Canadian M&A Perspectives

Private and Public Mergers & Acquisitions | Private Equity

Canada’s early warning rules get tougher in May

Canadian Securities Administrators adopt enhanced disclosure, retain 10% reporting threshold

Posted in Canadian Market Entry, Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy

Along with the announcement on February 25, 2016 of final amendments to Canada’s take-over bid regime (see our February 26, 2016 publication, Canada’s New Take-Over Bid Rules Seek to Level the Playing Field, relating to that announcement), the Canadian Securities Administrators (CSA) published the text of final amendments to Canada’s Early Warning Regime (EWR), which will take effect on May 9, 2016.1

Background

The release of the amendments (EWR Amendments) brings to an end a three-year engagement by the CSA with market participants that began in March 2013 with an initial set of EWR proposals (see our March 15, 2013 publication, Proposed Changes to Early Warning Reporting System Address Market Transparency and Shareholder Activism in Canada, relating to the initial EWR proposals) and the CSA’s subsequent update to those proposals on October 10, 2014 (see our October 15, 2014 publication, Early Warning Reporting Threshold Remains at 10% While Other Changes to Enhance Transparency Will Be Implemented, relating to the updated proposals). Continue Reading

Canada’s New Take-Over Bid Rules Seek to Level the Playing Field

The Canadian Securities Administrators confirm the adoption of a harmonized Canadian take-over bid and issuer bid regime (including a 105 day minimum bid period), effective May 9, 2016

Posted in Canadian Market Entry, Contractual Matters, Private Equity, Private Transactions, Public M&A, Shareholders, Strategy

On February 25, 2016, the Canadian Securities Administrators (CSA) published a CSA Notice of Amendments to Take-Over Bid Regime confirming the adoption of a harmonized take-over bid and issuer bid regime for all Canadian jurisdictions (New Bid Regime),1 effective May 9, 2016.2

On February 25, 2016, the CSA also published a CSA Notice of Amendments to Early Warning System, which confirms the adoption of changes to Canada’s early warning reporting (EWR) system. These changes to the EWR system are to come into effect at the same time as the New Bid Regime and will be reflected in amendments to NI 62-104 and National Instrument 62-103 – The Early Warning System and Related Take-Over Bid and Insider Reporting Issues, and will be largely consistent with the update on changes to early warning rules released by the CSA on October 10, 2014. A separate article on these changes will follow.

The New Bid Regime is largely consistent with the CSA Notice and Request for Comment published by the CSA just shy of a year ago on March 31, 2015 (Prior Proposal), with one significant variation – rather than increasing the minimum bid period to 120 days as described in the Prior Proposal, the CSA has settled on a minimum bid period of 105 days. The driving factor behind changing the minimum bid period to 105 days (rather than 120 days) is the CSA’s desire to preserve the utility of the compulsory acquisition provisions available under Canadian corporate law statutes. Continue Reading

Rethinking Representation and Warranty Insurance in Canada

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Strategy
Jake IrwinLama Sabbagh

With special contribution from Robyn Weber, AVP, Private Equity Practice Leader, HUB International

The sale of Representation and Warranty Insurance (“RWI”) policies has soared in recent years. In the United States, between 2012 and 2014, the number of RWI policies issued has doubled every year. Yet Canada has not been as quick to adopt RWI in M&A transactions mainly due to our typically smaller transaction values, making RWI cost prohibitive in many instances.

However, the Canadian market is warming to RWI as the cost of this insurance product has decreased by approximately 50% over the past 5 years. With the increased demand for RWI to facilitate deals, insurers have also been quick to develop new customized solutions for risk allocation, making RWI even more attractive. As the underwriting process has been streamlined and insurers have developed a proven claims history, RWI is now a recognized product in the M&A community.

RWI reduces, or even eliminates, seller proceeds being trapped in escrow under traditional indemnification provisions and ensures the buyer is able to recover losses directly from a financially secure insurer. It also facilitates the often complex negotiations surrounding representations and warranties that sellers are willing to give and buyers are willing to accept, potentially reducing legal fees.

RWI does not make sense for all transactions. Prior to proceeding with a RWI policy, in addition to cost, timing and coverage considerations, we recommend a careful review of the policy exclusions and how they line up with the risk profile of the business.

For more information on the benefits of RWI, the process and timing considerations for obtaining RWI, and the costs of RWI, check out our Canadian Representation and Warranty Insurance FAQ.

