CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
Managing Risk During the Interim Period Once a definitive acquisition agreement is signed or a takeover bid launched, the acquiror is bound to complete the transaction unless one of the expressly stated conditions is not satis - fied. Definitive acquisition agreements now con - tain specific pandemic or epidemic provisions, including representations about the impact of public health measures on the business and the extent to which government support has been relied on. Material adverse effect and ordinary course of business provisions have garnered greater attention in recent years, in part due to COVID-19 pandemic’s impact and current global trade uncertainty. 6.8 Additional Governance Rights If an acquiror is not seeking 100% ownership of a target, it may negotiate for additional govern- ance rights with respect to a target outside its shareholdings, including the right to: • nominate individuals to the target’s board and/or to sit on board committees; • be a board observer; • participate in, or require, a public offering of the target’s equity securities; and • approve of change of control transactions, issuances of shares and other major deci - sions. 6.9 Voting by Proxy Shareholders are permitted to vote by proxy in Canada. 6.10 Squeeze-Out Mechanisms If an acquiror wishes to obtain 100% of the shares of a target and is not able to do so through the bid process, there are two other methods that can be used to acquire the remaining shares
depending on the holdings of the acquiror after the bid is complete. Second-Step Business Combination/Going- Private Transaction A second-step business combination or a going- private transaction can be implemented if the bidder holds between 66⅔% and 90% of the outstanding shares after the bid is complete. Following the bid, the bidder will be able to take the company private through an amalgamation or a plan of arrangement. Such a business combination will need to be approved by a special majority of the sharehold - ers at a shareholder meeting and will be sub- ject to certain minority shareholder protections. (For instance, a majority of the minority of the shareholders will be required to approve of the business combination.) However, as the major - ity shareholder, the bidder can participate and vote the shares that were acquired under the takeover bid. Thus, if the bidder acquires 66⅔% of the outstanding shares, in most cases, it will have sufficient votes to obtain the majority of the minority approval. Compulsory Acquisition Under corporate law, if a bidder obtains 90% of the outstanding shares subject to the bid within 120 days of the commencement of the bid, it can acquire all of the shares that remain outstanding for the same price as was offered under the bid. This compulsory acquisition procedure does not require a shareholder vote. Shareholders that did not tender to the bid are provided with dissent rights that allow them to apply to a court to fix the fair value of their shares.
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