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THE MERGERS & ACQUISITIONS REVIEW FOURTH EDITION Reproduced with permission from Law Business Research Ltd. This article was first published in The Mergers & Acquisitions Review, 4th Edition (published in September 2010 – editor Simon Robinson). For further information please email [email protected] Law Business Research The Mergers & Acquisitions Review Fourth Edition Editor Simon Robinson

T M & A r The Mergers - Osler, Hoskin & Harcourt · The Mergers and Acquisitions Review, Canadian M&a activity suffered accordingly and the downward trend that we had noted in 2007/2008

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The Mergers & AcquisiTions review

fourth edition

reproduced with permission from Law Business research Ltd.This article was first published in The Mergers & Acquisitions Review, 4th Edition

(published in September 2010 – editor Simon Robinson).

for further information please [email protected]

Th

e Mer

ger

s & A

cq

uisitio

ns R

eview

Edito

rSim

on

Ro

binso

n

Law Business Research

The Mergers & Acquisitions

Review

Fourth Edition

Editor

Simon Robinson

The Mergers & AcquisiTions review

fourth edition

reproduced with permission from Law Business research Ltd.This article was first published in The Mergers & Acquisitions Review, 4th Edition

(published in September 2010 – editor Simon Robinson).

for further information please [email protected]

Contents

2

The Mergers & Acquisitions

Review

fourth edition

editor

siMon robinson

LAw business reseArch LTd

Contents

PubliShER Gideon Roberton

buSinESS dEvEloPMEnT MAnAGER Adam Sargent

MARkETinG ASSiSTAnT hannah thwaites

EdiToRiAl ASSiSTAnT nina nowak

PRoducTion MAnAGER Adam Myers

production editor Joanne Morley

SubEdiToR charlotte Stretch

editor-in-chief callum campbell

MAnAGinG diREcToR Richard davey

Published in the united kingdom by law business Research ltd, london

87 lancaster Road, london, W11 1QQ, uk© 2010 law business Research ltd

© copyright in individual chapters vests with the contributors no photocopying: copyright licences do not apply.

The information provided in this publication is general and may not apply in a specific situation. legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or

omissions contained herein. Although the information provided is accurate as of July 2010, be advised that this is a developing area.

Enquiries concerning reproduction should be sent to law business Research, at the address above. Enquiries concerning editorial content should be directed

to the Publisher – [email protected]

iSbn 978-1-907606-03-8

Printed in Great britain by Encompass Print Solutions, derbyshire

Tel: +44 870 897 3239

i

AcknoWlEdGEMEnTS

The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:

firm namesAdvokATfiRMAET hJoRT dA

ÆLeX

AllEnS ARThuR RobinSon

AMARchAnd & MAnGAldAS & SuRESh A ShRoff & co

AndERSon MoRi & ToMoTSune

ARiAS & Muñoz

ARiAS, fábREGA & fábREGA

bATlinER WAnGER bATlinER ATToRnEyS AT lAW lTd

bERnoTAS & doMinAS GliMSTEdt

boWMAn GilfillAn

bREdin PRAt

bRiGARd & uRRuTiA AboGAdoS

cAMillERi PREzioSi

chARlES AdAMS RiTchiE & duckWoRTh

coulSon hARnEy

cRAvATh, SWAinE & MooRE llp

diTTMAR & indREniuS

dRyllERAkiS & ASSociATES

EliG ATToRnEyS AT lAW

euBeLiuS

f cASTElo bRAnco & ASSociAdoS

fonTES & TARSo RibEiRo AdvoGAdoS

ii

GlATzová & co., v.o.s.

GliMSTEdT & PARTnERS

GliMSTEdT STRAuS & PARTnERS

GoRRiSSEn fEdERSPiEL

hEnGElER MuEllEr

khAn & ASSociATES

kiM & chAng

lAWcASTlES

MAkES & PARTnERS lAW fiRM

MAnnhEiMER SWARTlinG AdvokATbyRå

MARvAl, o’fARREll & MAiRAL

MAThESon oRMSby PREnTice

MiRo SEnicA And ATToRnEyS, d.o.o.

Mondini RuSconi STudio lEGAle

MoRAvcEvic voJnovic zdRAvkovic oAd in cooperATion wiTh SchönhERr

MoREno bAldiviESo ESTudio dE AboGAdoS

nAGy éS TRócSányi ÜGyvédi iRodA

nAuTAduTilh

noblE & SchEidEckEr

oSlER, hoSkin & hARcouRT llp

PAyET, REy, cAuvi AboGAdoS

PEnkov, MARkov & PARTnERS

QuEvEdo & Ponce

ruzickA cSEkES s.r.o.

S hoRoWiTz & co

SAnTAMARinA y STETA, Sc

Acknowledgements

iii

SchEllEnbERG WiTTMEr

SchönhERR REchTSAnWälTE GMbh

SlAuGhTER And MAy

STAMfoRd lAW coRPoRATion

SullivAn & cRoMWEll llp

ToRRES, PlAz & ARAuJo

uRíA MEnéndEz

vASil kiSil And PARTnERS

WinklER PARTnERS

younG conAWAy STARGATT & TAyloR, llp

Acknowledgements

Contents

iv

Editor’s Preface ...............................................................................................................xiSimon Robinson

Chapter 1 Eu coMPETiTion ovERviEW ................................................1Juan Rodriguez

Chapter 2 EuRoPEAn ovERviEW ..............................................................7Simon Robinson

Chapter 3 uS coMPETiTion ovERviEW .............................................. 24Antitrust Group of Sullivan & Cromwell LLP

Chapter 4 ARGEnTinA .................................................................................. �9Alejandro D Fiuza and Pablo Gayol

Chapter 5 AuSTRAliA ..................................................................................... 48Ewen Crouch and Eve Regnard

Chapter 6 AuSTRiA .......................................................................................... 62Christian Herbst

Chapter 7 bElGiuM ........................................................................................ 71Koen Geens and Marieke Wyckaert

