SkyLaw is the exclusive author of annual guides to Canadian M&A for Chambers and Partners, a highly respected global legal platform.
CANADA
Greenland
Law and Practice Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow SkyLaw
Canada
Ottawa
USA
Contents 1. Trends p.5
1.1 M&A Market p.5 1.2 Key Trends p.5 1.3 Key Industries p.7 2. Overview of Regulatory Field p.8 2.1 Acquiring a Company p.8 2.2 Primary Regulators p.8 2.3 Restrictions on Foreign Investments p.9 2.4 Antitrust Regulations p.10
2.5 Labour Law Regulations p.11 2.6 National Security Review p.11 3. Recent Legal Developments p.11 3.1 Significant Court Decisions or Legal Developments p.11 3.2 Significant Changes to Takeover Law p.12 4. Stakebuilding p.13 4.1 Principal Stakebuilding Strategies p.13 4.2 Material Shareholding Disclosure Threshold p.13
4.3 Hurdles to Stakebuilding p.14 4.4 Dealings in Derivatives p.15 4.5 Filing/Reporting Obligations p.15 4.6 Transparency p.15 5. Negotiation Phase p.15 5.1 Requirement to Disclose a Deal p.15
5.2 Market Practice on Timing p.15 5.3 Scope of Due Diligence p.15 5.4 Standstills or Exclusivity p.16 5.5 Definitive Agreements p.16 6. Structuring p.17 6.1 Length of Process for Acquisition/Sale p.17 6.2 Mandatory Offer Threshold p.17 6.3 Consideration p.17 6.4 Common Conditions for a Takeover Offer p.18 6.5 Minimum Acceptance Conditions p.18
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CANADA CONTENTS
6.6 Requirement to Obtain Financing p.19 6.7 Types of Deal Security Measures p.19 6.8 Additional Governance Rights p.20 6.9 Voting by Proxy p.20 6.10 Squeeze-Out Mechanisms p.20 6.11 Irrevocable Commitments p.21 7. Disclosure p.21 7.1 Making a Bid Public p.21 7.2 Type of Disclosure Required p.21 7.3 Producing Financial Statements p.21 7.4 Transaction Documents p.22 8. Duties of Directors p.22 8.1 Principal Directors’ Duties p.22 8.2 Special or Ad Hoc Committees p.22 8.3 Business Judgement Rule p.23 8.4 Independent Outside Advice p.23 8.5 Conflicts of Interest p.23 9. Defensive Measures p.24 9.1 Hostile Tender Offers p.24 9.2 Directors’ Use of Defensive Measures p.24 9.3 Common Defensive Measures p.24 9.4 Directors’ Duties p.25 9.5 Directors’ Ability to “Just Say No” p.25 10. Litigation p.25 10.1 Frequency of Litigation p.25 10.2 Stage of Deal p.25 10.3 “Broken-Deal” Disputes p.25 11. Activism p.25 11.1 Shareholder Activism p.25 11.2 Aims of Activists p.26 11.3 Interference With Completion p.26
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
SkyLaw is a premier corporate and securities firm in Canada. The SkyLaw team has an unpar - alleled practice in international M&A, govern- ance and corporate finance. SkyLaw lawyers have worked at top-tier global law firms in To - ronto, New York, London and Sydney, providing the firm with a unique reach into major global fi - nancial centres. The firm excels in major acqui - sitions, bespoke equity and debt investments,
joint ventures and reorganisations. The major - ity of SkyLaw’s M&A work involves acquirors based in the USA, the Middle East, Australia, China, Europe and elsewhere around the world. Recent engagements include high-profile pri - vate equity investments and strategic acquisi - tions by Fortune 500 companies. The firm has once again been voted as one of Canada’s Top 10 corporate law boutiques.
Authors
Kevin West is a senior corporate and securities lawyer with 25 years of experience. Kevin has led countless corporate transactions, including M&A, financings and joint ventures. He
Priya Ratti is a corporate and securities lawyer with a focus on M&A transactions. Prior to joining SkyLaw, she ran her own practice, representing clients in a wide range of civil litigation
also has significant experience advising companies on corporate governance, disclosure and compliance issues. Prior to launching SkyLaw in 2010, Kevin was a partner at Davies Ward Phillips & Vineberg LLP, where he represented a number of foreign companies making acquisitions in Canada. Before joining Davies, he practised with Sullivan & Cromwell LLP in New York and Sydney, Australia, and clerked for Justice Ian Binnie at the Supreme Court of Canada.
and corporate matters. Priya currently manages SkyCounsel, SkyLaw’s practice support platform for independent legal professionals, and actively contributes to the firm’s Our Insights blog.
Meryam Kellow is a corporate and securities lawyer at SkyLaw
with extensive experience in various areas of business law. Her work includes structuring and completing M&A transactions and advising on commercial agreements.
Andrea Hill is a corporate and securities lawyer at SkyLaw with a decade of experience in a broad corporate practice. Her areas of expertise include establishing, structuring and
governing corporations, raising capital, M&A, and general corporate and securities matters. Andrea has published multiple articles in national Canadian media and is a repeat contributor by invitation to the Globe and Mail’s Report on Business.
