Month: March 2018

You can grab notes on other topic from here.

Pre-Bid Integration: Only applies to private agreements, you can do this on the open market if you want b/c it’s random

• E.g. If I know I’ll make a takeover bid tomorrow, I own no shares of a public company. B owns 19% of shares. Ill buy all your shares at $50 a share, stock trading at $10, you buy them. Nothing to stop that, 019, early warning, insider reporting, but nothing stopping it. Tomorrow, I make bid for the rest of the company at $20 a share = … no.

o OSA 93.2(1): when you make a formal t/o bid, going to look BACK 90 days from the date of your takeover bid. If in that 90 day period, you bought shares by way of private agreement from anybody, your t/o bid has to be for the highest price and highest percentage of shares you bought in that 90 day period. (if 91 days?)

o 90 days is a stupid bright line test, no significance. Can do it at 91 and you’re a-okay.

■ E.g. 40 days before, I buy 100% of A’s shares at $10, B I buy 50% of their shares at $12 at day 30. My bid has to be for 100% of shares of company at $12

1. Section 93.2(1): Restrictions on Acquisitions Before Formal Take-Over Bid

s.93.2(1): Restrictions on Acquisitions before Formal Take-Over Bid: If, within the period of 90 days immediately preceding a formal take-over bid, an offeror acquired beneficial ownership of securities of the class subject to the bid in a transaction not generally available on identical terms to holders of that class of securities, (private agmt ONLY)

• (a) the offeror shall offer,

o (i) consideration for securities deposited under the bid at least equal to and in the same form as the highest consideration that was paid on a per security basis under any such prior transaction, or

o (ii) at least the cash equivalent of that consideration; and

• (b) the offeror shall offer to acquire under the bid that percentage of the securities of the class subject to the bid that is at least equal to the highest percentage that the number of securities acquired from a seller in any such prior transaction was of the total number of securities of that class beneficially owned by that seller at the time of that prior transaction.

(2) Exception **once again, the rule in (1) ONLY APPLIES TO PRIVATE AGMTS!!: Subsection (1) does not apply to trades effected in the normal course on a published market if the trades satisfy such conditions as may be specified by regulation.

1. Legislative Goal Met

Equality: Ensures that certain shareholders are not being paid a premium that other SHs are not getting the advantage of, just b/c it was done in a roundabout way prior to the formal bid

You can grab notes on other topic from here.

You can grab notes on other topic from here.

1. Lock-up Agreements/ Tendering Agreements (Allowed)

93.1(1) of the OSA says you can’t enter into any agreement to enter shares while bid is outstanding (in a private agreement)

1. Section 2.1(2) of Rule 62-504

However, Section 2.1(2) of Rule 62-504 (Take Over Bids and Issuer Bids) says I can enter into a lock-up agreement with you ^ whereby the shareholder and offeror making bid will contract to effect that shareholder will tender his shares to a formal TOB made by the offeror made in accordance with proper terms/conditions of her bid

• You can negotiate this, it’s a contract
• For instance, in the clause it may state that the SH is not obligated to tender to the original bidder at a certain price if a higher bidder comes along BUT then the SH must give the original bidder a % of the profits. If there is NO such clause in the LU agreement, then the SH is stuck.

o E.g. you’re a big SH and I say I’m thinking of making bid at $20 a share, but I will only make that bid if you agree that you’ll tender to it. Then negotiate (you can add whatever conditions you want, have it irrevocable where they cannot withdraw the tender and tender to a higher competing bid, or not, probably would though)

Why would a big SH do that?

• The large shareholder would encumber themselves like this in order to ensure the bid happens and their shares get bought
• If they said no, not doing it for $20 a share… two choices, sit with share at $10 or agree to lockup agreement, and make sure they get the $20 bid (the premium)

NOTE!!! – and see below chart for legislative goals

• still have to comply with the terms and conditions of a takeover bid (e.g. taking up shares pro rata), nothing untoward going on, there is no extra consideration or premium going to the SH who is a part of the lock up agmt

o Pre-bid integration only protects little guys (doesn’t matter that previous purchases were for less)

Ex. Say 60 D before offer to buy all shares of A (at $9/share); 45 D before offer to buy all of B’s shares (at $12/share). Then take-over bid (might be prejudicial to other parties). Therefore, take-over bid must be for highest price and highest % you purchased in the previous 90 day period.

