Regulatory Role on Mergers and Acquisition in Canada

Overview of M&A Activity

The experts surveyed the M&A market of Canada on last quarter of 2012 and they
saw tremendous growth of the M&A market and it was healthy too. But the irony is
that the expectation and the activity declined in 2013 and it continued to be in a
fragile state over the years. There was total of 934 deals were announced in 2013,
which have transaction value of CAD 158 billion. This was 14% less than the total
transaction took place in 2012. There are several reasons for the decrease in the
activity throughout the years. The number of transaction rejected by federal
government on regulatory, policy and national security grown in the past years.
Similarly, 2014 also continued to experience a slow down in transactions, total
of 189 transactions were announced and transaction value is CAD 31.1 billion. This is
low when comparing to the last quarter of 2013. Nevertheless, there are some signs of
M&A recovery in Canada. Some acquisition like Loblaw Companies Limited
acquiring Shoppers Drug Mart Corporation, and Valeant Pharmaceuticals
International, Inc.s acquisition of Baush + Lomb Inc. are the proof.
Introduction to the Legal Framework for M&A
There are several methods employed in acquiring control of Canadian companies, but
Canadian M&A mostly take place by two different methods. They are,
I.
II.

Takeover Bid
Plan of Arrangement

Takeover Bid
A transaction that acquire shareholders share of Target Company directly is called as
Takeover bid. The target company can set up a board of directors to make changes and
recommendations to its shareholder. This board of directors has an impact on the
decision that is taken by the shareholders. Although support of the board is not legally
required to effect a takeover bid. This board will become mandatory when the
transactions become unsolicited or hostile takeover. The provincial security law
regulates the conduct and timing of takeover bid, and delivery and disclosure of the
offer document.
The takeover bid is similar to the tender offer under US securities laws. But
the only difference is the objective of take over bid; a formal takeover bid to all
shareholder is required when a company acquires 20% or more of the outstanding
voting or equity securities of the target company. If the bid is made for cash
consideration or has a cash component, the bidder should make arrangement to make
the payment available before the takeover bid take place. And should make sure to
make full payment to all shareholder of target company. In most of the takeover bid in
Canada, financial conditions are not included.

Effective from May 9, 2016, there are three fundamental changes made to the
Canadian takeover bid regime. They are,

50% Minimum Tender Requirement: Takeover bid should have a nonavoidable 50% minimum tender of the outstanding securities, excluding those
beneficially owned, or which bidder can control or direction is exercised.

10-Day Extension Requirement: Following the 50% Minimum Tender

Requirement, take over bid will need at least 10 days extension time to meet
the various requirements stated.

105-Day Bid Period: The takeover bid should remain open for minimum of
105 days, subjected to two exception the deposit period news release and
alternative transaction.

Takeover Bid Rules

There are several rules that are to be followed while acquiring a target companys
share through the take over bid. They are,

Equal treatment of Shareholders

Requirements of timing and deliver should be satisfied
Bid Condition should be fulfilled
Minimum tender condition should be satisfied
Exemption of takeover bid should be followed
Voting rights of inferior voters should be protected

Advantages of Takeover bid

While doing a hostile transaction, there is no need of negotiation of any

agreement with the board members of direction.
Only argument and appraisal rights are given to the non-tendering shareholder
in particular unavoidable conditions. No rights were given to the shareholders
of the target company.
Helps dynamic firms to takeover over the unstable firm under their control and
make them in to profitable firm.
Research and development department will be profited by the profit obtained
by taking over the other firms. It also allows to make much risky investment.

Disadvantages of Takeover bid

The takeover bid results in the acquisition of all the outstanding shares and
may results in private transaction if the transaction is less than 90% of shares
tendered.
The time period will be increased to six to eight weeks to obtain 100%
ownership after going into private transaction.
The mandatory financial requirements that are applicable for transition are
problematic for some purchases.

The new firm will find hard to keep up with the economical aspects
Plan of Arrangement

The Plan of Arrangement is a voting transaction. It is different from bidding; in plan

of arrangement a meeting is conducted between Target Companys shareholder and
the board of directors arranges it. A voting will be taken on the proposed acquisition.
The meeting held should fulfill the corporation laws of the target companys
jurisdiction of incorporation. And is monitored by the Target companys director and
shareholder and their approval is necessary to move to the next stage. In this process,
the arrangement is court supervised and the judge should determine weather it is fair
and reasonable to get approved.
The substantial flexibility makes the plan of arrangement transaction a preferred mode
of transaction in Canada. The plans of arrangement rules are different than the
takeover bid rules, it gives more detail about facilitate structuring, strategies and tax
planning objective. A series of steps are created and are effectively arranged so that
they are performed in time with an emphasis to priority.
In the other word, a plan of arrangement involves two-court appearance and a
shareholders meeting. In the first court appearance, the parties request calls an order
of special meeting between the shareholders to discuss about the voting rites and the
percentage of approval required. The court will ensure that the shareholders are
treated fair. In the second appearance, court will issue the final order of plan of
arrangement.
Advantages of Plan of Arrangement

It offers the flexibility over the structuring and also it can accommodate the
needs of numerous classes of security holders.
It helps to acquire 100% of the target with the approval of the two bodies and
also with the voting.
The information is circulated with respect to meeting and it need not to be
translated.
It eliminates all the restriction faced by the takeover bid

Disadvantages of Plan Arrangement

It has longer time frame. Normally more that 60 days and it will increase the
cost simultaneously.
Even when shareholder and the board approve the transaction, there are
chances of it get rejected by the court.
It can be only used in the friendly acquisition situation.

Other Transaction Structures

The other common forms of M&A transaction structure are statutory amalgamation
and capital reorganization. An amalgamation is a close equivalent to a merger under
the state law in the United States. This is however not a legal activity under Canadian
corporate law. Under the Canadian corporate law, the amalgamation effectively
combines to form a single corporation. A capital reorganization has an amendment to

the share capital of the target companys document that results in a mandatory transfer
of the target companys shares to the acquirer in exchange for cash or shares of the
acquirer. There are some of other transaction structures, which are rarely used by the
Canadian public companies. They are Protection of minority shareholder in conflict of
interest transactions, Defensive tactics and shareholder right plans and Stock
exchange requirement.
Reference
Canadian Public Company Merger and Acquisition: A practical guide to the issue
surrounding acquisitions of public companies in Canada. (2016). Retrieved
from: https://www.osler.com/osler/media/Osler/reports/mergersacquisitions/Canadian-Public-Company-M-A-Guide-2016.pdf
Zerdin, M. (2014). The Merger and Acquisitions reviews. Canada (pp. 144-159).
London, United Kingdom: Gideon Roberton.
Pettinger, T. (2012, November 28). Takeovers. Retrieved from:
http://www.economicshelp.org/blog/glossary/takeover/