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
SkyLaw Professional Corporation 22 St. Clair Ave E Suite 200
Toronto Ontario M4T 2S3 Canada Tel: +1 416 759 5299 Email: kevin.west@skylaw.ca Web: www.skylaw.ca
1. Trends 1.1 M&A Market
financing market is robust, with an abundance of creative financing options; private equity firms continue to hold an abundance of cash ready to deploy; valuation gaps have narrowed as acquirors spend longer in due diligence; and the declining value of the Canadian dollar makes Canadian businesses more attractive for US bar - gain hunters. However, since the US tariff war with Canada began in February 2025, business confidence has taken a significant hit, and the valuations of Canadian businesses will be impacted by the risk of a global recession, particularly those busi- nesses that trade with the United States. With a majority of Canadian exports going to the USA, Canadians are uneasy watching the tariff story develop. Though the news and outlook change day to day, it appears that businesses will be taking “wait-and-see” , guarded approach to M&A in early 2025 and deferring transactions until con- fidence has recovered. 1.2 Key Trends M&A activity in Canada was set to improve in 2025 as interest rates fell throughout 2024 and
The outlook for M&A in Canada is uncertain, with tariff wars weighing on investor decisions. At the time of writing in early 2025, the authors believed that a number of factors supported an optimistic climate for deal-making. However, the trade war launched by the United States against Canada in February 2025 and the wide-ranging retaliatory tariffs imposed by the United States on 2 April 2025 resulted in a global stock market crash. There is now a significant risk of both a global recession and higher inflation. These dramatic changes and the resulting uncertainty will impact the level of M&A activity in Canada. Easing interest rates, decreasing inflation and a steady exchange rate against the US dollar throughout 2024 spurred just enough confi - dence for Canadian deal-making to carry on at higher deal values than 2023. After the “soft landing” in 2024, investors were briefly hopeful for an uptick in Canadian M&A in 2025 given the stimulating effects of the lower cost of borrowing on housing activity, house- hold spending and construction. Moreover, the
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
investor confidence improved. However, risks of a global recession and the expectation of increased inflation from the tariff war have cre - ated uncertainty for businesses and deal making going forward. Key trends that are affecting M&A activity in Canada include the following: • The Canadian government updated its invest - ment guidelines to now explicitly consider investments and transactions that undermine the nation’s economic security. Canada con - tinues to take a cautious approach to foreign investments in Canada. • The Canadian government continues to invest in and take steps to protect critical minerals. • The Canadian dollar has declined relative to the US dollar, and the growing list of tariffs on Canadian imports are damaging business and consumer confidence. • Canadian retail businesses continue to face volatility – some benefitting from a surge of interest in supporting Canadian vendors, oth - ers struggling with supply chain challenges and decreasing consumer confidence. Hud - son’s Bay, Canada’s oldest retail company, ended its 355-year run by filing for creditor protection this spring. • While pipeline projects have previously faced staunch opposition, Canada is seeing a growing need to develop its infrastructure and focus on trading with friendly European nations. • Provincial governments will reduce internal trade barriers to support interprovincial trade. • The labour force will be directly impacted by new immigration policies following the upcoming federal election. A declining population and plans to decrease the number of temporary workers and permanent immi- grants will shrink the labour force. Industries
that heavily rely on temporary workers will be disproportionately affected. • Private equity firms continue to sit on high levels of cash as they delay deployment until they see the impact of tariffs on the Canadian economy. • Take-privates outnumbered IPOs in 2024 and are expected to continue into 2025. • The use of limited partnerships in Canada remains a steady trend and a new trend towards investing at the fund manager level is emerging. • Shareholder activism declined, possibly because the S&P/TSX Composite Index saw significant gains in 2023; however, it is expected to increase given the market disrup - tions. • Criticism over environmental, social and governance (ESG) policies has led companies to refuse to publish ESG information (green- hushing) and instead to focus on “conscien- tious capitalism” . • Cybersecurity and data safekeeping has become a top priority for Canadian compa - nies with the increase in ransoms paid for data. • A new digital services tax came into force in June 2024 requiring foreign and domestic large businesses to pay 3% DST on certain revenue earned from engaging with online users in Canada. • Canada launched the Federal Plastics Reg - istry in 2024, mandating certain reporting obligations on plastic, targeting businesses using “forever chemicals” . • The use of an exchangeable share struc - ture by US buyers to roll over the equity of Canadian sellers is increasing in popularity as it can provide meaningful tax deferral for sellers.