• Thus to legitimize these transaction would have to buy for $12 and 100% (higher payment and higher % than before – note: therefore, should not buy up 100% of A first)

1. Section 93.1: Restrictions on acquisitions during formal take-over bid

An offeror shall not offer to acquire, or make or enter into an agreement, commitment or understanding to acquire beneficial ownership of any securities of the class that are subject to a formal take-over bid or securities convertible into securities of that class otherwise than under the bid on and from the day of the announcement of the offeror’s intention to make the bid until the expiry of the bid.

1. OSC RULE 62-504: TAKE OVER BIDS AND ISSUER BIDS

Per s.2.1(2): Subsection 93.1(1) of the Act does not apply to an agreement between a security holder and the offeror to the effect that the security holder will, in accordance with the terms and conditions of a formal take-over bid, deposit the security holder’s securities under the bid.

• Interpretation: So this means they will deposit their securities in accordance with the usual bidding rules!

1. Legislative goal is STILL met

Promote TOB, Equality and Information – policy as to why this is allowed

1. Equality: all SHs are being treated equally: b/c all SHs being treated equally, big SH not getting more money than little SH
2. Information: This is not secret (it will be disclosed in the takeover circular)
3. Promotes TOB: Is not a collateral agmt b/c SHs still treated equally, however lock-ups help to allay the expense of TOBs to offerors b/c it lowers the risk of the bid failing and are thus in accordance with the intention of the Act to promote TOBs

You can grab notes on other topic from here.

You can grab notes on other topic from here.

• The directors of the target company have an obligation to deliver a director’s circular to all their shareholders within 15 days from the date of the bid

o They must tell SHs that they recommend that the shareholders accept the bid, reject the bid, make no recommendation at all, or say that they’ll let them know at a later time, and give their reasons for any of these decisions

o If within the 15 day period you aren’t ready to give your reasons, you can do it later in a second document as long as it is 7 days BEFORE the expiry of the bid

• As SHs, you are entitled to know what your directors/managers think of this bid!

o *and keep in mind that directors don’t always act in the company’s best interest b/c it conflicts with their own interests

1. Section 95: Offeree Issuer’s Obligations

• (1) Duty to Prepare and Send Directors’ Circular: If a formal take-over bid has been made, the board of directors of the offeree issuer shall prepare and send, not later than 15 days after the date of the bid, a directors ’ circular to every person or company to whom the bid was required to be sent.
• (2) Duty to Evaluate and Advise: The board of directors of the offeree issuer shall evaluate the terms of a formal take-over bid and, in the directors ’ circular,

o (a) shall recommend to security holders that they accept or reject the bid and give reasons for the recommendation;

o (b) shall advise security holders that the board is unable to make, or is not making, a

recommendation and state the reasons for being unable to make a recommendation or for not making a recommendation; or

o (c) shall advise security holders that the board is considering whether to make a recommendation to accept or reject the bid, shall state the reasons for not making a recommendation in the directors ’ circular and may advise security holders that they should not deposit their securities under the bid until they receive further communication from the board in accordance with clause (a) or (b).

• (3) Further Communication: If clause (2) (c) applies, the board of directors shall communicate to security holders a recommendation or the decision that it is unable to make, or is not making, a recommendation, together with the reasons for the recommendation or the decision, at least seven days before the scheduled expiry of the period during which securities may be deposited under the bid.

1. Legislative Goal Met Information and time
2. Shareholders are entitled to know what the directors think: gives them sufficient information, considering they may have less knowledge than the individuals working on the inside
3. Have enough time to make an informed decision: If they’re going to give a recommendation (or not give one), they have to let the SHs know of their decision with enough time for the SHs to make an informed decision about tendering

You can grab notes on other topic from here.

You can grab notes on other topic from here.