Canadian Representation and Warranty Insurance FAQ

Posted in Contractual Matters, Private Equity, Private Transactions, Public M&A, Strategy
Ian C. MichaelJake IrwinLama Sabbagh

With special contribution from Robyn Weber, AVP, Private Equity Practice Leader, HUB International

In the context of the purchase and sale of a company, when sellers seek to negotiate a “clean exit” and limit exposure to indemnification claims and buyers seek to avoid unknown pre-closing risks, the question increasingly arises: can’t insurance cover these risks?

Canadian M&A participants have been slower than participants in other markets to regularly seek this type of insurance, known as Representation and Warranty Insurance (“RWI”). However, insurers have been quick to offer RWI products and interest is growing. The rationale for purchasing insurance can be unique for each party.

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Cybersecurity and M&A – Part Three: Cyber Insurance

Posted in Contractual Matters, Private Transactions, Public M&A
Roland HungMatthew HarrisBeverly Ma

In the second installment of this series we offered a brief review of cybersecurity provisions and considerations in M&A transaction agreements, and in the first installment of this series we offered a brief review of cybersecurity issues that can arise in the course of M&A transactions and discussed the importance of cybersecurity due diligence by the buyer. This third installment will focus on cyber-insurance and some specific considerations relating to cyber insurance that targets and acquirers should make in the context of M&A transactions.

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Updated OECD Principles of Corporate Governance: Canada Continues to be Ahead of the Curve

Posted in Public M&A, Shareholders, Strategy
Ryan HornbyBlake Jones

The OECD’s updated G20/OECD Principles of Corporate Governance (the “Principles”) highlight that core corporate governance principles are well embedded in the Canadian framework and that many of the new governance initiatives outlined in the Principles are already being pursued in Canada.[1] The Principles, first published in 1999 and previously revised in 2004, provide a widely accepted international reference point used by policymakers in setting corporate governance standards across the globe.

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Harnessing Social Media for Crisis Management: Lessons following recent events involving short seller allegations

Posted in Canadian Market Entry, Public M&A, Shareholders, Strategy
Shane C. D'SouzaDeandra L. SchubertBlake JonesAndrea Kareclas

In October, 2015, short-sellers attacked three Canadian public companies: Valeant Pharmaceuticals International, Inc., DH Corporation and Nobilis Health Corp. All three companies refuted the short sellers’ allegations in traditional media. We suggest below that these companies could have also used social media to get their side of the story out. In our view, there was a potential opportunity to further influence market sentiment about allegations that had already negatively impacted secondary market trading.[1]

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The 2016 Proxy Season: Updates to the ISS Canadian Proxy Voting Guidelines

Posted in Shareholders, Strategy

The following post on the Canadian Securities Regulatory Monitor blog may be of interest to readers of this blog:  The 2016 Proxy Season: Updates to the ISS Canadian Proxy Voting Guidelines.

On November 20, 2015, Institutional Shareholder Services Inc. (“ISS”) released its updated Canadian proxy voting guidelines for meetings on or after February 1, 2016.1 The updates provide new or updated guidance with respect to voting for equity compensation plans, electing directors with too many board appointments and electing directors of externally managed issuers such as REITs.  Read More

 

Universal Proxies Coming to Canada? The CCGG Makes Its Case

Posted in Public M&A, Shareholders
Fraser BourneBlake Jones

In a recent policy statement, the Canadian Coalition for Good Governance (“CCGG”) endorsed the use of “universal proxies” whenever there is a contested director election at a Canadian public company. A “universal proxy” is a proxy voting form which lists all nominees for election regardless of who nominated them (whether management or dissident shareholder). Although there is nothing under corporate or securities laws which prohibits a company or a dissident from using a universal proxy,[1] it is common practice for Canadian issuers and dissident shareholders to solicit votes with the use of proxies which only list their own nominees. Continue Reading

Cybersecurity: More than a Byte-Sized Problem in M&A

Part Two: The Transaction Agreement

Posted in Contractual Matters, Private Transactions, Public M&A
Roland HungMatthew HarrisBeverly Ma

In a previous blog entry, we offered a brief review of cybersecurity issues that can arise in the course of M&A transactions and discussed the importance of cybersecurity due diligence by the buyer. This entry will focus on contractual provisions that the buyer can request in the definitive transaction agreement to hedge against any cybersecurity risks it assumes. In particular, this blog post will focus on purchase price adjustments, representations and warranties, and indemnities. Continue Reading