Chapter 8 boliviA ........................................................................................... 78Luis F Moreno G

Chapter 9 bRAzil ............................................................................................. 86Marcus Fontes, Max Fontes and Paulo de Tarso Ribeiro

Chapter 10 bulGARiA ...................................................................................... 96Roman Stoyanov and Svetoslav Dimitrov

Chapter 11 cAnAdA ........................................................................................ 105Robert Yalden, Ward Sellers and Emmanuel Pressman

Chapter 12 cAyMAn iSlAndS .................................................................... 117Antony Duckworth and Alan de Saram

conTEnTS

Contents

v

Chapter 13 coloMbiA ................................................................................... 121Sergio Michelsen Jaramillo

Chapter 14 coSTA RicA ................................................................................. 1��Vicente Lines and Carmen de Maria Castro

Chapter 15 czech repuBLic ..................................................................... 140Vladimíra Glatzová and Markéta Budkovská

Chapter 16 dEnMARk .................................................................................... 150Henrik Thouber and Anders Ørjan Jensen

Chapter 17 EcuAdoR ..................................................................................... 159Alejandro Ponce Martínez

Chapter 18 ESToniA ....................................................................................... 164Ilmar Straus

Chapter 19 finlAnd ....................................................................................... 17�Jan Ollila, Anders Carlberg and Wilhelm Eklund

Chapter 20 fRAncE ......................................................................................... 182Didier Martin

Chapter 21 GERMAny .................................................................................... 198Christian Möller and Heinrich Knepper

Chapter 22 greece ......................................................................................... 209Cleomenis G Yannikas, Vassilis-Thomas G Karantounias and Sophia K Grigoriadou

Chapter 23 honG konG .............................................................................. 218George Goulding and Jason Webber

Chapter 24 hunGARy ..................................................................................... 228Péter Berethalmi and Tamás Pásztor

Chapter 25 indiA .............................................................................................. 2�6Cyril Shroff

Chapter 26 indonESiA ................................................................................. 247Yozua Makes

Chapter 27 iRElAnd ....................................................................................... 257Patrick Spicer

Contents

vi

Chapter 28 iSRAEl ............................................................................................ 267Clifford Davis and Keith Shaw

Chapter 29 iTAly .............................................................................................. 277Giovanni Stucchi and Luca Tiberi

Chapter 30 JAPAn .............................................................................................. 290Hiroki Kodate and Risa Fukuda

Chapter 31 kEnyA ........................................................................................... �01Richard Harney

Chapter 32 koREA ........................................................................................... �07Sang-Hyuk Park and Gene-Oh Kim

Chapter 33 lATviA ........................................................................................... �18Maris Butans

Chapter 34 liEchTEnSTEin ....................................................................... �25Martin Batliner and Brigitte Vogt

Chapter 35 liThuAniA .................................................................................. ��4Audrius Zvybas

Chapter 36 luxEMbouRG ........................................................................... �41Marie-Béatrice Noble

Chapter 37 MAlTA ............................................................................................ �5�Louis de Gabriele and Andrei Vella

Chapter 38 MExico ......................................................................................... �60Jorge León-Orantes B and José Ramón Ayala A

Chapter 39 MonTEnEGRo .......................................................................... �71Milan Dakic and Slaven Moravcevic

Chapter 40 nEThERlAndS ......................................................................... �80Willem Calkoen

Chapter 41 niGERiA ........................................................................................ 402L Fubara Anga

Chapter 42 noRWAy ........................................................................................ 407Elin Rostveit

Contents

vii

Chapter 43 PAkiSTAn ..................................................................................... 420Mansoor Hassan Khan

Chapter 44 PAnAMA ........................................................................................ 429Eduardo de Alba and Julianne Canavaggio

Chapter 45 peru ............................................................................................... 4�6José Antonio Payet, Carlos A Patrón and Susan Castillo

Chapter 46 PoRTuGAl ................................................................................... 447Rodrigo Almeida Dias

Chapter 47 SERbiA ........................................................................................... 456Petar Kojdic and Matija Vojnovic

Chapter 48 SinGAPoRE ................................................................................. 462Lee Suet-Fern and Elizabeth Kong Sau-Wai

Chapter 49 SlovAkiA ..................................................................................... 474Jana Pagácová

Chapter 50 SlovEniA ..................................................................................... 486Melita Trop and Uroš Podobnik

Chapter 51 SouTh AfRicA .......................................................................... 496Ezra Davids and Ashleigh Hale

Chapter 52 SPAin .............................................................................................. 505Christian Hoedl and Javier Ruiz-Cámara

Chapter 53 SWEdEn ........................................................................................ 515Biörn Riese, Eva Hägg and Cecilia Björkwall

Chapter 54 SWiTzERlAnd ........................................................................... 524Lorenzo Olgiati, Martin Weber and Jean Jacques Ah Choon

Chapter 55 TAiWAn ......................................................................................... 5�8Steven J Hanley

Chapter 56 TAnzAniA ................................................................................... 548Ngassa Dindi

Chapter 57 TuRkEy ......................................................................................... 560Tunç Lokmanhekim and Berna Asık Zibel

Contents

viii

Chapter 58 ukRAinE ...................................................................................... 567Denis Lysenko and Anna Babych

Chapter 59 uniTEd kinGdoM ................................................................. 579Simon Robinson

Chapter 60 uniTEd STATES ........................................................................ 599Richard Hall and Mark Greene

Chapter 61 uniTEd STATES: deLAwAre .................................................... 616Rolin P Bissell and Elena C Norman

Chapter 62 vEnEzuElA ............................................................................... 629Guillermo de la Rosa, Juan D Alfonzo, Pedro Uriola, Nelson Borjas and Ana C González

Appendix 1 AbouT ThE AuThoRS ........................................................... 641

Appendix 2 conTRibuTinG lAW fiRMS’ conTAcT dETAilS .... 679

xi

editor’s preface

In response to the financial crisis, the past year has been spent cutting costs and restoring balance sheets while governments have set about overhauling the regulatory landscape. Whether as a result of this approach or in spite of it, we have seen the first signs of a recovery in the second half of 2009. During the financial meltdown, many strong businesses focused on assessing their strategy and restructuring. As the signs of recovery began to emerge, such businesses tentatively started to re-engage in M&A transactions as a means of achieving growth.

