Second-Step Transactions
An acquiror is highly unlikely to acquire all of a target’s shares in a takeover bid or tender offer and, therefore, some form of second-step transaction will be necessary to obtain 100% ownership. The form of second-step transaction and its speed will depend primarily on the percentage of target shares that the acquiror owns after the bid. The mechanics of second-step transactions are governed by the provincial or state corporate laws under which the acquiror and target are incorporated or organized. To simplify the mechanics of the deal, acquirors commonly incorporate a new subsidiary as an acquisition vehicle in the same jurisdiction where the target is incorporated or organized.
Second Steps in Canada
When a bidder obtains at least 90% of the outstanding shares of a target company under a bid, provincial corporate law statutes generally confer a compulsory acquisition right in favour of the bidder to acquire the balance of the securities. In calculating the 90% threshold, securities held by the bidder at the time of making the bid or acquired in the open market during the bid must be excluded. No shareholder approval is required for a compulsory acquisition and, as a result, it can be completed quickly and efficiently.
If the statutory compulsory acquisition procedure referred to above is not available because the bidder achieved less than a 90% tender to the bid, the bidder will instead be able to effect a transaction that squeezes out the remaining minority shareholders (at the same price as was offered under the bid) as long as the bidder (i) owns at least 66 M% of the outstanding shares after the bid; (ii) acquired through the formal bid a majority of the shares that it did not own beforehand; and (iii) satisfies the additional requirements of the business combination rules under Multilateral Instrument 61-101.
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