You cannot enter into a collateral agmt with anyone

1. Section 97.1

• Prohibition against collateral agreements: If a person or company makes or intends to make a formal bid, the person or company or any person or company acting jointly or in concert with that person or company shall not enter into any collateral agreement, commitment or understanding that has the effect, directly or indirectly, of providing a security holder of the offeree issuer with consideration of greater value than that offered to the other security holders of the same class of securities.
• (2) Exception, employment benefit arrangements: Subsection (1) does not apply to such employment compensation arrangements, severance arrangements or other employment benefit arrangements as may be specified by regulation.

1. Legislative Goal Met

Equality : Ensures that all shareholders are getting an equal share of the premium for their securities and you can’t go making agreements that allow you to circumvent this rule by providing extra consideration to other people under the table for their shares

How do you determine if you’re entering into an agreement that provides a security holder of the offeree issuer with consideration of greater value than that offered to the other security holders of the same class of securities vs. one that is allowed?

• E.g. I want to buy Canadian tire and 30% of those shares owned by dealers of CT. Dealers pay 6% royalty for right to carry on dealership. If I go to dealers, say I’m going to make takeover bid for CT, and I’m going to pay everyone $50 a share. If I’m successful, you should know, I’m going to cut your royalty from 6% to 3% (good for dealer). Want to retain dealers.
• E.g. 2: If I want to buy apple, give everyone $750 for their shares. Go to CEO and say, if I’m successful in acquiring, I’m raising your compensation from 50m a year to 150m. Should I be able to do that?

Depends on the reason (intention). See test below.

Test for whether or not collateral agreements are ok

May apply to the OSC to ask them if a certain agreement is okay (s.104(2)) (Why do you need it? *diff of INTENTION):

1. are you inducing that person to sell you their stock? (not okay) OR
2. do you need them and their expertise or are doing it for a legitimate business purpose that had nothing to do with whether or not that person owned shares? (okay)

• If I’m trying to maintain them and their expertise for the best interests of the corporation and I’m dropping all of this $ and think that they’d better be sticking around if I’m going to spend that much, then it’s fine. If I’m doing it to induce them to tender their shares and I’m finding a way to get their shares without directly paying them more money, then not okay. I’m giving someone else a benefit that I’m not giving to the other SHs

You can grab notes on other topic from here.

 

You can grab notes on other topic from here.

• You can attach any condition you want to your bid, except financing
• Best to have AS FEW CONDITIONS as possible on the offeror’s bid: sounds good to attach conditions to a bid and protect themselves (e.g. being able to get out of it), but at end of the day, you want to win. Best way to win is to have as clean a bid as possible. If you have conditions attached, makes it less attractive, opportunities for others to beat you (although sometimes you need conditions ^ e.g. conditional upon me getting 2/3rds of shares, Competition Act approval, CRTC approval, etc. (e.g. Astral BCE ^ BCE made bid to buy Astral, conditional on CRTC approval, CRTC turned it down)

Biggest difference b/w Canada and US

• One condition you CANNOT do in Canada is making your bid subj to financing

o In US: I can say “I want to make bid for 100% of apple, and hope I find the $” o In Canada: can’t make takeover bid unless you can reasonably show that you can come up with $

POLICY: Cant put company into chaos and then not be able to complete it

$$ Problem:

• Very expensive, when you need standby loan from bank for $1b, charge you a shit ton of interest to have it there for you (to give you right to be able to call It if you need it) ^ why there are fewer takeover bids in Canada

1. Section 97.3: Financing Arrangements
2. (1) If a formal bid provides that the consideration for the securities deposited under the bid is to be paid in cash or partly in cash, the offeror shall make adequate arrangements before the bid to ensure that the required funds are available to make full payment for the securities that the offeror has offered to acquire.
3. Legislative Goal Met

Investor protection: Doesn’t really reach one of 3 obj, but does protect investors, you have to be able to complete the bid, can’t put everything in complete chaos and then not go through with it b/c you couldn’t get financing

1. Payment for Securities (investor protection generally)
2. Section 98.3: Obligation to Take Up and Pay for Deposited Securities

• (1) If all the terms and conditions of a formal bid have been complied with or waived, the offeror shall take up and pay for securities deposited under the bid not later than 10 days after the expiry of the bid or at the time required by subsection (2) or (3), whichever is earliest.
• (2) Same: An offeror shall pay for any securities taken up under a formal bid as soon as possible, and in any event not later than three business days after the securities deposited under the bid are taken up.
• (3) Same: Securities deposited under a formal bid subsequent to the date on which the offeror first takes up securities deposited under the bid shall be taken up and paid for by the offeror not later than 10 days after the deposit of the securities.