Currently, buyers are conscious of scrutiny from shareholders with regards to how much is being paid for assets and whether the deals that are going ahead represent value for money (particularly in light of Warren Buffett’s publicly voiced concerns during the course of Kraft’s bid for Cadbury and shareholder reaction to the proposed acquisition of part of AIG by Prudential). Consequently, most potential buyers are treading carefully. On the other hand, there were also a number of quick deals in 2009 where a speedy resolution was necessary to allow distressed sellers to obtain cash promptly but the number of these should decrease throughout 2010 if we continue through to recovery.

Many are still cautious about the outlook for M&A activity for the remainder of 2010 and beyond. A rise in M&A activity is hugely dependent on the willingness of banks to increase lending. Access to credit plays a vital role in supporting the economy by helping businesses to create jobs and growth, both of which are necessary if we are to find our way out of recession and towards recovery. In the short term, M&A activity will depend heavily on boardroom confidence and such confidence will only be achieved if boards perceive that the few new M&A deals around have proven profitable for shareholders. Such confidence and optimism is slow to build; therefore,

Editor’s Preface

xii

while pockets of activity suggest that the worst of the financial crisis is behind us, the signs of recovery are tentative with buyers urging caution. The journey to recovery will be slow and difficult, but as lending increases and confidence rises, economists expect the sluggish growth of 2010 to develop into greater stability into 2011. That said, the recent problems of the euro, European government finances and the European banking sector could yet bring a renewed lapse into recession or worse. Only time will tell which progression turns out to be correct.

I wish again to thank all the contributors for their continued support in producing this book – one would hope that in this uncertain time the following chapters should at least provide some food for thought.

Simon RobinsonSlaughter and MayLondonJuly 2010

105

Chapter 11

CanadaRobert Yalden, Ward Sellers and Emmanuel Pressman*

Osler, Hoskin & Harcourt LLP

I OVERVIEW OF RECENT M&A ACTIVITY

Through 2009 and into 2010, Canada’s economy showed signs of emerging from the seizure in global credit markets that began in late 2007 and that has only recently begun to recede. Canadian banks withstood the crisis much more effectively than many of their counterparts in the US and Europe, with the result that Canada’s financial regulatory system is the object of international interest as policy makers seek to understand what aspects of this system ensured that Canadian banks were better capitalised heading into the storm and less exposed to the sub-prime mortgage market than many of their counterparts in the US and Europe. There was nevertheless a tightening in domestic credit markets and this, combined with the global credit crisis, inevitably took its toll on Canadian businesses through late 2008 and into 2009. as we noted in the last edition of The Mergers and Acquisitions Review, Canadian M&a activity suffered accordingly and the downward trend that we had noted in 2007/2008 continued through 2008 and into 2009. But by late 2009, there were signs that matters had stabilised and that the groundwork was being laid for slow but relatively steady progress.

While the first quarter of 2009 saw the lowest number of announced deals since the first quarter of 2003, each of the subsequent quarters saw an increase in the number of announced deals relative to the previous quarter (moving from 173 announced deals in the first quarter to 285 announced deals in the fourth quarter).1 That said, with 912 announced deals, 2009 marked the lowest level of deal activity in Canada since 2004 and reflected a decline from the 1,143 deals announced in 2008 and the more significant

* Robert Yalden, Ward Sellers and Emmanuel Pressman are partners at Osler, Hoskin & Harcourt LLP. The authors would also like to thank Patrick Marley, Kimberley Wharram, Kaeleigh Kuzma and alexandre Martin for their assistance with the preparation of this chapter.

1 data on M&a activity cited in this article is drawn from Crosbie’s M&a Reports, available online at www.crosbie.com.

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levels seen in 2006 and 2007. Moreover, the first quarter of 2010 registered a slight decline relative to the fourth quarter of 2009, suggesting that M&A activity in Canada was still not entirely out of the woods and that M&a practitioners would be dealing with a slow recovery for some time still.

not only was the sheer number of deals sluggish, but the size of these deals was of course down dramatically since the heady days of 2006 and 2007. Indeed, the story of M&a in Canada in 2009 was once again that of the mid-market, with only the occasional deal coming in at more than C$1 billion (amounting to some 21 deals in 2009). Deals under C$250 million accounted for a little over 90 per cent of the deal activity in 2009 and every indication was that this would continue in 2010. Other notable trends in 2009 were the importance of the oil and gas sector which, with 207 deals, accounted for more activity than any other sector in 2009 and the changing complexion of cross-border activity. Indeed, while deals involving Canadian companies acquiring foreign companies have for some time outnumbered deals involving foreign companies acquiring Canadian companies, 2009 was the first time in five years that the value of cross-border deals involving Canadian acquirers surpassed the value of cross-border deals involving Canadian targets. This was in part a reflection of the relatively limited number of large Canadian companies that were on the receiving end of bids, which was, in turn, a reflection of the financing constraints that US and European companies have had to contend with (the US and Europe having traditionally been responsible for the greatest number of foreign acquisitions of Canadian companies).

Canadian M&a in 2009 was also characterised by the return of Canadian pension funds, which had been relatively quiet in 2008. Several of the larger deals in 2009 involved Canadian pension funds such as Ontario Teachers’ Pension Plan or the Canada Pension Plan initiating transactions on their own or in conjunction with other pension funds. as recipients of a stable stream of contributions that require investment, every indication was that Canadian pension funds would remain active in 2010. additionally, foreign state owned enterprises from countries such as China and South Korea continued to show an interest in acquiring or investing in Canadian companies in the energy and mining sectors. as Canada has a relatively welcoming approach to foreign investment, this is a trend that one can also expect to see carry through 2010.