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
• Canada introduced employee ownership trusts as a new tool making it easier for employees to own businesses. • Canadian regulators continue to be wary of certain foreign states and actors. The list of sanctioned entities and persons grew to include individuals connected to the Gaza war and human rights abuses in Guatemala and Sudan. • Canada announced CAD2.4 billion in new federal funding towards its national AI strat- egy in April 2024. With the prorogation of Parliament and government elections looming in 2025, the viability of existing government initiatives and Canada’s leadership position on AI remain uncertain. 1.3 Key Industries Automotive, Steel and Aluminium Currently the industries that are hardest hit by the US tariff war are the automotive industry and the steel and aluminium industries. The automotive industry in Canada over the past 30 years became inextricably linked with the United States. Automotive parts manufactured in Canada would cross the border up to eight times before final assembly. The tariffs imposed by the United States this year, and the coun- termeasures imposed by Canada, are expected to permanently break this arrangement. Canada will be developing a framework for auto produc- ers that incentivises production and investment in Canada. Similarly, the steel and aluminium industries have been singled out for tariffs and reciprocal tariffs. In 2024, roughly equivalent amounts of steel and iron crossed the border in each direc- tion while more than three times the amount of aluminium flows from Canada to the USA.
These industries and the industries that support them will be suffering significant losses of rev - enue and employment. Mining Approximately half of all publicly traded mining companies in the world are listed on a Canadian stock exchange. In 2024, the mining and met - als sector led materials M&A activity by sheer number of transactions and fell only behind the telecommunications sector in deal value. Nota- ble deals included South Africa’s Gold Fields’ USD1.39 billion acquisition of Osisko Mining, and First Majestic’s USD970 million acquisition of Gatos Silver. Canadian mining companies continue to face unique challenges such as increased govern - ment scrutiny on foreign investment, geopolitical risks, and environmental hurdles. Canada is a key producer of copper, nickel, cobalt, lithium, graphite and vanadium. As global demand increases for critical minerals used in batteries and other clean technology, Canada continues to look for ways to invest in, and pro- tect, these key resources. A notable headline in the sector includes Noble Mineral Exploration and Canada Nickel’s announcement of the plan to consolidate their interests. Oil and Gas The oil and gas sector accounts for approximate - ly 3% of Canada’s real gross domestic product. Canada is the world’s fourth-largest producer of oil and fifth-largest producer of natural gas and Canadian refineries can process nearly 1.9 mil - lion barrels of crude oil per day.
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
2. Overview of Regulatory Field 2.1 Acquiring a Company Most public company acquisitions in Canada are conducted by way of: • a takeover bid, either hostile (unsolicited) or friendly (solicited and/or negotiated); or • a negotiated, court-approved plan of arrange- ment. Companies can also be acquired by way of: • an asset or share purchase; or • an amalgamation or other corporate reorgani- sation. 2.2 Primary Regulators M&A activity in Canada is primarily regulated by: • the Canadian federal government, particularly where the target is in a regulated industry or the acquiror is non-Canadian; • provincial securities regulators; and • stock exchanges. Reporting issuers, including all issuers with securities listed on a Canadian stock exchange, must file continuous disclosure documents on SEDAR+, a web-based platform for electronic filing and public data access for Canada’s capi - tal markets. Reporting insiders – including direc- tors, officers and 10% beneficial owners of a class of securities of a reporting issuer – must file trade reports on the System for Electronic Disclosure by Insiders (SEDI) unless an exemp - tion is available. There is no single national securities regulator in Canada and multiple attempts at creating one have failed. At present, there are 13 securities
Oil industry M&A remained active in 2024, with notable transactions such as: Canadian Natu - ral Resources’ acquisition of Chevron’s Alberta assets for USD6.5 billion, Enbridge’s CAN4.3 bil - lion acquisition of Fall West Holdco from Domin - ion Energy and Teck’s sale of its steel-making coal business to Glencore for USD7.3 billion. M&A in the oil and gas sector appears promising. A major deal already underway is the USD2.05 billion acquisition of Dutch green fuel-maker, OCI Global by Canada’s Methanex, the largest methanol producer in the world. Technology Canada has a solid presence within the technol - ogy sector. It is home to leading technology hubs and companies, such as Shopify, as well as to market leaders in numerous sectors, including cleantech. As of May 2024, 88% of the cleantech sector companies listed on the TSX and TSX-Venture exchanges were headquartered in Canada. Technology companies have lost a lot of value from the stock market highs of 2021, and more going-private transactions are expected. For example, Montreal-based Nuvei Corp. was tak - en private by a US private equity firm for USD6.3 billion, and Industrial and Financial Systems acquired Copperleaf Technologies for CAD1 billion. The technology sector has been active: Canada Pension Plan Investments participated in the largest data centre deal globally – the acquisi - tion of Airtrunk by Blackstone, and Singapore’s Bitdeer Technologies Group announced in Feb - ruary 2025 its acquisition of a 101 MW site in Alberta for USD21.7 million where it will build a data centre for Bitcoin mining.
