Toronto (Canada) – International business law firm Fasken Martineau has released the results of a new 10-year empirical analysis of contested corporate take-overs in Canada. It arrives just as Canada’s securities regulators are set to release a proposal to make the most significant changes to the take-over bid rules in years, with the goal of levelling the playing field between bidders and target companies in unsolicited acquisitions.
Examining all 143 hostile take-over contests for control between 2005-14, Fasken Martineau’s study offers a sweeping, insightful overview of a decade’s worth of contested M&A deals in Canada. The research offers some surprising findings and will be of interest to all participants in Canada’s thriving M&A market, including boards, shareholders, bidders, advisors and regulators.
The study was co-authored by Fasken Martineau corporate partners in Toronto Aaron J. Atkinson and Bradley A. Freelan, both of whom have extensive experience advising in M&A, including contested transactions.
The study is the first of its kind in Canada and coincides with expected amendments to the Canadian take-over bid regime by the country’s securities regulators. In Canada, unlike the United States, boards do not have the ability to “just say no” to a hostile bidder to prevent it from proceeding. This has led to a spirited debate in Canada as to the proper role of the board in a transaction that is ultimately between the bidder and shareholders. Among other changes, the new rules will substantially expand the period during which a hostile bid must remain open – from 35 to 120 days – and also mandate a minimum tender requirement of a majority of the target company’s shares, thereby strengthening the board’s hand but leaving the final decision in shareholders’ hands in a contest for control.
“Fasken Martineau’s 2015 Canadian Hostile Take-Over Bid Study is a landmark piece of research and analysis,” said Fasken Martineau partner Richard Steinberg, Practice Group Leader for Securities and M&A.
“By analyzing the outcome of every unsolicited take-over bid over the last decade, the study draws important observations about the key criteria upon which successful outcomes are based,” Mr. Steinberg added. “The findings and analysis should be must-reading for a number of audiences – public company directors and senior management, as well as bidders and their advisors, and also securities regulators. As regulators ready to issue new rules on unsolicited take-overs, we’re pleased to have such a thorough study to help advance the dialogue among the principal players.”
Key findings of the 2015 Canadian Hostile Take-Over Bid Study include:
- When initiating a public contest for control, a hostile bidder was successful more than half the time; however, in these circumstances the sale of the company was by no means inevitable, with targets of these bids remaining independent almost 30% of the time.
- Competitive auction scenarios occurred infrequently (37% of the time), but when they did, shareholders were the clear winners, on average receiving a substantially higher premium, while the hostile bidder was most often left empty-handed, prevailing only one-third of the time.
- A hostile bidder’s odds improved when offering cash, and offering a healthy premium didn’t hurt either. But more than anything else, it paid to start from a position of strength with a toe-hold or lock-ups (or both) of 20% or more.
- Shareholder rights plans proved their worth by buying time and driving competition. In fact, a hostile bid for a target that had a rights plan in place was more than twice as likely to face competition.
- The board’s support was a prized asset: hostile bidders had a near-perfect record when securing the board’s support and fared poorly without it (prevailing on only 22% of contests), particularly where the board’s recommendation was more likely to influence the outcome.
In the course of the research, Fasken Martineau discovered trends that may have implications for proposed reforms to the current bid rules. A chief point of concern is how an extended bid period may affect the number of bids. The authors note that extending the bid period may increase shareholder choice by driving more competition. But such an extension may have the unintended consequence of decreasing the frequency of bids if bidders perceive their weaker odds no longer justify the risks inherent in launching a bid.
“As participants in the debate leading to proposed reforms, and as frequent advisors to both bidders and boards, our goal was to offer unbiased research that will advance discussion and serve as a resource for all market participants,” Mr. Atkinson said. “We think some of our findings on the strength of the board’s recommendation and the substantial impact of competition on outcomes will prove illuminating.”
“While shareholder activism and proxy contests have had the spotlight in Canada over the past few years, boards are well-advised not to ignore take-over preparedness as the threat of a hostile bid can emerge at any time,” added Mr. Freelan. “We would like to see our study serve as an informational tool for players across the deal landscape as fresh rules of engagement are considered and debated.”
Their report includes an index of all 143 hostile bids for control reviewed during the 10-year period – with breakout information on target industry, market capitalization and deal outcomes.
The 2015 Canadian Hostile Take-Over Bid Study is the second major piece of empirical deal research that Fasken Martineau has issued in the last few years. In January 2013, the firm released findings from their ground-breaking Canadian Proxy Contest Study. Download a copy of the 2014 Canadian Proxy Contest Study Update or the original 2013 Canadian Proxy Contest Study.
One of Canada’s leading law firms, Fasken Martineau has been involved in some of the biggest M&A transactions in recent years. The firm has one of the largest corporate practices of any Canadian firm and regularly handles Canada-side assignments on large North American transactions in retail, mining, financial services, natural resources, automotive and other segments.
About Fasken Martineau
Fasken Martineau is a leading international business law and litigation firm. With more than 770 lawyers, the firm has offices in Vancouver, Calgary, Toronto, Ottawa, Montréal, Québec City, London, Paris and Johannesburg. For additional information, please visit the firm's website at www.fasken.com.