Last but not least, the economic decline that Canada shows signs of emerging from brought with it a noticeable upturn in distressed M&a. Once proud Canadian names such as nortel were driven to unwind and dispose of their constituent lines of business. While matters appeared to be stabilising in this area in 2010, there was an acute awareness that sizeable amounts of corporate debt would have to be refinanced moving into 2011 and that this holds the potential for further distressed M&a activity.

II GENERAL INTRODUCTION TO THE LEGISLATIVE M&A FRAMEWORK

although M&a activity in 2009 and 2010 involved a range of public and private company transactions, M&a regulatory developments were most prevalent in the public company context. By contrast, private M&A is predominantly the result of negotiated acquisitions governed by the terms of individual contracts. While contracts will necessarily vary with

Canada

107

the circumstances of every transaction, in general, the overall framework of a negotiated acquisition agreement is consistent with that seen in other jurisdictions such as the US; accordingly, they will be familiar to many non-Canadian M&a practitioners.

While several different methods to acquire control of a Canadian public company exist, typically Canadian M&a transactions are consummated by way of a ‘takeover bid’ or a ‘plan of arrangement’.

i Takeover bid

A takeover bid is a transaction by which the acquirer makes an offer directly to the target company’s shareholders to acquire their shares. Although the board of directors of the target company has a duty to consider the offer and an obligation to make recommendations to its shareholders as to the adequacy of the offer, the takeover is ultimately accepted (or rejected) by the shareholders. Since the support of the board of directors is not legally required to effect a takeover bid, as a practical matter, a bid is the only structure available to effect an unsolicited or hostile takeover. The conduct and timing of a takeover bid, and the delivery and disclosure requirements of offer documents, are regulated by provincial securities laws.2

A takeover is the substantive equivalent to a tender offer under US securities laws. However, there are several key substantive differences between the takeover bid and tender offer regimes. among them, the determination of whether a takeover bid has been made is based on an objective, bright line test: unless exempted from the takeover bid rules, a formal takeover bid is required to be made to all shareholders when a person seeks to acquire 20 per cent or more of the outstanding voting or equity securities of the target company. Moreover, where a bid is made for cash consideration or has a cash component, the bidder must make adequate arrangements prior to launching the bid to ensure that the required funds are available to make full payment for the target company’s shares. This means that financing conditions are not included in takeover bids in Canada.

2 Canada has neither a single securities regulator nor a federal securities law regime. Rather, each of Canada’s 13 provinces and territories has a separate securities regulator that administers a separate set of securities laws. Takeover bids are generally structured to comply with the securities legislation of each Canadian jurisdiction in which shareholders reside, a process which is assisted by each province and territory other than Ontario having passed a single takeover bid rule (Multilateral Instrument 62-104 – Take-over Bids and Issuer Bids) and the general uniformity of this rule and the equivalent Ontario legislation (Part XX of the Securities Act (Ontario) as supplemented by Ontario Securities Commission Rule 62-504 – Take-over Bids and Issuer Bids). In May 2010, the government of Canada proposed a draft Canadian Securities act that would be administered by a new Canadian securities regulatory authority (‘the CSRA’). Its target is to have the CSRA established within the next three years. The proposal is the subject of constitutional challenges from two Canadian provinces, alberta and Quebec, with the result that it is too early to tell when and if the attempt to replace a number of provincial securities commissions with a federal regulator will succeed.

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ii Arrangement

an arrangement is a voting transaction because, unlike a bid, a meeting of the target company’s shareholders is called by the board of directors and held to vote on the proposed acquisition. An arrangement is governed by the corporation laws of the target company’s jurisdiction of incorporation and requires the approval of the target’s board of directors and shareholders. It is the substantive equivalent to a scheme of arrangement under English law. notably, unlike any other transaction structure, an arrangement is a court-supervised process and must be judicially determined to be ‘fair and reasonable’ to be approved by a court.

arrangements are often a preferred transaction structure due to their substantial flexibility. In particular, arrangements are not circumscribed by the takeover bid rules or the structural parameters set by other forms of corporate transactions (e.g., amalgamations and capital reorganisations) and, importantly, arrangements facilitate structuring, strategic and tax planning objectives by enabling an acquirer (and a target) to set out the precise series of steps that must occur prior to, and at the effective time of, an arrangement.

iii Other transaction structures

The other most common forms of M&a transaction structure are a statutory amalgamation and a capital reorganisation (also governed by the corporation laws of the target’s jurisdiction of incorporation). An amalgamation is a close equivalent to a ‘merger’ under the state corporation laws in the US. However, there is no legal concept of a merger under Canadian corporate law (whereby one corporation merges into another, with the former disappearing and ceasing to have any legal identity, and the latter surviving and continuing in existence). Rather, under Canadian corporate law, the amalgamating corporations effectively combine to form a single corporation. The rights, assets and liabilities of each amalgamating corporation continue as the rights, assets and liabilities of the amalgamated corporation. a capital reorganisation involves an amendment to the share capital of the charter documents of a target company that results in a mandatory transfer of the target company’s shares to the acquirer in exchange for cash or shares of the acquirer.

iv Protectionof minorityshareholdersinconflictof interesttransactions

In Canada, there is a significant number of public companies with controlling shareholders and corporate groups with multiple public company members. Transactions with controlling shareholders, directors or senior management, or involving members of the same corporate group, often raise conflict of interest concerns which require consideration where a related party has an informational advantage over other security holders. In response to this distinct feature of the Canadian corporate economy, securities regulators have established special rules applicable to insider bids, self-tender transactions and certain types of related party transactions and business combinations.3 These rules

3 These rules are set out in Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions.

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are designed to protect minority shareholders by requiring enhanced disclosure, minority shareholder approval and formal valuations for such transactions in certain prescribed circumstances.

v Defensive tactics and shareholder rights plans

The most common defensive tactic available to Canadian companies is a shareholder rights plan or ‘poison pill’. Rights plans are well established in Canada and have many features in common with their US counterparts. Since they must be approved by shareholders within six months of adoption if they are to remain in place, institutional shareholders and corporate governance advocates have had considerable influence over their terms, which have become fairly standardised in both form and substance. although similar in form, Canadian pills are less effective and less durable than US pills, due in large measure to differences in the way disputes over their application have been litigated in the two countries. This is no doubt one reason why rights plans continue to be adopted with relative frequency in Canada, whereas the trend in the United States is toward a reduction in the implementation of rights plans in the face of US institutional investor opposition to poison pills.

