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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