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
regulators in Canada, across its ten provinces and three territories. 2.3 Restrictions on Foreign Investments Investment Canada Act (ICA) and National Security Review Canada has traditionally welcomed foreign investment and has a reputation as an attractive and trusted destination for investors. However, like most countries, the Canadian government may restrict the ability of a non-Canadian to acquire or start a business in Canada, in par - ticular if the investment relates to a cultural busi- ness (for example, broadcasting and publishing) or raises national security concerns. The govern- ment may block proposed foreign investments, allow them to proceed with conditions, or order divestiture if an investment has already been made. A transaction by a non-Canadian is reviewable if the enterprise value of the target business exceeds certain financial thresholds (for WTO investors that are not state-owned enterprises, the threshold is an enterprise value of CAD1.386 billion). If a transaction is reviewable, the for- eign investor must prove that the transaction is of “net benefit” to Canada. If not reviewable, a notification under the ICA must be filed within 30 days after commencing a new business activ- ity or acquiring control of an existing Canadian business. Separately, the Canadian government may review any acquisition on national security grounds under the ICA, whether or not it is sub - ject to a net benefit review. There is no definition of “national security” in the ICA, nor are there specific monetary thresholds that automati - cally trigger a national security review. Any for- eign investments in businesses involved in the Canadian oil sands, the critical minerals sector,
defence, and certain other protected industries are likely to be subject to greater scrutiny. In particular, the government has stated that any investment (regardless of size or industry) into a Canadian business from an investor with direct or indirect ties to Russia, and any investment by a foreign state-owned enterprise into Canada’s critical minerals sector, will trigger a national security analysis. The government is also more likely to take a closer look at opportunistic acqui - sitions of targets hit hard by tariffs. Following amendments to the ICA in 2022, investors may make a voluntary pre-closing fil - ing regarding a proposed minority investment to determine if it would be subject to a national security review, triggering a 45-day review peri- od for the government. If no voluntary notifica - tion is filed, the government has up to five years to make an order for a national security review after becoming aware of the investment. The national security review provisions can apply to acquisitions even where there is a limited con - nection to Canada. Further amendments to the ICA were intro - duced in 2024, including permitting the Minister of Innovation, Science and Industry to impose interim conditions on investors or other relevant parties during the course of a national security review. Such conditions include restricting the investor from appointing board members or sen- ior management, restricting physical access to sites, and suspending the investors’ contracts. Sanctions Canada has sanctioned countries, individuals and entities that it considers to be connected to human rights violations, corruption, or ter- rorist activities. Canada currently has sanctions in place against 24 countries and has enacted measures to freeze or restrain the property of
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
certain politically exposed foreign persons. Sanctions can require, among other things, restrictions on trade, and disclosure and/or divestiture of assets in sanctioned jurisdictions. Industries with Limits on Foreign Ownership Ownership by non-Canadians is restricted in certain sectors, including the airline, banking, telecommunications and insurance industries. In 2022, the federal government imposed a tempo- rary ban (with some exceptions) on foreign own - ership of Canadian non-recreational residential property, which was recently extended until 1 January 2027. In March 2024, the government of Canada issued a policy statement setting out that foreign investments in the interactive digital media sec- tor will be subject to enhanced scrutiny under the national security review framework. In Febru- ary 2025, the government of Canada released a Sensitive Technology List, setting out technolo- gies which will be protected from “unwanted transfer to foreign threat actors to the detriment of its own national security and defence.” In March 2025, the ICA Guidelines were amend - ed to include as a decision-making factor the potential of an investment to undermine Can - ada’s economic security through the enhanced integration of the Canadian business within the
enues from sales in, from or into Canada with a value in excess of CAD400 million. • Size of Transaction: The aggregate value of the Canadian assets or annual gross rev - enues from sales in or from Canada of the target exceed CAD93 million. The Competition Bureau reserves the right to review any transaction. Under the Competition Act, the Competition Bureau has up to three years post-closing for transactions that are not notifiable, and one year for notifiable transac - tions to determine whether it is likely to lessen or prevent competition substantially. In addition, all business activity in Canada is subject to scrutiny for anti-competitive behaviour. Significant amendments to the Canadian Competition Act have been made in recent years. Among other things, these amendments expanded the non-exhaustive list of acts that may be considered an abuse of dominant posi- tion and increased the applicable penalties. The amendments also removed the efficiency defence for anti-competitive collaborations and in merger reviews. In 2024, the Competition Bureau took legal action against Google for engaging in anti-com- petitive practices following an investigation that found that Google abused its dominant position by preventing rivals from being able to compete. Canada continues to amend its Competition Act to target unsupported ESG claims by including harsher penalties, and will soon allow private parties to seek leave for proceedings (whereas currently this right is limited only to the Competi - tion Bureau).