In the US, challenges to shareholder rights plans appear before the courts, which apply a directors’ duties analysis in determining whether a board can implement and maintain a plan. In Canada, the provincial securities regulators will typically exercise their jurisdiction to issue cease-trade orders to invalidate poison pills. The regulators weigh the interest of shareholders in not being deprived of the ability to decide whether to accept a bid. Ultimately, it becomes a question of when, not if, the pill should be struck down. This means that in Canada there are only isolated occasions when a Canadian board of directors can ‘just say no’ for any significant length of time. Generally speaking, once a Canadian target company is put in play, a change of control transaction is likely to occur. As a consequence, the Canadian takeover bid landscape is considered to be distinctly more ‘bidder-friendly’ than its US counterpart.

III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT

i Jurisprudential developments

Over the course of the past year, there have been several decisions of the securities regulators relating to M&a matters, illustrating how securities regulators play an active role in the Canadian M&A context – in contrast to the US where the courts are the principal arbiters of disputes arising from M&a transactions.

In mid-2009, Pala Investments, an activist investor, made a hostile, partial takeover to acquire a large block of shares of Neo Material Technologies. Neo adopted a shareholder rights plan to block the partial bid while that bid was unfolding. neo then held a special meeting of shareholders at which ratification of the rights plan was overwhelmingly approved. Pala subsequently sought an order to have the rights plan cease-traded. The Re Neo Material Technologies decision represents the first time the Ontario Securities Commission (‘the OSC’) has declined to exercise its public interest jurisdiction to cease-trade a rights plan.

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The decision has been the subject of considerable debate among M&a lawyers as a result of the OSC’s decision to depart from past practice and engage in an extensive fiduciary duty analysis that included its embracing the business judgment rule. In general, previous rights plan decisions have shown little deference to the decisions made by boards of directors or have expressed the view that fiduciary duty determinations are matters more properly left to the courts. Some practitioners have suggested that the decision might now enable boards to ‘just say no’ to a bid, whereas others believe that the decision was decided on unique facts and does not represent a change in the traditional approach to rights plans that involves a determination of when, not if, a rights plan will be set aside.

In May 2010, the British Columbia Securities Commission (‘the BCSC’) decided that it was appropriate to cease-trade the rights plan that Lionsgate adopted in response to a hostile takeover made by Carl Icahn. In Re Lionsgate, the BCSC expressed reservations about the Neo decision and noted that it represented a departure from the Canadian securities regulators’ prior views of the public interest as it relates to the adoption of rights plans. The BCSC also noted that shareholder approval of a rights plan, in itself, is insufficient to justify preserving the rights plan. Rather it is a relevant consideration if the plan is designed to give a board more time to seek an improvement of an offer or a competing bid or an alternative transaction. as a result of this decision, Canadian M&a practitioners and provincial securities regulators are now faced with terrain that is somewhat less clear than in the past and only time will tell whether the OSC presses forward with the approach seen in Neo notwithstanding the concerns that the BCSC expressed or whether instead the OSC chooses to edge back to its more traditional approach.

Other significant decisions included the OSC’s decision in Re MI Developments (December 2009), involving related party transactions that were challenged under Canadian rules governing related party transactions, and the alberta Securities Commission’s decision in Re Profound Energy (July 2009), involving merger related private placements of target securities. Both decisions resulted in transactions being allowed to proceed without the regulators invoking their public interest jurisdiction. These decisions illustrated that crisis-driven M&a transactions may be afforded greater deference by securities regulators. While neither decision relied on the business judgment rule, they can be characterised in part as reflecting some reluctance to second-guess the decisions of directors in weighing the competing demands placed on them in a difficult and challenging business environment.

ii Buy-side shareholder vote in dilutive public company acquisitions

In November 2009, the Toronto Stock Exchange (‘the TSX’), the principal stock exchange on which Canadian issuers are listed, adopted a new rule that requires TSX-listed issuers to obtain buy-side shareholder approval for public company acquisitions that would result in the issuance of more than 25 per cent of the issued and outstanding shares of an acquiring company on a non-diluted basis. Historically, an acquiring company was required to obtain shareholder approval in circumstances where a dilutive share issuance ‘materially affects’ the control profile of the issuer. That rule continues in effect. However, in the context of an M&a transaction, the new bright line test will apply to an acquirer that seeks to issue shares representing dilution in excess of 25 per

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cent. As a result of the new TSX rule, there will be incremental deal risk associated with the execution of transactions that attract a buy-side shareholder vote. However, the TSX now generally conforms to several other stock exchanges such as the NASDAQ Market and the New York Stock Exchange, which require shareholder approval for share issuances equal to or greater than 20 per cent dilution.

IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS

Canada continues to be a hospitable environment for international purchasers of Canadian companies, despite the somewhat lower volume of M&a transactions. The deal environment remains characterised by a shareholder-friendly regime that results in relatively few structural defences being available to public company boards of directors.

Of the total C$138 billion in announced transactions in Canada during 2009, roughly C$34 billion (or 25 per cent) involved the purchase of Canadian businesses by international acquirers. Of this total, the largest portion (almost a third) involved US purchasers with the balance coming from the rest of the world. This relatively high percentage of non-US international acquirers is even higher than past years and well above longer-term historical averages for Canadian transactions, reflecting interest on the part of an increasingly broad array of international buyers in natural resource assets, particularly oil and gas assets, held in Canadian entities.

