The Lexpert Guides to the Leading US/Canada Cross-Border Corporate and Litigation Lawyers in Canada profiles leading business lawyers and features articles for attorneys and in-house counsel in the US about business law issues in Canada.
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www.lexpert.ca/usguide-corporate/ | LEXPERT • June 2015 | 31 CANADIAN REITS » approximately 60 days following execution of an arrangement agree- ment for a transaction. If securities of the acquirer will be distributed to target securityholders in connection with a transaction, the court's approval of the transaction as being "fair and reasonable" is typically considered to constitute a "fairness hearing" for purposes of the 3(a) (10) exemption from the registration requirements under the United States Securities Act of 1933. Although REITs are not governed by corporate statutes, Canadian courts have generally allowed REITs to utilize a plan of arrangement to eff ect a transaction and bind its securityholders where a corpora- tion in the REIT's structure is aff ected by the transaction and falls within the relevant statute's regime. Because of the o en complex structuring of REITs and the steps that are therefore required to effi ciently complete an acquisition, plans of arrangement are eff ective tools for acquirers looking at a transaction in Canada. In reviewing a plan of arrangement, the court must determine whether or not the arrangement is "fair and reasonable" to the target's various stakeholders and will hear submissions from any interested parties that are aff ected by the plan of arrangement. Although this process can create a forum for parties to raise objections to the trans- action, once court approval is granted, it is less likely that a transaction can be successfully challenged by a third party. As part of the securityholder approval required for a plan of arrangement, a management information circular of the target REIT containing prescribed information (including prospectus-level disclosure on the acquirer if the acquirer's securities form part of the consideration) must be prepared and delivered to the REIT's unithold- ers and other aff ected stakeholders. No review of the information circular by a Canadian securities commission is required, whether or not the consideration off ered under the plan of arrangement is cash or securities. In addition to approval by not less than two-thirds of the units voted at a meeting of the target's unitholders, approval of the transaction by a majority of the votes cast by "disinterested" minor- ity unitholders of the target may be required where the transaction includes arrangements with "related parties" of the target. TAKE-OVER BIDS In Canada, as in the US, take-over bids (tender off ers) can be used by potential acquirers to acquire a public issuer on a hostile or friendly basis. Although the general framework for regulating hostile bids is similar in Canada and the United States, there are several diff er- ences that make Canada a more "bidder-friendly" jurisdiction. For instance, unlike in the US, poison pills in Canada generally cannot be used to "just say no" to an unsolicited off er. In most cases, Canadian securities regulators will "cease trade" a poison pill (i.e., render it ineff ective) once the off er has been outstanding for a suffi - cient amount of time to allow the target board to explore alternate transactions. (For further information on hostile take-over bids in Canada, see the Goodmans summary dated September 22, 2014, "Hostile Take-Over Bids in Canada," available at www.goodmans. ca/Doc/Hostile_Take_Over_Bids_in_Canada.) A take-over bid involves the preparation and delivery to the target REIT's unitholders of both a take-over bid circular and a trustees' circular (responding to the take-over bid). e take-over bid circular and trustees' circular must contain certain prescribed information (including prospectus-level disclosure on the acquirer if the acquir- er's securities form part of the consideration). Unlike the US, no securities commission review of the take-over bid circular is required whether or not the consideration off ered under the take-over bid is cash or shares. A take-over bid must, among other things, be made to all of the target REIT's unitholders, stay open for acceptance for at least 35 days from the date the take-over bid is launched, off er identi- cal consideration (i.e., no collateral agreements, subject to certain exceptions) or an identical choice of consideration to all holders of the same class of securities and not be conditional upon the bidder obtaining fi nancing. Canadian securities regulators have recently proposed certain amendments to the take-over bid rules in Canada that would require that all non-exempt take-over bids: (i) be subject to a mandatory tender condition that a minimum of more than 50 percent of all outstanding target securities owned or held by persons other than the bidder and its joint actors be tendered and not withdrawn before the bidder can take up any securities under the bid; (ii) be extended by the bidder for an additional 10 days a er the bidder achieves the mandatory minimum tender condition and the bidder announces its intention to immediately take up and pay for the securities deposited under the bid; and (iii) remain open for a minimum of 120 days, subject to the ability of the target board to waive, in a non-discrimina- tory manner when there are multiple bids, the minimum period to a period of no less than 35 days. It is unclear whether, or when, these amendments will be adopted. Under a take-over bid, if an acquirer wishes to acquire 100 percent of a target issuer, a two-step process is normally required to complete the transaction. e fi rst step is the launch and take-up of securities under the take-over bid; the second step is either a compulsory acqui- sition (which can generally be pursued if more than 90 percent of the outstanding REIT units, other than units held by the acquirer or an affi liate or associate of the acquirer at the date of the take-over bid, are acquired under the bid) or a "squeeze-out" transaction (which can be pursued if more than two-thirds of the target's outstanding securities are acquired under the bid). As the compulsory acquisition provisions for Canadian REITs are set out in their declarations of trust and can vary from REIT to REIT, it is important that they be carefully reviewed. A second-stage "squeeze out" transaction typically involves amendments to a REIT's declaration of trust and therefore requires approval of the REIT's unitholders either at a meeting of unitholders or by written consent. Under Canadian corporate law, a second-stage "squeeze out" normally cannot be conducted by written consent as 100 percent shareholder approval is required for a written resolution. However, for REITs, a written consent of two-thirds of the REIT's outstand- ing units may be suffi cient to implement a second-stage "squeeze out" transaction depending on the provisions of a REIT's declaration of trust. Exemptive relief from the Canadian securities commissions may be required for a "squeeze out" conducted by written consent. Regulatory Approvals An M&A transaction involving a Canadian R EIT may be subject "An M&A transaction involving a Canadian REIT may be subject to review under the Competition Act (Canada) and the Investment Canada Act."