economy of a foreign state. 2.4 Antitrust Regulations Competition Act
Foreign investment is also subject to pre-merger notification under the Competition Act if it meets both of the following thresholds: • Size of Parties: The parties to the transaction, together with their affiliates, have combined assets in Canada or total annual gross rev -
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
2.5 Labour Law Regulations Employment legislation varies by jurisdiction in Canada. Minimum statutory employment stand - ards, such as notice requirements on termina - tion, generally cannot be contracted out of or waived. For example, an employment agreement providing for “termination at will” would not be enforceable. Other legislation applies to the employment rela- tionship, including the applicable human rights code, pay equity statute and occupational health and safety legislation. Canada supports the principles of collective bar - gaining. Each jurisdiction in Canada has a labour code. Ontario prohibits non-competition provisions in employment agreements and requires certain employers to have a written policy with respect to “disconnecting from work” . In 2024, Ontario and British Columbia adopted standards for minimum working conditions for digital platform workers such as app-based ride-hailing and delivery drivers. Acquirors should conduct due diligence to understand the potential severance costs asso- ciated with a target’s key employees and con- sider whether any future plans (for example, a return-to-office policy) could be construed as constructive dismissal requiring severance pay - ments. In the context of M&A transactions, while there is no requirement to engage with employees or pension trustees, target company directors in discharging their fiduciary duties are encour - aged to take the interests of these stakeholders into account. If a target business is unionised or about to become unionised, a potential acquiror
should also learn more about the current collec- tive bargaining agreement and any negotiation process that is underway. 2.6 National Security Review See 2.3 Restrictions on Foreign Investments . 3. Recent Legal Developments 3.1 Significant Court Decisions or Legal Developments Poonian v British Columbia (Securities Commission) Filing for bankruptcy will not discharge all penal- ties relating to fraudulent securities conduct. The Supreme Court of Canada ruled that adminis - trative penalties may be dischargeable through bankruptcy; however, disgorgement orders, which are designed to return ill-gotten gains to victims, are not dischargeable. Riot Platforms v Bitfarms Riot, the largest shareholder in Bitfarms, sought a cease trade order for Bitfarms’ shareholder rights plan. The plan contained a 15% trigger threshold, which Riot argued undermined the takeover bid regime (which has a 20% trigger threshold). The Capital Markets Tribunal granted the cease trade order and found that a share- holder rights plan could be cease-traded if it substantially undermines securities law princi- ples. The Tribunal stated that “exceptional cir- cumstances” would be required to justify a trig - ger below the 20% threshold of the takeover bid regime. Re Cormark Securities The Ontario Capital Markets Tribunal held that “distribution” is the first sale of securities in the market and that pledging restricted shares as collateral for a share loan and selling the bor-
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
Lochan v Binance Holdings The Court of Appeal of Ontario emphasised that standard-form “click” contracts that require users to accept numerous terms, including bur- densome arbitration clauses, can render such clauses invalid on the grounds of public policy or unconscionability. Businesses should carefully consider the structure of their arbitration claus- es, particularly with respect to forums and cost. 3.2 Significant Changes to Takeover Law Takeover Bid Amendments The last significant amendments to the takeover bid rules in Canada were implemented in 2016. These amendments included: • the extension of the minimum bid period from 35 days to 105 days (which may be short- ened in certain circumstances) to allow target boards adequate time to respond to hostile bids; • the introduction of a mandatory 50% mini- mum tender condition (at least 50% of the shares not already owned by the acquiror and its joint actors must be tendered before any shares can be taken up by the acquiror); and • a mandatory ten-day extension to the bid period if, at the end of the initial deposit period, all terms and conditions of the bid have been complied with or waived and the minimum tender requirement has been met. Securities regulators are inclined to strictly enforce these rules in order to promote predict- ability in the takeover bid regime. Exemptions and variations are rare.
rowed shares on the secondary market does not qualify as “distribution” . Mithaq Canada (Re) Following an attempted hostile takeover bid, the Ontario Capital Markets Tribunal held that while a private placement was a defensive response, it was permissible, due to the target’s need for financing. This case signals a more flexible stance on defensive tactics in Canada (even if they restrict shareholder choice during hostile takeovers) and indicates that defensive place- ments may make future takeover attempts more challenging. Achter Land & Cattle v South West Terminal The Saskatchewan Court of Appeal reinforced that although it is a highly fact-specific analysis, a thumbs-up emoji can constitute acceptance of a contract. Dr. C. Sims Dentistry v Cooke Following the sale of his practice, the seller went on to work at a competing practice, contrary to the non-competition clause. The Ontario Court of Appeal upheld the restrictive covenant and confirmed such provisions are intended to pro - tect the goodwill of the acquired business and, therefore, are deemed lawful unless shown to be unreasonable. Alternatively, in an employment context, courts will often find the same covenant overbroad and unenforceable. Dente v Delta Plus An Ontario court held that post-closing commu- nications between counsel and the sellers of a target corporation may be subject to joint privi - lege whereas during negotiations, such com- munications and documentation are privileged.
