Mergers & Acquisitions
Canada has a very active mergers-and-acquisitions market. There are several key issues to consider in the transaction process of mergers and acquisitions, and they include:
1. Securities law requirements
2. Tax considerations
3. Competition (antitrust) law requirements
4. Foreign investment requirements under the Investment Canada Act
5. Labour relations and employment considerations
Generally, the two common methods for acquiring control of a public company are:
1. Take-over bid
- An offer is made to all shareholders, which is open for acceptance by the target company’s shareholders. A take-over bid can be friendly or hostile.
2. Plan of arrangement
- A statutory plan of arrangement is usually implemented as an agreement between the bidder and the target company. A plan of arrangement can also be flexible to the type of transaction or combination of transaction for purchase that can include such things as share purchases, transfers of assets, issues of new shares, amalgamations and more.
Jurisdiction of securities regulation in Canada is conducted primarily by the provinces, as there is no federal securities commission. The federal government, however, does regulate matters, such as competition and foreign ownership. Provincial securities regulators have harmonized the rules governing take-over bids, so there is effectively one set of procedural rules across Canada. Formal take-over bids and the bidder’s offer documents are not required to be reviewed by securities regulators before the take-over bid can be delivered to or accepted by the target company’s shareholders. Securities regulators, however, can selectively review take-over bids for compliance with rules. Plans of arrangement are not required to be reviewed or cleared by securities regulators before being delivered to the target company’s shareholders, but plans of arrangement require preliminary court approval and final court approval. Canada’s stock exchanges can also impose requirements on take-over bids and plans of arrangement.
For foreign investors (non-Canadians) considering an acquisition of a Canadian company, there are restrictions that apply to some transactions under the Investment Canada Act. Foreign investors may be required to file a review to the government depending on the enterprise value, business being acquired and industry involved. The threshold for the enterprise value will also vary on whether or not the foreign investor is from a country that is a member of The World Trade Organization (WTO).
A merger is essentially a Plan of Arrangement (similar to acquisition) that is an amalgamation of two Canadian companies under corporate law to merge directly into one combined company. While not common, it may be the more preferred method in a straightforward merger, since it avoids the necessity of court proceedings. It is similar to the conditions contained in a take-over bid, except that it requires a smaller majority shareholder vote to approve it.
The jurisdiction environment is the same same for mergers, but as corporations will be incorporated federally or in a province, the relevant corporate law will affect the process and requirements of the mergers conditions.
There are also financial restrictions for mergers of Canadian companies. Notification to the Competition Bureau under the federal Competition Act is required when two thresholds are exceeded: first where the involved parties have assets that exceed the set value limit stated by the act, and second by the size of the specific transaction. It is reviewed to determine whether the transaction would result in a substantial lessening of competition in Canada in the relevant product and geographic markets.
Additional Resources for Mergers & Acquisitions
More in-depth information on mergers and acquisitions and additional business considerations such as regulations, agreement components, contract conditions and share structure can be found in the following publication.
Mergers and Acquisitions in Canada (2015) (1.9 MB)
(Borden Ladner Gervais LLP)