Canadian-based corporations were also involved in acquiring a variety of businesses outside of Canada. as noted in the introduction to this article, while the number of cross-border acquisitions by Canadians was consistent with the past trend of approximately twice as many as the number of inbound transactions, for the first time in five years the value of cross-border transactions by Canadians exceeded the value of inbound transactions, reflecting a strong Canadian dollar and increased appetite for opportunities outside of the country.

Also of note are amendments to the Investment Canada Act (‘the ICA’), the primary statutory instrument governing the acquisition of Canadian businesses by non-Canadians. Once new regulations are in force, the amendments will raise the generally reviewable size of transaction threshold from the currently applicable C$299 million (based on book value of assets in Canada) to C$600 million (based on ‘enterprise value’ of assets in Canada), a figure that will rise progressively to C$1 billion over several years. The standard of review is whether the investment is of ‘net benefit to Canada’. Where the investor is a state-owned enterprise, the investor must demonstrate commercial orientation and transparency.

In general, Canada has exercised restraint in disapproving foreign investment. Only one major transaction outside of the cultural sector (the Alliant/MacDonald, Dettwiler case in 2008) has been disallowed under the ICA in its 25-year history. There has, however, been recent controversy relating to post-acquisition conduct as foreign purchasers of Canadian businesses purchased during the 2005 to 2007 M&a boom have been accused in some instances of not living up to undertakings made to the federal government in connection with ICA approvals at the time of the acquisitions, particularly in connection with activity levels in Canada and maintenance of employment. This may be the result of dramatically changed circumstances and business pressures brought to bear by the

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financial crisis on commitments made at the height of a commodity price boom. The federal government has recently gone so far as to bring a court action against US Steel in this regard, accusing it of breaking commitments made to maintain steel production at Stelco, which it purchased in 2007.

Significantly, the amendments also specifically allow the Canadian government to review, prohibit or impose conditions on a broad range of investments by non-Canadians on national security grounds, which had not previously been an explicit basis for review under the ICA. This amendment puts the ICA on a similar footing with equivalent statutory provisions in many other jurisdictions, including the US.

It appears that the Canadian government may have used this new power at least once since its enactment. In August 2009, George Forrest International Afrique SPRL, after announcing the proposed acquisition of uranium mining company Forsys Metals Group, received an unsolicited letter from the Canadian government advising that it was prohibited from completing the proposed transaction until further notice (the transaction was terminated shortly thereafter). In 2009, opponents of Swedish telecoms company Ericsson’s acquisition of the wireless business of Nortel argued that the transaction should be reviewed on national security grounds (the transaction was below the applicable size of transaction threshold and therefore did not require governmental approval). However, the Canadian government did not challenge the transaction. While the scope of the national security review remains somewhat uncertain, it may provide a potential means by which opponents can advocate for governmental intervention (and potential challenge) of proposed transactions in certain circumstances.

V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES

In 2009, transactions in the oil and gas sector predominated the landscape, accounting for 46 per cent of the activity and virtually all of the largest transactions of the year. These included Suncor Energy Inc’s acquisition of Petro-Canada (C$19.2 billion), and Sinopec’s acquisition of Addax Petroleum Corporation (C$8.3 billion). Activity in the mining and financial services sectors was significantly lower in 2009 than in 2008. Areas that saw increased activity in 2009 compared to 2008 included communications, media and transportation, as well as environmental services and industrial products.

While transactions by strategic acquirers dominated the year, Canadian pension funds have been very active players in the past 18 months, evidenced by a continued strong asset base and appetite in diverse sectors and regions. Examples include the Canada Pension Plan’s C$7.3 billion acquisition of Macquarie Communications Infrastructure Group, as well as the acquisitions of Transurban Limited, IMS Health Care and Skype Technologies SA, not to mention significant real estate assets in Manhattan and a number of shopping centres. Ontario Teachers’ Pension Plan has also been increasingly active with announced acquisitions of Munchkin, Inc, Exal Group, Camelot Group plc, Acorn Care and Education Ltd, AIG and Simmons Bedding Company.

Acquisition activity in Canada by state-owned enterprises (‘SOEs’) remains significant, particularly in the oil and gas sector. In addition to the Addax Petroleum acquisition by Sinopec (China) noted supra, Sinopec has announced the proposed acquisition

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of 9 per cent of Syncrude for C$4.6 billion. Other transactions include the acquisition of Harvest Energy Trust by Korea National Oil Corporation, Petro China’s acquisition of oilsands assets developed by athabaska Oil Sands Corp, and China national Petroleum Corporation’s acquisition of Verenex Energy Inc To date, most of the acquisitions by SOEs in Canada involved mainly assets of modest size, or companies that, while listed and incorporated in Canada, have assets that lie largely outside of Canada, in jurisdictions such as north africa, the Middle East, and central asia. Perhaps as a result, the treatment of SOEs has not yet aroused any significant degree of controversy in Canada. The Petro China C$1.9 billion purchase from Athabaska Oil Sands Corp was the first significant acquisition by an SOE subject to Investment Canada review. It was approved, but it is fair to say that SOE investment in Canada, particularly in the oil and gas sector, may attract heightened attention and scrutiny. While regulations under the ICA specifically addressing the treatment of SOEs were adopted by the federal government in december 2007, the Canadian government has not yet found itself with a truly challenging ‘test case’ transaction involving an SOE.

While there had been speculation that Canadian banks, who have weathered the recent economic storms more effectively than many of their international counterparts, would become significant buyers of troubled US and foreign financial institutions, this has not proven to be the case. The last significant US acquisition by a Canadian bank was the C$8.5 billion acquisition by TD Bank of Commerce Bancorp in early 2008. This is not to say that the Canadian banks have been inactive. all of the major Canadian banks have made acquisitions of financial assets in the United States, with Bank of Montreal being the most active, having acquired the Diners Club North American franchise, as well as a range of US banking assets, a securities lending business and wealth management businesses. The Bank of nova Scotia has been more active outside of north america, with acquisitions in Puerto Rico, China, Thailand, Colombia and the Cayman Islands.