1. Legislative Goal Met

investor protection: Doesn’t really reach one of 3 obj, but does protect investors, have to make sure they get paid within a reasonable time after tendering their shares (protecting their reasonable expectations)

You can grab notes on other topic from here.

You can grab notes on other topic from here.

• You can attach any condition you want to your bid, except financing
• Best to have AS FEW CONDITIONS as possible on the offeror’s bid: sounds good to attach conditions to a bid and protect themselves (e.g. being able to get out of it), but at end of the day, you want to win. Best way to win is to have as clean a bid as possible. If you have conditions attached, makes it less attractive, opportunities for others to beat you (although sometimes you need conditions ^ e.g. conditional upon me getting 2/3rds of shares, Competition Act approval, CRTC approval, etc. (e.g. Astral BCE ^ BCE made bid to buy Astral, conditional on CRTC approval, CRTC turned it down)

Biggest difference b/w Canada and US

• One condition you CANNOT do in Canada is making your bid subj to financing

o In US: I can say “I want to make bid for 100% of apple, and hope I find the $” o In Canada: can’t make takeover bid unless you can reasonably show that you can come up with $

POLICY: Cant put company into chaos and then not be able to complete it

$$ Problem:

• Very expensive, when you need standby loan from bank for $1b, charge you a shit ton of interest to have it there for you (to give you right to be able to call It if you need it) ^ why there are fewer takeover bids in Canada

Section 97.3: Financing Arrangements

1. If a formal bid provides that the consideration for the securities deposited under the bid is to be paid in cash or partly in cash, the offeror shall make adequate arrangements before the bid to ensure that the required funds are available to make full payment for the securities that the offeror has offered to acquire.

Earliest of: a) You have to take up and pay for them within 10 days after expiry of the bid; OR

1. Once you’ve taken them up, you have 3 days; OR
2. For securities deposited AFTER the date on which the offeror first takes them up have to be paid for by the offeror within 10 days after deposit

Legislative Goal Met

Investor protection: Doesn’t really reach one of 3 obj, but does protect investors, you have to be able to complete the bid, can’t put everything in complete chaos and then not go through with it b/c you couldn’t get financing

You can grab notes on other topic from here.

You can grab notes on other topic from here.

• Shares cannot be taken up for 35 days and shares deposited within the 35 day period can be withdrawn at any time prior to the end of the 35 day period.
• If there is a variation in the bid, the withdrawal right is extended by 10 days unless the shares have already been taken up (35 days has passed) or the variation is simply an increase in the consideration offered or a waiver of a condition.

Section 98.1: Withdrawal of securities

• (1) A security holder may withdraw securities deposited under a formal bid,

o (a) at any time before the securities have been taken up by the offeror;

o (b) at any time before the expiration of 10 days from the date of a notice of change under section 94.3 or a notice of variation under section 94.4; or

o (c) if the securities have not been paid for by the offeror within three business days after the securities have been taken up.

 

Section 94.3: Change in Information

• (1) If, before the expiry of a formal bid or after the expiry of a bid but before the expiry of all rights to withdraw the securities deposited under the bid, a change has occurred in the information contained in the bid circular or any notice of change or notice of variation that would reasonably be expected to affect the decision of the security holders of the offeree issuer to accept or reject the bid, the offeror shall promptly

o (a) issue and file a news release; and

o (b) send a notice of the change to every person or company to whom the bid was required to be sent and whose securities were not taken up before the date of the change.

Section 94.4: Variation of Terms

• (1) If there is a variation in the terms of a formal bid, including any extension of the period during which securities may be deposited under the bid, and whether or not that variation results from the exercise of any right contained in the bid, the offeror shall promptly issue and file a news release and send a notice of variation to every person or company to whom the bid was required to be sent and whose securities were not taken up before the date of the variation.

Legislative Goal Met

Protect SHs by providing time and information (and payment)

Gives Time for SHs to Wait and See if there is a Higher Bid:

• Everyone tenders on last day anyway, bc they’re waiting to see if there is a higher one
• After Amendment, gives time to assess information:

• 10 day w/d right, as long as shares haven’t already been taken up
• Encourages Company to Pay

You can grab notes on other topic from here.

