Since Canada’s new harmonized take-over bid regime (New Bid Regime) came into effect earlier this year, there’s been a lot of talk about whether tactical private placements will become the new poison pills. For more information on the New Bid Regime see our previous article, Canada’s New Take-Over Bid Rules Seek to Level the Playing Field.
A “tactical private placement” occurs when a target company issues securities to a friendly party in response to an unsolicited take-over bid in order to make it more difficult and/or more expensive for the hostile bidder to complete a take-over of the target … Continue Reading
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.… Continue Reading
In our two recent articles, available here and here, we outlined how social media can influence proxy contests and identified some potential legal challenges with this development. This update focuses on the recent use of social media in the high-profile (failed) hostile bid for Syngenta AG (“Syngenta”) by Monsanto Company (“Monsanto”).
In May 2015, Monsanto made a $45 billion bid (its third bid in four years) for Syngenta. Syngenta’s board almost immediately rejected the offer on the grounds of anti-trust concerns and lack of protection for shareholders should the deal fall apart. The rejection … Continue Reading
Earn-out provisions are intended to provide a “win-win” scenario for buyers and sellers to maximize their post-closing returns. However, they can also lead to post-closing controversy and litigation. For instance, what happens when the buyer’s actions divert, defer or entirely prevent an earn-out payment from being triggered? The Delaware Supreme Court’s recent decision in Lazard Technology Partners, LLC v. Qinetiq North America Operations, LLC provides a cautionary tale relating to the drafting of earn-out provisions in M&A transactions.
As discussed in a previous blog post, earn-out provisions are negotiated to bridge the valuation gap between buyers and sellers. … Continue Reading
After taking a break last proxy season, “golden leash” arrangements are back in the spotlight. A few days ago, Institutional Shareholder Services Inc. (“ISS”) gave “cautious support” to so-called “golden leash” arrangements between Third Point LLC and its two nominees to the board of Dow Chemical Co.… Continue Reading
Social media has very seldom been leveraged in Canadian proxy contests. One reason for this may be the lack of knowledge about its full potential. To address this reason, our first post in this series reviewed social media’s impact on public discourse and proxy contests in the U.S. and Canada.
Another reason for the limited use of social media in Canadian proxy contests is the lack of specific regulatory guidelines. Unlike in the U.S., in Canada there is no regulatory guidance on the use of social media to communicate with shareholders. This article reviews some legal considerations applicable … Continue Reading
Social media has revolutionized how stakeholders receive information about companies. An estimated 1.79 billion people used social media in 2014; 2.44 billion will by 2018. Despite such staggering statistics, social media has not been leveraged to its full potential in Canadian proxy contests. According to a 2013 survey, a majority of directors on the boards of Canada’s largest companies acknowledged that they did not know much about social media.
This is the first of two posts about harnessing social media in Canadian proxy contests. It reviews the use of social media to influence public discourse and proxy contests … Continue Reading
This is the final article in our mini-tender trilogy. We have previously discussed mini-tender offers from the perspectives of the offeror, and the issuer and shareholders. This article considers how mini-tenders might be strategically used in proxy contests.
As shareholder activism rises, the activists’ toolkit keeps evolving. The strategic use of a mini-tender offer in a recent proxy contest suggests that such offers may increasingly be considered as a means of influencing the outcome of proxy contests.… Continue Reading
After taking a break this past proxy season, “golden leash” arrangements are back in the spotlight. A few days ago, Third Point LLC proposed so-called “golden leash” arrangements for their two nominees to the board of Dow Chemical Co.
“Golden leash” arrangements arise when a shareholder activist privately offers to compensate its nominee directors in connection with such nominees’ service as a director of the target corporation. Arrangements vary but include compensating activist directors who are elected based on achieving benchmarks, such as an increase in share price over a fixed term. Shareholder activists only provide such incentives to elected … Continue Reading
In our previous article, we introduced mini-tenders and discussed the factors that should be considered before launching a mini-tender offer. As a refresher, a mini-tender is an offer to purchase securities below the threshold that triggers regulatory rules for take-over bids. Such an offer is not specifically regulated and can be used to acquire small but not insignificant positions in public companies, often at a discount to the prevailing market price.
In this article, we discuss mini-tenders from the perspective of issuers and shareholders.
… Continue Reading
Mini-tenders have a bad reputation, which may explain why they are used infrequently. This is the first in a trilogy of articles about mini-tender offers from the perspectives of offerors, issuers and shareholders. It reviews factors that an offeror should consider before launching a mini-tender offer.
A mini-tender is simply an offer to purchase securities below the threshold that triggers regulatory rules for take-over bids. Such an offer is not specifically regulated and can be used to acquire small but not insignificant positions in public companies, often at a discount to the prevailing market price.
… Continue Reading
A duty to negotiate in good faith appears to run counter to the adversarial nature of bargaining. However, parties may have a duty to negotiate in good faith according to the recent decision in SCM Insurance Services Inc. v. Medisys Corporate Health LP, 2014 ONSC 2632, where the Ontario Superior Court held that the parties had intended to create “an enforceable obligation” to negotiate in good faith despite no express covenant to do so.
Summary of Facts
In 2011, Medisys sold its independent medical examinations (IME) business to the Plaintiffs and agreed to a five year non-compete and non-solicit … Continue Reading
The debate about so-called “golden leash” arrangements has picked up again. The Council of Institutional Investors (“CII”), an influential association of institutional investors, recently wrote a letter to the U.S. Securities and Exchange Commission (“SEC”) expressing its concerns regarding the transparency of compensation paid in “golden leash” arrangements.