Finally, there has been a continued number of prominent transactions over the past 12 months that are the result of financial distress, and are to varying degrees hybrid restructuring or M&a transactions. These include the auction of the various businesses of Nortel following its bankruptcy filing, the out of court restructuring of General Motors of Canada, and the restructuring of CanWest Global Communications, including the sale of its newspaper and broadcast assets, as well several transactions involving companies caught in a liquidity squeeze and forced to seek a buyer as a means of survival.

VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS

Canadian acquisition financing sources have typically included Canadian banks and pension funds. In addition to being a significant source of capital, pension funds have assumed an important role in direct investing, as noted above. Private equity funding in Canadian M&A activity has remained low. The illiquid credit markets and limited availability of capital continued to define 2009, although the first part of 2010 has seen credit spreads narrow significantly and leverage ratios for secured debt improve in a number of industries. Interestingly however, 2009 also saw the emergence of less traditional, but increasingly active, sources of funding, such as Fairfax Financial Holdings Limited, a financial services holding company, which in 2009 and 2010 made

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acquisitions and investments in Zenith National Insurance Corp, Odyssey Re Holdings Corp, Northridge Financial Corporation and MEGA Brands Inc, and also bid or invested in a number of other sectors.

VII TAX LAW

Three significant developments in Canadian tax law during the past year were proposals to narrow the definition of ‘taxable Canadian property’ (‘TCP’), to restrict employers’ deductions on the cash out of stock options and to harmonise (as of 1 July 2010) the Ontario and British Columbia sales tax regimes with the federal goods and services tax (‘GST’) regime.

i Taxable Canadian property

The proposed narrowing of the definition of ‘TCP’, effective since 4 March 2010, will restrict the circumstances in which Canada requires non-residents to report, or be taxed on, dispositions of certain types of property. Under these proposals, shares of a private Canadian resident corporation (other than a mutual fund corporation) would only constitute TCP if at any time in the preceding 60-month period, more than 50 per cent of the fair market value of such shares was directly or indirectly derived from real property situated in Canada, Canadian resource properties, timber resource properties, options or interests in respect of the foregoing, or any combination thereof. additionally, shares of publicly listed Canadian resident corporations and mutual fund corporations would only constitute TCP if, in addition to the share value requirement applicable to private resident corporations, at any time in the preceding 60-month period, at least 25 per cent of the shares of any class or series of the corporation was owned by the non-resident, non-arm’s length persons to the non-resident, or any combination thereof. Similar proposals were made in respect of shares of non-resident corporations, partnerships, and trusts (resident, non-resident or mutual fund trusts).

ii Employee stock options

Currently, corporate employers are prohibited from deducting any amounts on the issuance of any shares on the exercise by employees of a stock option. Where, however, an employee is able to dispose of their stock option for a cash payment from the employer that is equal to the ‘in the money’ value of the stock option, the employer is generally entitled to deduct the amount of the cash payment. In addition, where the appropriate pre-conditions are met, the employee may also be able to claim a deduction equal to one-half of the stock option benefit. The proposals prevent the employee’s deduction unless the employer agrees that it will not also claim a deduction in respect of the cash payment

The proposals also prevent employers from relying on the Canada Revenue agency’s longstanding administrative position that employers do not need to withhold and remit taxes when an employee exercises options for shares, if doing so would cause undue hardship to the employee. The employer must now remit taxes to the same extent as if the amount of the benefit had been paid to the employee as a cash bonus. The remittance amendments apply to securities acquired by employees after 2010, and will not apply in respect of stock options granted prior to 2011 pursuant to a written

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agreement entered into before 4 p.m. (EST) on 4 March 2010, where the agreement restricts the employee’s ability to dispose of the shares.

iii Harmonised sales tax

The Ontario government announced that it will harmonise the existing 8 per cent Ontario retail sales tax (‘RST’) with the federal 5 per cent GST, for a combined Ontario harmonised sales tax (‘HST’) of 13 per cent, effective 1 July 2010. Similarly, the British Columbia government will harmonise its 7 per cent provincial sales tax with the 5 per cent federal GST, for a combined HST in British Columbia of 12 per cent, also effective 1 July 2010. These harmonisations will result in HST applying to some goods and services that were previously not subject to RST, and will represent significant cost savings for businesses currently permitted to claim GST input tax credits. On the other hand, the harmonisations will result in a tax increase on businesses that are not able to claim HST input tax credits (such as certain financial businesses).

VIII COMPETITION LAW

In March 2009, significant amendments to Canada’s competition regime were enacted that, to a large extent, align the statutory regime governing the Canadian merger review process with its US counterpart. Subject to certain exceptions, the Competition Act requires parties planning to undertake certain types of transactions that affect businesses with assets or sales revenue in Canada (even if only indirectly as a result of a transaction occurring principally outside Canada) to file a pre-merger notification with the Competition Bureau prior to completing a transaction. In general, a transaction is notifiable in the following circumstances:a ‘party size’ threshold, where the parties to the transaction, including affiliates, have

assets in Canada with an aggregate gross book value that exceeds C$400 million or aggregate gross revenues from sales in, from or into Canada that exceed C$400 million; and

b ‘transaction size’ threshold, where, for an acquisition of assets in Canada of an operating business, the aggregate value of those assets, or the gross revenues from sales in or from Canada generated from those assets, exceed C$70 million; or where, for an acquisition of voting shares of a corporation, the aggregate value of the assets in Canada of the corporation, or the gross revenues from sales in or from Canada generated from those assets, exceed C$70 million.

If the transaction is an acquisition of shares, an additional threshold requires that the voting interest of the purchaser post-transaction exceed 20 per cent for a public company or 35 per cent for a private company (or 50 per cent if these thresholds are already exceeded).

