Lexpert US Guides

52 | LEXPERT • June 2019 | www.lexpert.ca/usguide For now, she says, the interest is in midstream energy-infrastructure compa- nies that move oil and natural gas via pipelines, store both and engage in ancil- lary activities such as improving the quality. A lot of Canadian companies in the energy space are finding it hard to access capital, but that doesn't mean they're prepared to sell at today's valuations. ere are Canadian rules, she says, that provide a way to bring them to the table. e rules permit investors to take stakes in a company through private agree- ments with existing shareholders. "Many companies have significant shareholders, they may even hold over 10 percent, who may be looking for monetization oppor- tunities," she says. "And as long as you're buying from no more than five sellers, you can negotiate with them directly and buy up a pretty big stake. … Big enough to bring the company to the table to discuss a transaction." Other uniquely Canadian rules that come as a surprise to some US investors are in Canada's takeover bid regime, says Patricia Olasker of Davies. Under 2016 amendments, bids are subject to a mandatory minimum tender of more than 50 percent of the outstand- ing securities of the class subject to the offer. Canada's regime now requires, with just a couple of exceptions, bids remain open for 105 days. And even when tender- ing requirements and all other conditions have been satisfied, bids must still be extended another 10 days. "Trying to deal with the amendments to our bid regime, in a hostile context, are causing a fair bit of indigestion for US acquirers. It's something US counsel should be aware of," says Olasker. "Many are surprised to learn of the 105-day bid rule and that unlike the US, where a bid can be made subject to financing, in Canada you can't do that. She says the amendments make it costlier and more difficult to get financ- ing. "I think it's having a bit of a chilling effect on cross-border M&A where financing is an essential component, a cash deal or where there's a leveraged- finance component." $6-billion deal created the world's largest gold producer, and Barrick didn't stop there. It did a friendly joint venture with Newmont Mining Corp. as Colorado- based Newmont swallowed up Goldcorp Inc. in a $10-billion transaction. In March, Australia's Newcrest Mining announced a C$806.5-million deal with Vancouver-based Imperial Metals to acquire a 70 percent joint venture inter- est in a British Columbia copper and gold mine. Most Canadian M&A lawyers don't see just a gold rush. ey also see a green gold rush: cannabis. Canada legalized cannabis for medical use in 2001, and the country devel- oped cannabis companies and markets for cannabis listings in anticipation of recreational use being legalized in 2018. Olasker calls it possibly the hottest area in cross-border M&A right now. "I think in the coming year we'll see the entry of more non-cannabis companies into the cannabis space. You saw [New York-based] Constella- tion Brands really affecting very nearly a change-of-control at Canopy Growth through a C$5-billion private placement. You saw [Virginia-based] Altria Group, the tobacco company, do the same thing at Cronos Group," through an $1.8-billion investment. "e kinds of deals we're hearing about are other kinds of US companies, whether consumer products or alcohol or bever- age or tobacco, looking to get a toehold in the industry by acquiring a Canadian company. So I think that's where we're going to see the action." ere are implications for top US corporate law firms, which generally don't touch cannabis transactions, she says. "I think those firms are going to be driven into it when they get a call from their big client Pfizer or their big client Coca-Cola saying they want to acquire a Canadian cannabis company." Moving from the gold rush and the green-gold rush, there's also black gold: oil. And there the story's not entirely as rosy. Noralee Bradley, a partner at Blake, Cassels & Graydon LLP in Calgary, says deals remain challenging in the oil patch. "US private-equity funds are still sniffing around up here, but their timeframes are such that they want to see a bit more certainty. "e sector is under some challenges, but valuations are quite good for people looking to add this type of company to their portfolio. e issue continues to be the gap, and whether people are willing to sell at that price. For buyers, I think it depends where they think the cycle is. And people may have lingering questions about whether our egress to market is going to get resolved." Canada's difficulties getting the Trans Mountain pipeline expansion built, in the face of Indigenous and environmental challenges, has become emblematic of the problems getting its massive landlocked Alberta reserves straight to the Pacific for export to Asia. e Canadian government bought Trans Mountain from Kinder Morgan in 2018 expressly to try to shepherd it through all the regulatory processes and litigation. Many people are waiting to see how Prime Minister Justin Trudeau, a strong supporter of Aboriginal rights, handles it if native groups blockade pipeline work, as expected. If the government succeeds in getting Trans Mountain built, says Bradley, energy deals will likely come gushing back. M&A "I think in the coming year we'll see the entry of more non-cannabis companies into the cannabis space. You saw [New York-based] Constellation Brands really affecting very nearly a change-of-control at Canopy Growth through a C$5-billion private placement. You saw [Virginia-based] Altria Group, the tobacco company, do the same thing at Cronos Group." Patricia Olasker, an M&A and corporate partner at Davies Ward Phillips & Vineberg LLP in Toronto

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