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
4. Stakebuilding 4.1 Principal Stakebuilding Strategies It is common in Canada for prospective acqui - rors to accumulate shares of their target prior to launching a takeover bid or change of control transaction. An acquiror may establish “toehold” through open market purchases or private trans- actions with other shareholders. Acquirors may also seek support from other shareholders through accumulation of proxies or lock-up or voting agreements in support of a transaction. 4.2 Material Shareholding Disclosure Threshold An acquiror must publicly disclose its owner - ship of a reporting issuer once it directly or indi- rectly beneficially owns, or has control or direc - tion over, 10% or more of a class of securities (whereas in the USA, the threshold is 5%). This threshold is reduced to 5% in Canada if a takeo - ver bid for the relevant securities is outstanding. Beneficial ownership of securities is calculated on a partially diluted basis by class and includes: • all securities of that class that could be acquired within 60 days upon the conversion or exercise of convertible securities; and • all securities of that class beneficially owned by any joint actors of the acquiror. Control or direction generally is established by the ability to vote, or direct the voting of, shares or the ability to acquire or dispose of, or direct the acquisition or disposition of, shares. Equity equivalent derivatives, such as equity swaps, generally are not included in determining whether the 10% ownership threshold has been
crossed, although interests in these and other related financial instruments must be disclosed in reporting required once the 10% ownership threshold has been crossed. The determination of whether parties are joint actors hinges on establishing the existence of a plan of action or a mutual understanding about how shareholders will vote their shares. Hav - ing a common goal or concern is insufficient to establish that the parties are acting jointly or in concert. Early Warning Disclosure Upon crossing the 10% ownership threshold, the acquiror is subject to the early warning regime and must file a press release and an early warning report (similar to a Schedule 13D in the USA). After the 10% threshold is met, an early warning report is required for the acquisition of or disposal of additional shares that results in a 2% or more change in total share ownership. Eligible institutional investors, which include passive financial institutions, pension funds, mutual funds, investment managers and SEC- registered investment advisers, may file a less onerous alternative monthly report (similar to a Schedule 13G in the USA). Access to the alter- native monthly report regime is contingent on, among other things, the institutional investor having no current intention of acquiring control of the reporting issuer. Insider Reporting Directors, officers, 10% beneficial owners and other “reporting insiders” of reporting issuers must file insider reports disclosing any change to their beneficial ownership of, or control or direction over, the reporting issuer’s securities or interest in a related financial instrument.
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
4.3 Hurdles to Stakebuilding Unlike in the USA, structural defences to stake- building in constating documents or by-laws are not common in Canada because they are not required or would be ineffective under Canadian law. Early Warning Standstill An acquiror that is obligated to file an early warn - ing report may not acquire any more securities of that class (or securities convertible into such securities) until the expiry of one business day after the early warning report is filed. Takeover Bid Rules Once an acquiror has beneficial ownership of, or control or direction over, 20% or more of the outstanding voting or equity securities of a class, any further acquisitions of outstanding securities of that class would constitute a takeover bid that requires an offer to be made to all security hold - ers unless an exemption is available. Rights Plans Before the 2016 takeover bid regime amend - ments, the primary structural defence mecha- nism for an issuer in Canada was a shareholder rights plan (commonly known as “poison pill” ). Rights plans are still in use, albeit with some dif- ferences to pre-2016 plans. Typical features of a rights plan include the following: • Upon an acquiror’s acquisition of, or announcement of its intent to acquire, benefi - cial ownership of (typically) 20% or more of the company’s shares, all other shareholders will be given the right to purchase shares at a significant discount to the market price, sub - stantially diluting the acquiror. See also Riot Platforms v Bitfarms in 3.1 Significant Court Decisions or Legal Developments .
• Rights plans may allow for “permitted bid” , which typically now means one that is required to stay open for at least 105 days and includes a minimum tender condition. The primary value of a tactical rights plan adopt- ed following the emergence of a bid traditionally has been to buy time for a board and sharehold- ers to consider an offer and (where appropriate) seek alternatives to the bid. As takeover bid offers must remain open for at least 105 days, it is generally expected that regulators will cease-trade a rights plan after that timeframe. Even where a regulator permits a rights plan to remain in place, certain Canadian stock exchanges may refuse a plan if it does not receive shareholder approval within six months of being implemented, which often functions as a de facto termination date for tactical rights plans. Other Hurdles to Stakebuilding Acquisitions of shares generally cannot be made if a person is in a special relationship with an issuer and possesses inside information (infor- mation that has not been generally disclosed and could reasonably be expected to significant - ly affect the market price or value of a security of the issuer). Most private companies have restrictions on share transfers in their articles or in unanimous shareholder agreements that would prevent a third party from acquiring shares without board or shareholder approval. For reporting issuers with a public float, it would not be possible to restrict share transfers in the articles or by-laws, but individual shareholders may agree to a standstill as part of a negotiated transaction.
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
4.4 Dealings in Derivatives Dealings in derivatives are permitted in Canada. 4.5 Filing/Reporting Obligations Disclosure by 10% holders must be made of the material terms of any “related financial instru - ment” involving the issuer’s securities as well as any other “agreement, arrangement or under- standing that has the effect of altering, directly or indirectly” , the investor’s economic exposure to the issuer’s securities. Disclosure is also required of any securities lending arrangements. See 2.4 Antitrust Regulations for filing require - ments under competition laws. 4.6 Transparency Early warning reports and alternative monthly reports require disclosure of any plans or inten - tions that investors and joint actors may have relating to any changes in their security owner- ship, voting intentions or any material transac- tion they may propose. An eligible institutional investor will be disquali - fied from filing alternative monthly reports if the investor intends to propose a transaction that would result in it acquiring effective control. 5. Negotiation Phase 5.1 Requirement to Disclose a Deal Reporting issuers must immediately disclose all “material changes” . In the context of a proposed transaction, the threshold for a material change requiring disclosure is typically met when both parties have decided to proceed with a potential transaction and there is a substantial likelihood that the transaction will be completed. There is no bright-line test for this determination.