Upon receipt of the parties’ filing, the Competition Bureau will conduct a substantive merger review to determine whether the proposed transaction will be ‘likely to prevent or lessen competition substantially’. The transaction may not be completed until the expiry of a 30-day waiting period, following which the parties can close provided the Commissioner has not exercised her discretion to extend the waiting

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period by requiring the notifying party to supply additional information (a ‘supplemental information request’ or ‘SIR’). Upon the issuance of a SIR, the waiting period stops until a complete response has been submitted. Once the response to the SIR is submitted, a further 30-day period starts to run and the parties can close their transaction following its expiry unless the Commissioner challenges the transaction or obtains an injunction to prevent or delay closing, or the parties have agreed otherwise.

Where the Commissioner challenges the transaction, the Competition Tribunal may make an order prohibiting the merger, or requiring other remedial action such as divestitures. In the case of a completed merger, the Commissioner may, within one year of the implementation of the merger, seek an order to require dissolution of the merger or divestiture of assets or shares.

The Competition act also provides a procedure pursuant to which transactions that do not give rise to significant substantive merger issues may be exempted from the pre-merger notification requirements and from substantive review. This procedure allows the Commissioner to issue an advance ruling certificate in cases where she is satisfied that she would not have sufficient grounds on which to seek an order from the Competition Tribunal in respect of a transaction.

IX OUTLOOK

While recent events in European sovereign debt markets have injected renewed uncertainty in global financial markets, the Canadian economy was performing relatively well moving into 2010 and there were signs of renewed M&a activity. What remained unclear was whether in the face of several countries contemplating the introduction of severe austerity programmes, markets would stabilise enough to finance a meaningful number of large transactions or whether this space would continue to be dominated by pension funds and SOEs that do not face the same financing constraints. In the interim, it is clear that mid-market deals will remain a very significant part of deal flow in Canada. Similarly, Canada’s oil and gas sector will continue to be a source of meaningful interest not only for domestic players, but also for SOEs in countries like China that have found Canada to be an attractive arena in which to develop north american M&a experience while adding to their pool of foreign assets in sectors deemed to be of strategic importance. although early days, there are also signs that the Canadian telecommunications market may once again become a source of interest for foreign investment and M&a activity as the federal government has launched a consultation process that may lead to a loosening of foreign ownership restrictions in this sphere. The story for 2010, though more compelling than the one seen in 2008 and 2009, remains very much a work in progress and it remains to be seen whether enough groundwork has been put in place to allow for sustained upward momentum in M&a activity in the second half of 2010 and into 2011.

About the Authors

ROBERT YALDENOsler, Hoskin & Harcourt LLP

Robert Yalden is a partner in Osler, Hoskin & Harcourt LLP’s business law department. He was co-chair of the firm’s mergers and acquisitions group for 10 years prior to becoming a member of his firm’s executive committee. Mr Yalden is listed as one of Canada’s leading corporate lawyers in the latest editions of Chambers Global: The World’s Leading Lawyers for Business, IFLR 1000: The Guide to the World’s Leading Financial Law Firms, Best Lawyers in Canada and The Canadian Legal Lexpert Directory. Mr Yalden has acted in connection with a wide range of M&A transactions, including hostile and friendly business acquisitions, the implementation of defensive strategies, going-private transactions and strategic alliances. Robert was part of the Osler legal team that implemented the first poison pill in Canada. More recently, he led the Osler legal teams involved in Canada’s largest ever-completed leveraged buyout, as well as the largest private equity transaction completed in Canada in 2008. Mr Yalden is the co-author of Yalden et al, Business Organizations: Principles, Policies and Practice (2008).

WARD SELLERSOsler, Hoskin & Harcourt LLP

Ward Sellers is a partner in Osler, Hoskin & Harcourt LLP’s business law department. He is co-chair of the firm’s mergers and acquisitions group and head of the Montreal Office corporate department. His practice covers many areas of corporate and securities law, with a focus on domestic and cross-border M&A and corporate finance. Mr Sellers has acted in a number of significant cross-border merger transactions, including in relation to hostile and friendly business acquisitions, takeover bids, special committees and in a wide range of business acquisition transactions and corporate arrangements. A significant portion of his practice is focused on providing advice on strategic acquisitions. In addition, Mr Sellers advises public and private companies on Canadian securities regulation and public company matters, including corporate governance issues. Mr Sellers has practised in the Montreal office of Osler, Hoskin & Harcourt LLP since 2001, and previously practised in the firm’s New York and Toronto offices. He is cited for corporate law in The Best Lawyers in Canada 2010 and was a recipient in Lexpert’s ‘Top 40 Under 40 Awards’ in 2002. Mr Sellers received his BComm. (Honours) from McGill University in 1984 and his LLB from the University of Toronto in 1987.

About the Authors

EMMANUEL PRESSMANOsler, Hoskin & Harcourt LLP

Emmanuel Pressman is a partner in Osler, Hoskin & Harcourt LLP’s business law department and co-chair of the firm’s mergers and acquisitions group. His practice focuses on corporate and securities law matters with an emphasis in M&A and corporate finance. He has acted for acquirers, targets, selling shareholders, special committees and financial advisers that have been involved in friendly and contested takeover bids, going-private transactions, negotiated acquisitions and a range of corporate transactions and restructurings. He acted as counsel to the special committee of the board of directors of Four Seasons Hotels in its $3.8 billion going private transaction by Kingdom Hotels, Cascade Investment (investment arm of Bill Gates) and Triples Holdings (investment vehicle of Isadore Sharp); Magna International in its proposed share reorganisation involving the collapse of its dual-class share capital structure; and INCO in its competing takeover bid for Falconbridge and its responses to the competing bids for it resulting in its C$20 billion acquisition by Vale.

Mr Pressman is a frequent speaker at conferences relating to M&A and developments in corporate and securities law and has guest lectured at the McGill University Faculty of Law and the University of Toronto Faculty of Law. He received an LLB from the University of Western Ontario Faculty of Law in 1996 and was called to the Ontario Bar in 1998.

OSLER, HOSkiN & HARcOURT LLP100 King Street West1 First Canadian PlaceSuite 6100, PO Box 50Toronto, Ontario M5X 1B8CanadaTel: +1 416 362 2111Fax: +1 416 862 6666www.osler.com