is
launched
No “side deals”

26. Plan of Arrangement
26
• Court-approved
• 66⅔% security holder approval
(generally)
• Permits a multi-step transaction to
meet tax and corporate objectives to
be completed in a single “step”
• If acquirer is offering shares as
consideration and target US
shareholders, US registration
exemption available

27. Tax Rules
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28. Tax Rules
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• Thin cap rules apply if debt:equity > 3:2
• Rigorous transfer pricing rules
• New and complicated foreign affiliate dumping
rules
• Anti-treaty shopping rules in Canada-US Treaty

29. Q&A
29

30. Thank You
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Visit www.gowlings.com
Email: vanessa.grant@gowlings.com
ian.macdonald@gowlings.com
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