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The previous article outlined the key features to consider when choosing a method of acquiring a public company in Canada. The current blog post provides an explanation of the mergers and acquisitions regulation in this jurisdiction. We also offer a brief overview of the legal requirements and restrictions that must be considered by foreign buyers when they decide to start a deal to acquire control of a Canadian company. 

Formats for filing an acquisition of a Canadian company:

  • Publication of the announcement in the media. The text summarizes the takeover bid.
  • Sending the takeover prospectus personally to each holder of the securities put up for auction.

Proposal submission 

A detailed prospectus for the takeover bid in Canada needs to be prepared and designed according to specifications. The proposal must be answered by the Directors of the target company. They send their answer in the form of a circular to each holder of securities. The takeover bid of the Canadian public company is open for a minimum of 105 days, known as the "initial deposit period". The term can be significantly reduced if the directors of the target company do not object to the takeover.

Start a merger deal in Canada

The Canadian merger is similar in nature to the US merger. The formed merged corporation acquires all the assets, rights and obligations of each merged corporation. In public control change transactions in Canada, a merger is rarely the preferred transaction structure.

Please note that if the merging companies are registered in different jurisdictions, one of them must change its articles of association.

To begin the merger of public companies in Canada, the approval of the shareholders of both the target company and the acquirer must be obtained, and the information prospectus must be sent to the shareholders of each merged company before the meeting. The information prospectus describes the transaction in detail and includes a copy of the merger agreement, draft articles on the merger.

Protection of minorities

A number of Canadian public companies have adopted shareholder protection rules that allow the target company's directors to control the whole process and explore the possibility of an alternative transaction that brings higher returns for shareholders. Most rules are designed so that the potential buyer must negotiate the acquisition with the directors of the target Canadian company in accordance with the prescribed bidding procedures.

Private equity acquisitions in Canada are governed by additional rules designed to protect minority shareholders when there is a risk of conflict of interest. In particular, these rules apply to:

  • insider bids;
  • issuer's applications;
  • business combination;
  • related party transactions.

Antitrust review is mandatory for mergers in Canada.

Starting this year, acquisitions of Canadian public companies exceeding certain thresholds are subject to prior merger notice.

If each of the applicable thresholds is exceeded, the merging parties cannot complete the transaction until the statutory 30-day waiting period has expired.

Foreign buyers

It may be advantageous for a foreign buyer to acquire shares in a Canadian public company through a Canadian corporation established as a subsidiary of a foreign buyer. Typically, a Canadian corporation subsequently merges with a Canadian target company.

Foreign investment in the acquisition of control of Canadian companies is subject to verification. The need for such verification depends on the structure of the transaction, the nationality of the investor, as well as the nature and value of the acquired assets or business.

The direct acquisition of control of a Canadian business by a non-Canadian citizen is subject to prior consideration.

 Earlier this year, Canadian authorities announced that in light of the evolving pandemic, some foreign investment in Canadian business would be "scrutinized" under the Act.

Legal assistance

In the context of buying and selling shares of a public company in Canada, it is important to consider the timing of the various stages of the transaction, the terms of the contractual arrangements, and the requirements of the law in each particular transaction.

Contact our legal professionals if you need advice on structuring deals to acquire private companies in Canada. We will help you prepare preliminary inquiries with regulators regarding the reorganization of business in Canada, as well as provide a full package of related services.