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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