On October 10, 2014, the Canadian Securities Administrators (CSA) provided an update on the status of proposed amendments to Canada’s early warning reporting (EWR) system first published in March 2013. After extensive public consultation, the CSA announced that they will proceed with the amendments except for two important proposals: to reduce the reporting threshold from 10% to 5% and to include “equity equivalent derivatives” for the purposes of determining the threshold for EWR disclosure. The CSA intends to publish final amendments to the EWR system and related guidance in the second quarter of 2015, subject to the receipt of necessary approvals.
The CSA’s decision to abandon its original proposals regarding the beneficial ownership reporting threshold and equity equivalent derivatives appears to be based on concerns raised by some commentators including the large number of smaller issuers in Canada relative to other jurisdictions and the limited liquidity of those issuers and the Canadian capital markets; the possibility that those proposals would hinder an investor’s ability to rapidly accumulate or reduce a large position and the signalling of investment strategies to the market; and the complexity and difficulty of applying a new early warning trigger in respect of equity equivalent derivatives.
Shareholder activists are increasingly influential in Canada’s M&A landscape, but expect that trend to intensify with a proposal to list Pershing Square Holdings on the Euronext Amsterdam stock exchange. The listing is expected to complete Bill Ackman’s capitalization of the new $5 billion fund associated with Pershing Square Capital Management. The listing, which is likely to be complete by mid-October, will provide Mr. Ackman with the stable pool of capital he has long believed his investment strategy would benefit from.
In his 2014 Q2 letter to investors, Mr. Ackman expressed frustration that the Pershing Square group of funds must keep a substantial portion of its assets in cash. Shareholder activism requires taking a position in a company for at least long enough to exert pressure on management and see the results reflected in the company’s share price – a proposition sometimes measured in years. Operating without a strong capital reserve can ruin an overextended fund if too many investors request their money back at the wrong time, as nearly happened during the financial crisis when investors withdrew 27% of their assets from Pershing Square.
The text of the Canada and European Union (EU) Comprehensive Economic and Trade Agreement (CETA) is due to be released soon, but it remains to be seen if the Canadian government will clarify which countries, in addition to those in the EU, will benefit from the higher $1.5-billion threshold for review under the Investment Canada Act (ICA).
On October 29, 2013, the Canadian government released the Technical Summary of Final Negotiated Outcomes of CETA, in which it indicated that the ICA threshold would be raised to $1.5 billion for EU investors and that investors from Canada’s other free trade agreement (FTA) partners would also benefit as a result of the most-favoured nation (MFN) commitments in those FTAs. Investors from other countries would continue to be subject to the lower threshold (which itself is expected to be increased to $1 billion by 2016 as per previously announced proposed amendments).
There is no denying the increasing popularity and notoriety of the virtual currency Bitcoin. Bitcoin market capitalization currently stands in the billions of dollars, with over 13 million Bitcoins having been mined and made available for circulation. An increasing number of merchants, including Dell, have begun accepting payment by way of Bitcoin. The list of goods and services that have been purchased with Bitcoin now includes university tuition, airline tickets, cars, and pizza delivery. Some companies have started paying employees in Bitcoins. Canada in particular has been a world leader in Bitcoin ATM’s: the first Bitcoin ATM in the world was installed in Vancouver and a number of Bitcoin ATMs have now been installed in other Canadian cities. Canada also stands second, behind the US, in global rankings in the amount of venture capital invested in Bitcoin companies according to a recent study by the Montreal Economic Institute. Will funding M&A transactions by way of Bitcoins in Canada be next?
There is already some precedent outside Canada of purchasers using Bitcoin to fund M&A transactions, although to date, the transactions look to have been limited to those involving players in the Bitcoin space. The acquisition of Bitcoin gambling service SatoshiDice in July 2013 was funded by way of 126,315 Bitcoins (valued at approximately US$11.5 million at the time of the acquisition). Blockchain.info’s purchase in December 2013 of ZeroBlock, a bitcoin mobile app publisher, for an undisclosed amount was also funded entirely by way of Bitcoin.