As discussed in our previous post, “golden leash” arrangements arise when a shareholder activist privately offers to compensate its nominee directors in connection with such nominees’ service as a director of a target corporation. In January, 2014, Institutional Shareholder Services Inc. provided its views on by-laws designed to prohibit “golden leash” … Continue Reading
The recent outcome of the Augusta/HudBay poison pill hearing provides some insight into how a shareholder rights plan may withstand scrutiny from a Canadian securities regulator for an extended period of time in the right circumstances. Though perhaps the result of somewhat unique facts, including insufficient initial support for the price being offered by the bidder and an active process being conducted by the target company, the British Columbia Securities Commission’s decision in Augusta/HudBay is also of interest in the context of the ongoing debates sparked by the proposed National Instrument 62-105 on Security Holder Rights Plans.… Continue Reading
During a proxy contest, strategic consideration should be given to strictly abiding by proxy solicitation rules and hawkishly assessing whether your opponent is doing the same. A recent decision provides guidance on factors that a court will consider in determining a seldom litigated issue – when is communication by the company during a proxy contest an illegal proxy solicitation?
Generally speaking, corporate statutes in Canada prohibit the solicitation of proxies unless the sender (board or dissident) provides shareholders with a proxy circular containing prescribed information. Under the Canada Business Corporations Act, “solicitation” is broadly defined to include communication with … Continue Reading
There are important lessons in a recent Ontario Court of Appeal decision examining shotgun buy-sell provisions, and in particular, the enforceability of a buy-sell offer that does not perfectly comply with the terms and conditions of the shotgun provision.
Unanimous shareholder agreements, partnership agreements, and joint venture agreements often contain what is commonly known as a “shotgun buy-sell provision”, which provides a mechanism for involuntarily expelling one or more parties from the business venture when the business relationship between them sours.… Continue Reading
There are important lessons in a recent Ontario Superior Court decision examining defensive tactics taken by a board in the context of a contested shareholders’ meeting.
In Concept Capital Management Ltd. v. Oremex Silver Inc., 2013 ONSC 7820, the board of Oremex — during a contested election — postponed a shareholders’ meeting and issued shares to a third party, GRIT, in a financing transaction that closed in escrow on the same date as the revised record date for the meeting. Oremex took the view that the new shares could be voted at the contested meeting.
… Continue Reading
On January 13, 2014, Institutional Shareholder Services Inc. (“ISS”) issued FAQs explaining its views on by-laws designed to prohibit so-called “Golden Leash” arrangements. As discussed in our post last month, such arrangements arise when a shareholder activist privately offers to compensate its nominee directors in connection with such nominees’ service as a director of the target corporation.
ISS’ view is that, absent a shareholder vote, a by-law precluding a nominee director from being compensated by a third party “may be considered a material failure of governance”. Consequently, in such circumstances, ISS may “recommend a vote against or withhold from … Continue Reading
“Golden Leashes”, and by-laws designed to counteract such arrangements, have provoked significant controversy in the 2013 proxy season, and regulators, proxy advisors, and institutional shareholders have yet to take a definitive position in the debate. This post reviews what will certainly continue to be a hot button topic in 2014.… Continue Reading
The recent settlement in the United States between the Securities and Exchange Commission (SEC) and Revlon highlights the importance of not appearing to obstruct the flow of material information to shareholders.
The SEC settled charges that Revlon misled shareholders during a going private transaction. The SEC’s order found that to avoid a potential disclosure obligation, Revlon engaged in “ring fencing” to avoid knowing that the transaction’s consideration had been deemed inadequate by a third party’s financial advisor.… Continue Reading
When negotiating a deal, it is critical for parties to be aware of when they have reached an agreement.
Recently, in Proton Energy Group SA v. Public Company Orlen Lietuva,  EWHC 334 (Comm), the English High Court found in a preliminary motion that it was “plausible” that an email with the word “confirmed” was sufficient to constitute the acceptance of an offer even though several terms remained subject to further negotiations.… Continue Reading
In a recent bench ruling in Re Plains Exploration, the Delaware Court held that a special committee was not required to take the lead in merger negotiations in circumstances where almost all of the members of the board were independent and free from conflict in connection with the transaction.
In Re Plains Exploration, the Delaware Court denied the plaintiff shareholders’ request to enjoin a merger between Plains Exploration & Production Company and Freeport-McMoRan Copper & Gold even though the Plains’ board (a) did not shop Plains before agreeing to merge with Freeport, (b) did not conduct a “pre” and … Continue Reading
The recent Delaware ruling in In Ancestry.com Inc. Shareholder Litigation provides a cautionary tale relating to a target company developing aggressive projections during an auction process.
The Relevant Facts
Following the announcement of a going-private transaction, some shareholders of Ancestry.com filed suit in the Delaware Court of Chancery alleging, among other things, that the board preferred the interests of the winning bidder over shareholders. Previously:
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- Ancestry hired Qatalyst Partners LLP as its financial advisor and initiated an auction process.
- Ancestry’s management prepared “bullish” projections for the auction process. Notably, Ancestry does not develop long-term projections in the usual course of
The Quebec Court of Appeal’s decision in Francoeur v. 4417186 Canada Inc., 2013 QCCA 191, provides a cautionary tale on the dangers of entering into a share purchase agreement and subsequently closing a share purchase transaction, without ample due diligence.
The one-sided apportionment of risk
The Francoeur share purchase agreement (the “SPA”), which was signed by parties the court characterized as “fierce competitors”, contained the following key provisions.
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- The purchaser acknowledged that (a) until closing, it did not have access to certain “key documents” held under seal, (b) it had not undertaken any due diligence, and (c)