Certain Canadian stock exchanges require disclosure of all “material information” , which includes both material changes and material facts. Confidential material change filings and trading halts may be made in certain circum- stances. The acquisition by a reporting issuer of a pri - vate company will require disclosure only if the transaction is a material change for the reporting issuer. A transaction between two private com- panies carries no public disclosure obligation. 5.2 Market Practice on Timing Most acquisitions are announced publicly only once definitive acquisition agreements are signed. Companies tend to avoid disclosing a potential transaction at the non-binding letter of intent stage because the transaction may be tentative or uncertain and premature disclosure could unduly affect the share price or give poten - tial competitors or stakeholders time to mobilise in opposition prior to the issuer having any deal certainty. If the transaction is announced prema- turely, the target could suffer reputational harm Significant business combinations usually involve a thorough scope of due diligence including searches of public bankruptcy, lien and litigation registries, obtaining a corporate profile, and a review of public filings on SEDAR+, SEDI and other databases. Searches are typically run against the target company and its management and material sub- sidiaries; for privately held companies, they are also run against the selling shareholders. or face questions from regulators. 5.3 Scope of Due Diligence Diligence documents, such as financial state - ments and material contracts, will typically be
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
supplied by the target to the buyer and its coun- sel via an electronic dataroom. Common factors affecting the scope of due dili - gence include the nature of the target’s industry, the jurisdiction where assets are located, wheth - er the target competes with the buyer, and the access to sensitive information the target is will- ing to grant. 5.4 Standstills or Exclusivity Most letters of intent and acquisition agree - ments include exclusivity obligations on the target. Acquirors will usually want to know that the target has ceased all negotiations and is not shopping their deal to third parties. Most targets will want a standstill arrangement in place with the acquiror. For the acquisition of a reporting issuer, it is com - mon for exclusivity obligations to contain “fiduci - ary out” clause allowing the target to terminate the agreement and accept a superior proposal if doing so would be consistent with the target board’s fiduciary duties. The acquiror would typi - cally have a right to match the superior proposal or would be entitled to be paid a break fee (as described in 6.7 Types of Deal Security Meas- ures ) if the agreement is terminated. “superior proposal” will typically need to satisfy specific negotiated conditions, including that: • it is for all the target’s shares (or in some cases substantially all assets); • it is reasonably capable of being completed without undue delay with regard to all finan - cial, legal, regulatory and other aspects of the competing transaction; • it is not subject to any financing condition; and
• the target board make a determination that it is a more favourable transaction. The existence of “hard” lock-up agreements (ie, the shareholder is not permitted to withdraw and tender its shares to, or vote in favour of, any other competing transaction) with target shareholders holding a significant percentage of shares could render an offer incapable of being “superior proposal” because it is not reasonably The documentation used to set out the terms of a deal is determined by the nature of a transac- tion. If the transaction is a takeover bid, the acqui - ror must publicly file a takeover bid circular that describes the terms of its offer and includes other required disclosure. If the terms of the takeover bid subsequently change, further notices must be filed. For friendly takeover bids, the acquiror would typically enter into a support agreement with the target prior to launching the bid setting out the process of the bid, conditions and cer- tain deal protections. capable of being completed. 5.5 Definitive Agreements If the transaction is a plan of arrangement or oth- er negotiated business combination, the acqui - ror and the target would enter into an arrange- ment or combination agreement. The agreement would set out the process of the transaction (including shareholder, court and other approv- als), conditions and certain deal protections.
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
6. Structuring 6.1 Length of Process for Acquisition/ Sale Parties typically enter into a non-binding letter of intent setting out the proposed deal terms with binding provisions regarding exclusivity, expenses and confidentiality. Parties then conduct due diligence and negoti- ate a definitive acquisition agreement. The time required varies depending on the size and nature of the target and the involvement of third parties, such as lenders. The timeline for a friendly takeover bid gener- ally is 50–65 days beginning from the start of preparation of the takeover bid circular to the completion of the transaction, assuming the tar- get waives the minimum bid period of 105 days (shortening it to no less than 35 days). A hostile takeover bid must remain open for at least 105 days. The bid period may be shortened by the target or reduced to no less than 35 days if the target announces an alternative transac- tion, such as a plan of arrangement, requiring approval by the target’s shareholders. A man- datory ten-day extension period will apply if the bidder satisfies the minimum tender condition and is required to take up securities that were tendered under the bid. Defensive tactics used by the target may vary the timeline to complete the bid. Typically, following a successful takeover bid, the acquiror will conduct a second-step trans - action to obtain 100% of the outstanding shares. If the target is a private company, the parties may sign the definitive documents and close the transaction on the same day. Otherwise, closing
may take 30–60 days or longer depending on the extent to which shareholder, court or regulatory approvals are required. Complex transactions often will have outside dates that may be extended to accommodate regulatory approvals. 6.2 Mandatory Offer Threshold An acquisition of outstanding voting or equity securities of a reporting issuer that would cause a shareholder to, together with any joint actors, have beneficial ownership of and/or control over 20% or more of the outstanding securities (cal- culated on a partially diluted basis) is prohibited unless: • the shareholder makes an offer to all share - holders of the same class via a takeover bid; or • an exemption from the takeover bid rules is available. Such exemptions include: • certain purchases by private agreement from not more than five persons; and • normal course market purchases of no more than 5% of the outstanding securities in any 12-month period. 6.3 Consideration Both cash and shares of the acquiror are com - monly used in Canada as consideration in M&A transactions. The takeover bid rules require that identical con - sideration be provided to all target shareholders, with limited exceptions. Generally, no collateral benefits are allowed to be offered selectively to certain shareholders.