You can grab notes on other topic from here.

• First-come, first-serve offers are NOT ALLOWED
• IF more shares are tendered than requested, they MUST be taken up on a PRO RATA basis (e.g. buy 75% of each SH’s tendered holdings to get to your desired amount)

1. Section 97.2: Consideration

s.97.2(1) If a formal bid is made, all holders of the same class of securities shall be offered identical consideration.

1. Legislative Goal Met

Protect SHs by ensuring equality among them and providing time Provides:

1. Equality: treated equally, no SH is benefitting more from a premium than another
2. Time to review/no pressure: Gives the SH time to review the transaction and all of the pertinent information to ensure an informed decision because they are NOT PRESSURED TO BID EARLY (since it’s not first come, first serve)

You can grab notes on other topic from here.

You can grab notes on other topic from here.

The takeover bid circular must be open for at least 35 clear calendar days in order to give people time to assess, give management an opportunity to give their opinion, and give other bidders the chance/right to mount a competing bid (auction)

1. s.98: Bid Mechanics
2. Minimum deposit period: An offeror shall allow securities to be deposited under a formal bid for at least 35 days from the date of the bid.

• Interpretation: May be open longer than 35 days

1. Prohibition on Take Up: An offeror shall not take up securities deposited under a formal bid until the expiration of 35 days from the date of the bid.
2. Legislative Goal Met Protect SHs by providing Time

• Note: Bidders have interest in doing transaction as quickly as poss; and company and shareholders want more time (for reasons below)

Provides time for:

1. Shareholders: to assess the merits of the bid and decide whether or not to tender shares (and can take them back w/in 35 days)
2. Management: to make recommendations and try to maybe attract others
3. Other Potential Bidders: To create an auction and entice a White Knight

• To create auctions (by allowing other people to make competing bids),
• To make sure that the company is purchased for the best price (makes market efficient, don’t want anyone to get it at a large discount, should reflect actual value as much as possible)
• Need to find a white knight (the person you actually want to buy it)
• In practice: company wants it to be as long as possible (so they can find higher bidders), purchaser wants it shorter to buy it at cheapest price (tensions in practice happen here)

You can grab notes on other topic from here.

You can grab notes on other topic from here.

1. Takeover Bid Circular (Information)

General Rule: If I what I own + what I buy is over 20, can’t do it without a takeover bid. If you want to own or control 20% or more of the securities of a reporting issuer, you can only do so by takeover bid circular (unless an exemption is available)

1. Section 94.1(1) and Form 62-504F1: Making a Formal Bid

• Section 94.1(1): Deliver doc to all securityholders, publish advertisement in a newspaper, then immediately file takeover bid circular with everybody
• 94.1 (1) Commencement of formal t/o bid: An offeror shall commence a formal take-over bid,

o (a) by publishing an advertisement containing a brief summary of the bid in at least one major daily newspaper of general and regular paid circulation in Ontario; or o (b) by sending the bid to the security holders described in section 94 (all securityholders, all holders of class of securities subject to the bid who are in Ontario)

• Form 62-504F1: The Circular: Must contain information set out in Form 62-504F1 ^ tells you what has to go in t/o bid circular, mandates information like a prospectus: objective is to give people sufficient information to make an informed decision

o Information in takeover bid circular includes: name of offeror and issuer; ownership and trading by offeror; method/time of pmt for shares; source of funds to be used for pmt; whether offeror intends to purchase shares subject to the bid in the mkt; info indicating a material change in the offeree issuer since last interim/ annual financial statements; material facts rel to offeree issuer; appropriate prospectus info if offer is a share exchange offer

1. Legislative goal met

*Protect SHs by providing Information and Time

1. Information

• Provides information to assist the offeree SH in deciding whether of offer share or hold shares in hopes of (i) sharing in gain accruing post-takeover or (ii) getting a subsequent competing offer.
• Takeover Bid Circular provides information similar to a prospectus and provides information relating to the bid.
• Time: Allows them time to review what’s in the circular

You can grab notes on other topic from here.