On September 11, 2014, the Canadian Securities Administrators (CSA) published CSA Notice 62-306 – Update on Proposed National Instrument 62-105 Security Holder Rights Plans (Notice) and the Autorité des marchés financiers (AMF) Consultation Paper An Alternative Approach to Securities Regulators’ Intervention in Defensive Tactics. The notice indicates that the CSA intend to publish for comment a new harmonized proposal based on amendments to the takeover bid regime which will aim to facilitate the ability of shareholders to make voluntary, informed and coordinated tender decisions and provide target boards with additional time to respond to hostile bids, with the objective of rebalancing the current dynamics between hostile bidders and target boards.
It appears that the new proposal will draw on elements of the earlier CSA and AMF proposals and can be seen as settling on a middle ground between the two (the earlier CSA and AMF proposals are discussed, respectively, in our publications Shareholder Rights Plans – The CSA Proposal and Defensive Tactics – The AMF Alternative Approach). The new proposal will retain a key premise of the earlier CSA proposal (and the current regime), namely that shareholders should ultimately have the opportunity to determine the outcome of an unsolicited takeover bid (and, as a corollary, that target boards do not have the ability to “just say no”).
Over the summer, the British Columbia Securities Commission (BCSC) issued reasons for its previous decision that allowed Augusta Resource Corporation (Augusta) to maintain its shareholder rights plan after a hostile bid was made by HudBay Minerals Inc. (HudBay). The BCSC permitted Augusta’s rights plan to stay in place for an unusually long period of 155 days after HudBay initiated its bid.
HudBay had brought an application to the BCSC asking for the shareholder rights plan to be cease traded under the public interest power of the Securities Act. HudBay argued that the shareholder rights plan was no longer serving any defensible purpose, and that Augusta’s board was “just saying no” to the bid. Augusta’s position, on the other hand, was that the best interests of the shareholders would be served if the board was given more time to complete the permitting process on a mine.
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 covenant. Subsequently, Medisys sought to acquire Plexo’s integrated business which included an IME business. Medisys obtained a waiver of the restrictive covenant on the basis that the Plaintiffs would have the first opportunity to negotiate the purchase of Plexo’s IME business, failing which, Medisys was required to sell or close that business.
Last fall, we featured a blog post that offered a Canadian perspective on the interpretation and use of benchmarking in efforts clauses. Some of the commentary that ensued suggests that Canadian courts were “doomed to incoherence” by distinguishing between best efforts and reasonable efforts.[i]
Yet this distinction between efforts clauses has existed for some time in Canadian jurisprudence[ii] and Canadian courts have continued to render coherent decisions with very little difficulty in applying the standards of performance to efforts clauses.[iii] This leads to the reasonable conclusion that, in fact, there is no crisis and no reason to be overly concerned.
We all agree that in order for parties to understand their contractual obligations, contracts must clearly identify the standard that must be met by the party discharging its duties. Vaguely drafted standards of performance are undoubtedly a source of confusion for the parties and the courts tasked with interpretation. To facilitate this, Canadian case law has established three distinct standards of performance: Continue Reading
The following post on the Canadian Appeals Monitor blog may be of interest to readers of this blog: Pay Me Now: Court of Appeal Delivers Lessons on fiduciary duties, the business judgment rule, and executive compensation
The business judgment of directors setting executive compensation was front and centre in the Ontario Court of Appeal’s recent decision in Unique Broadband Systems, Inc. (Re), 2014 ONCA 538 (UBS). Although the decision is based on unique underlying facts, it offers several important lessons on corporate governance.
Summary of Facts
In UBS, the Court of Appeal considered a trial decision in which Mesbur J. had found that Gerald McGoey, the former CEO and a director of UBS, had breached his fiduciary duties to the corporation and therefore deprived Mr. McGoey of certain compensation, indemnification for his legal and other professional services expenses, and severance payments. Read More.
As we described in a previous blog post, the Ontario Court released a decision in March (Champion Iron Mines Limited) in which it held that a fairness opinion that does not disclose the analysis underlying the opinion was inadmissible as evidence before the Court on an application to approve a plan of arrangement. The decision of Justice David M. Brown suggested that companies might need to bolster their disclosure of fairness opinions in order for an Ontario Court to take the opinion into account in a fairness hearing for a plan of arrangement.