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
Plans of arrangement offer flexibility on consid - eration, so long as the arrangement overall is fair and reasonable. In private M&A, particularly in industries with high valuation uncertainty, tools commonly used to bridge value gaps between parties include holdbacks and earn-outs. • With “holdback” , an acquiror will hold on to some of the purchase price until after clos- ing in order to satisfy indemnity or breach of warranty claims. This holdback amount may be provided to an escrow agent, particularly in cases where the seller has concerns about the creditworthiness of an acquiror. • With an “earn-out” , part of the purchase price will remain subject to performance require - ments or other milestones that must be satis- fied after closing and may also be used to set off indemnity or breach of warranty claims. The most common criterion is financial per - formance. Sellers may also provide some or all of the financing, or reinvest proceeds in the purchaser, to facilitate the closing. 6.4 Common Conditions for a Takeover Offer Common conditions for takeover bids include: • There is no shareholder rights plan in effect or the rights plan will be waived. • Regulatory approvals (including, under the Competition Act and the ICA) and third-party approvals or consents have been obtained. • There has not been a material adverse change. • There is no existing, pending or threatened litigation involving the target that would lead to a material adverse effect.
• There are no laws that would prevent the bid- der from taking up or paying for the securi- ties subject to the bid and there are no laws in effect or proposed that would have an adverse effect on the target. Takeover bids cannot be subject to a financing condition as discussed in 6.6 Requirement to Obtain Financing . 6.5 Minimum Acceptance Conditions All bids, even partial bids, must provide for a mandatory minimum tender condition that more than 50% of securities owned by security hold- ers other than the bidder be tendered to the bid. This minimum tender requirement must be met before the bidder may acquire any of the securi - ties subject to the bid. Bids for all of the outstanding shares may include a higher minimum tender condition to ensure that the bidder, through a second-step business combination, can obtain the remain- ing shares that are not deposited. This condition will usually require a deposit of at least 66⅔% of the outstanding shares and sufficient shares to obtain approval of a majority of the minority shareholders for the second-step transaction. Canadian securities regulations allow securities that were obtained under a lock-up to be voted as part of the majority of the minority vote if the locked-up security holder is treated identically to all others under the offer. If a bidder is only seeking control, it may include a minimum tender requirement of, for example, 51% of the outstanding shares instead. Parties may apply to Canadian securities regulators to waive or vary the minimum tender condition, although regulators will only allow such a waiver in rare cases.
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CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
6.6 Requirement to Obtain Financing In an arrangement, amalgamation and other business combinations, there is no regulatory requirement or restriction on financing condi - tions. However, the target will generally require that the acquiror show evidence that it will be able to fund the cash consideration. For takeover bids that offer cash consideration, the bidder must have pre-arranged financing before launching the bid. The financing itself may be conditional at the time the bid is com- menced, if the bidder reasonably believes that the possibility is remote that it will not be able to pay for securities deposited under the bid. 6.7 Types of Deal Security Measures Acquirors may seek a wide variety of deal protec - tion measures, examples of which are described below. Support Agreements and Lock-Ups In a friendly takeover, before launching the bid, the bidder and the target may enter into a sup- port agreement whereby the target agrees to recommend that its shareholders tender to the bid and the bidder agrees to launch the bid on terms specified in the support agreement, sub - ject to conditions such as a fiduciary out. The directors, officers or significant shareholders of a target may also enter into lock-up or voting agreements with the acquiror to deposit their shares to the bid or vote their shares in favour of an arrangement. These agreements may be “hard” or “soft” (see 6.11 Irrevocable Commit- ments ). Stock exchange rules may require that disinter - ested securityholders approve of voting agree- ments requiring shareholders to vote their shares in accordance with management recommenda-
tions. Negative voting agreements (those requir - ing a shareholder to not vote against manage- ment’s recommendations), on the other hand, are not required to be approved by disinterested securityholders. Break/Termination Fees A common deal protection measure in Canada is a break fee which may be paid by the target to the acquiror if an arrangement or other business combination is not completed. These types of fees usually range from 2% to 4% of the target’s equity value. Reverse break fees requiring a payment by the acquiror to the target if the acquiror breaches the acquisition agreement or is not able to complete No-shop clauses prohibit a target from soliciting other takeover offers or providing information to other third parties that might be used to make an offer. These provisions will typically include “fiduciary out” (see 5.4 Standstills or Exclusiv- ity ). Go-shop clauses, on the other hand, allow a tar- get to negotiate or “shop” transaction with third parties for a specific amount of time after the execution of the agreement. Go-shops are less common but may be desirable if the acquiror wants to publicly announce the deal before the target tests the market. Matching Rights The acquiror may be provided the right to match a superior proposal and complete the transac- tion. the sale may also be used. No-Shop/Go-Shop Clauses
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