CANADA LAW AND PRACTICE Contributed by: Kevin West, Andrea Hill, Priya Ratti and Meryam Kellow, SkyLaw
Crown Jewel/Scorched Earth A target may attempt to restructure or recapital- ise so as to provide shareholders with cash val- ue, for instance, by selling a significant asset in order to become less attractive to a bidder. The directors must undertake “crown jewel” transac- tion with a view to the best interests of the cor- poration, and the sale must have a demonstrable business purpose. The board of a target may also decide to substantially increase long-term debt and concurrently declare special dividends to distribute cash to its shareholders. Defensive Private Placements Private placements that have the effect of block - ing a bid have been recognised by Canadian securities regulators as a possible defensive tac- tic, but they could be found to be inappropriate if they are abusive or frustrate the ability of share- holders to respond to a bid or competing bids. Golden Parachutes Golden parachutes for key employees may be triggered if such employees are terminated after a third-party acquisition. White Knight Targets may seek an alternative transaction with a friendly party or “white knight” that might offer more value (or in some cases more preferential terms or deal certainty) to its shareholders than the original bidder. Issuer Bid If a target is unable to find a white knight, it may offer to repurchase its outstanding shares itself. Pac-Man A target might flip the script and make a bid for the shares of the hostile bidder.
Conflicts of interest of directors, managers, shareholders or advisers have been the sub- ject of judicial and regulatory scrutiny as well. Securities regulators in Canada have, in particu - lar, examined the question of whether a party is a joint actor with the acquiror. This is a factual analysis, and its finding may have an impact on whether the transaction is an insider bid or related party transaction and hence subject to the additional requirements under MI 61-101 set forth above.
9. Defensive Measures 9.1 Hostile Tender Offers
Hostile takeover bids are permitted in Canada but are not very common as the takeover bid
regime is relatively target friendly. 9.2 Directors’ Use of Defensive Measures
Canadian securities laws allow directors to use measures to defend against hostile takeovers. Regulators may intervene when defensive meas- ures are likely to deny or severely limit the ability of shareholders to respond to a takeover bid. 9.3 Common Defensive Measures Shareholder Rights Plans Shareholder rights plans or poison pills are often used by target companies to defend against hostile bids. Rights plans will not block hostile bids entirely but are instead a way to encour- age the fair treatment of shareholders in con- nection with a bid and to allow the target board and shareholders to respond to and consider the bid. They also allow time for the target board to seek available alternatives and prevent creeping takeovers. See 4.3 Hurdles to Stakebuilding .
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