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Takeover Bids in Canada and Tender Offers in the United States

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Takeover Bids in Canada and Tender Offers in the United States TAKEOVER BIDS IN CANADA AND TENDER OFFERS IN THE UNITED STATES Torys provides insight on steering takeover transactions through the regulatory regimes on both sides of the border. A Business Law Guide i TAKEOVER BIDS IN CANADA AND TENDER OFFERS IN THE UNITED StatES A Business Law Guide This guide is a general discussion of certain legal matters and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the matters in this guide with you, in the context of your particular circumstances. ii Takeover Bids in Canada and Tender Offers in the United States © 2016 Torys LLP. All rights reserved. CONTENTS 1 INTRODUCTION ...................................................................................... 3 Regulatory Differences at a Glance ...................................................................... 4 2 THE LAY OF THE LAND ................................................................... 7 Triggering the Canadian and U.S. Legal Regimes ................................................ 7 Target Shareholders in Canada ........................................................................... 7 Target Shareholders in the United States ............................................................ 8 Cross-Border Exemptions ..................................................................................... 9 Disclosure Liability ................................................................................................ 9 Alternatives to a Bid ........................................................................................... 10 Friendly Versus Unsolicited Transactions .......................................................... 11 Going-Private Transactions ................................................................................ 12 3 PRE-TRANSactION ISSUES .................................................... 15 Insider Trading .................................................................................................... 15 Public Disclosure About a Bid ............................................................................ 15 Acquiring a Toehold ............................................................................................ 16 Early Warning Disclosure ................................................................................... 17 Lockup Agreements ........................................................................................... 18 4 THE RulES OF THE ROAD ........................................................ 21 Timeline .............................................................................................................. 21 Announcing a Transaction .................................................................................. 21 Commencing a Transaction ............................................................................... 21 The Target’s Response ....................................................................................... 21 Deposit Period for Tendering to an Offer .......................................................... 22 Changes to Bids .................................................................................................. 23 Withdrawal Rights .............................................................................................. 24 iii Takeover Bids in Canada and Tender Offers in the United States Price .................................................................................................................... 24 Purchases Outside a Bid .................................................................................... 24 Collateral Benefits .............................................................................................. 24 Conditions ........................................................................................................... 26 Shareholder Approval ......................................................................................... 26 5 SECOND-StEP TRANSactIONS .......................................... 29 Second Steps in Canada .................................................................................... 29 Second Steps in the United States ................................................................... 30 Appraisal Rights ................................................................................................. 30 6 THE TARGET’s BoARD OF DIRECTORS ....................... 32 Overview of Fiduciary Duties ............................................................................. 32 The Duty to Maximize Shareholder Value ........................................................ 33 Target Board Practices ....................................................................................... 35 Defensive Measures .......................................................................................... 35 Poison Pills .......................................................................................................... 36 State Anti-Takeover Statutes .............................................................................. 36 Legal Challenges ................................................................................................ 37 Alternative Transactions ..................................................................................... 37 Defensive Charter or By-Law Provisions ............................................................ 37 Deal Protections ................................................................................................. 38 No-Shop and Go-Shop Clauses .......................................................................... 38 Breakup Fees ...................................................................................................... 38 Asset Lockups ..................................................................................................... 39 7 DOCUMENtatION AND REgulatORY REVIEW .... 41 Acquiror’s Offer to Purchase ............................................................................. 41 Financial Statements ......................................................................................... 42 The Target Directors’ Response ......................................................................... 42 The Merger Agreement ...................................................................................... 43 8 OtHER REgulatORY CONSIDERatIONS ..................... 46 Antitrust/Competition Laws ................................................................................. 46 Pre-Merger Notification ........................................................................................ 46 Advance Ruling Certificates ................................................................................. 47 Hart-Scott-Rodino ................................................................................................. 47 Foreign Investment Review .................................................................................. 48 Tax Planning .......................................................................................................... 49 9 AVOIDING Dual REgulatION: CROSS-BORDER EXEMPTIONS ........................................................................................... 51 The Multijurisdictional Disclosure System .......................................................... 51 U.S. Tender Offer Rules for Canadian Targets Under the MJDS ......................... 52 Canadian Takeover Bid Rules for U.S. Targets Under the MJDS ......................... 52 Exemptions Based on De Minimus Shareholders in a Jurisdiction .................... 53 10 APPENDIX ............................................................................................... 55 v Takeover Bids in Canada and Tender Offers in the United States 1 INTRODUCTION In the world of mergers and acquisitions, the border between Canada and the United States is virtually invisible, with M&A activity between the two countries fuelled by economic, political and geographical drivers. Canada is a relatively appealing source of target companies for U.S. businesses because of its physical proximity, cultural and regulatory similarities, minimal geopolitical risk and wealth of natural resources. At the same time, Canadian companies seeking to be global players—or otherwise grow significantly—naturally look for acquisition opportunities in the much larger U.S. market. This guide focuses on cross-border transactions structured as takeover bids in Canada or tender offers in the United States. Takeover bids and tender offers involve an acquiror making an offer to target shareholders to acquire some or all of their shares. In a hostile situation, a takeover bid or tender offer is the only way to acquire a Canadian or U.S. target company. In a friendly situation, many variables will influence if this is the best way to acquire a target, compared with a merger (in the United States) or an amalgamation or plan of arrangement (in Canada). The most appropriate form of transaction will often become apparent during planning or negotiations and will depend on how quickly the acquiror wants to gain control of the target, the tax implications of the transaction, the available methods of financing the transaction, regulatory hurdles such as antitrust review, among other factors. This guide provides a side-by-side review of the Canadian and U.S. legal regimes governing takeover bids and tender offers to help acquirors and targets prepare for a cross-border bid.
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