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Canadian M&A Law

Sunday, June 25, 2017 | Ideas and resources on the law of mergers & acquisitions

Chapter five

Minority Shareholder Protections Under MI 61-101

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, a joint rule implemented by the Ontario Securities Commission and the Autorité des marchés financiers in Quebec, regulates transactions such as “insider bids”, “issuer bids,” “business combinations” and “related party transactions” in order to ensure equal treatment of shareholders. Recognizing that these types of transactions are capable of being abusive and unfair, MI 61-101 attempts to address this by imposing certain procedural safeguards, including specific disclosure requirements, and where applicable, valuation and minority approval.

Insider Bids

“Insider bids” are take-over bids proposed by one or more “insiders” of an issuer. These include bids made by an “issuer insider” (which includes a major shareholder (10% plus), or a director or senior officer of the target or of any person that is an issuer insider or a subsidiary entity of the target), any associated or affiliated entity of any such issuer insider or of the target itself, as well as any person who has been in any such relationship within the previous 12 months and any person that is a joint actor of any of the foregoing.

Subject to limited exceptions, the offeror in an insider bid must provide shareholders with a formal valuation prepared by an independent valuator at the offeror’s expense. [s. 2.3] An independent committee comprised of “independent” directors of the issuer must determine who the valuator in will be, supervise the preparation of the formal valuation and use its best efforts to ensure that the formal valuation is completed in a timely manner. [s. 2.3(2)] The disclosure document that the offeror provides to shareholders must also provide information concerning “prior valuations,” being any formal valuation of the target within the previous 24 months, of which the offeror or any director or senior officer of the offeror has knowledge. [s. 2.2(1)(b)]

Directors of the target are also subject to a similar “prior valuation” disclosure requirement in the directors’ circular relating to the bid[2.2(2)(a)], as well as the requirement to disclose bona fide prior offers received by the issuer in the 24 months preceding public announcement of the bid. [2.2(2)(c)] The exceptions from the formal valuation requirement include bids made on the terms of previous arm’s length negotiations [s. 2.4(1)(b)]or those made in the context of an auction[s. 2.4(1)(c)], as well as circumstances where neither the offeror nor any joint actor of the offer has, within the preceding 12 months, any board or management representation in respect of the target or any material information concerning the target or its securities that has not been generally disclosed. [s. 2.4(1)(a)]