Lexpert Magazine

10 LEXPERT MAGAZINE | MAY 2018 | RECENT DEVELOPMENTS IN BUSINESS LAW | LEXPERT: How did the parties manage the conflict of interest? Hoeppner: e special committee and its advisors were intimately involved in nego- tiations given the conflict of interest result- ing from Don Wall wearing hats of both CEO and bidder. In addition to other cus- tomary procedures … senior management of HNZ — including Don Wall — agreed to be bound by a defined set of process guidelines for the term of HNZ's strategic review process. Mayr: An independent committee was struck very early and management was ex- cluded and dealings with potential bidders were handled by the independent commit- tee and its independent advisors. A strict protocol was implemented to govern man- agement's conduct and involvement. LEXPERT: Were there any concerns about shareholder dissent? What steps were tak- en to address them? Hoeppner: It's always possible that a share- holder doesn't see the value of an offer en- dorsed by a company's Board of Directors and elects to proceed with dissident pro- ceedings. In this case, the parties attempt- ed to mitigate that risk by securing share- holder support agreements for a material number of shares and including detailed and specific disclosure in the informa- tion circular about the background to the transaction, the terms of the other offers received by HNZ, and the formal valuation obtained for the HNZ shares. Mayr: No real concerns. e value of the transaction was more than fair and ad- equate, hence the shareholder support. Richard Turner (Blake, Cassels & Graydon LLP, for PHI): e significant premium and all-cash consideration, combined with the backing of a formal valuation and signifi- cant shareholder support by way of lock-up agreements, minimized the risk of share- holders exercising their dissent rights. … On the PHI side, we never got wind of any shareholder concern with the deal. LEXPERT: How was the level of complexity? Turner: As with most things, the devil is in the details. While the high-level business negotiations of the transaction were rela- tively easy to navigate, the plumbing to im- plement the two-step structure of PHI pro- viding a loan to Don Wall to facilitate the initial purchase of all of the HNZ shares, followed by a sale of the international busi- ness to PHI, was certainly not standard and made for a lot of work. e lawyers and tax advisors spent a long time making sure that all of the steps to implement the transac- tion went off without a hitch, which was a big job given the number of jurisdictions involved and significant changes to the US tax laws announced right in the middle of the deal. ere were more than a few late- night conference calls. Hoeppner: Various additional transac- tion steps were required in order to bal- ance the interests of each of HNZ and its various stakeholders, Don Wall and PHI, and ultimately to ensure that the business of HNZ could be efficiently conveyed to Don Wall and PHI in two separate par- cels. A great deal of time was spent by the various deal teams coordinating the closing mechanics in advance. As a result, the implementation of the arrangement went very smoothly on closing following the shareholder and court approvals — in spite of the fact that the transaction closed between Christmas and New Year's, where it is oen difficult to contact third parties and regulatory representatives. Mayr: It was fairly complex, more so than in other circumstances, as the HNZ busi- ness essentially had to be separated and cross-border tax implications required careful planning. All advisors and parties were, however, remarkably sophisticated and practical, so the entire process went very smoothly. LEXPERT: What was the experience like working on this deal? Donald Gray (Blake, Cassels & Graydon LLP, for PHI): In my many years of negotiating aviation transactions, I can only rarely re- call a situation where the principals had such confidence and trust in each other, and mutual respect for each other's com- panies and operations. It made the nego- tiations much easier and more pleasant. All parties truly saw this as a "win/win," right from the start. Mayr: Very professional, practical and ef- ficient. As in all auction-type processes, bidders had to move quickly and follow the process and timelines dictated by the inde- pendent committee. Dewart: Once the key business points were determined and agreed, the working group was very collaborative. LEXPERT: It seems like going-private transactions are on the rise in Canada. Do you have a sense of why that might be? Mayr: Generally, valuations tend to be very high and attractive for going-private transactions. is is fueled by a trend of consolidation in certain industries, avail- ability of private funding looking for in- vestment opportunities combined with a growing feeling that — unless you need to access public capital — the burden and potential liability associated with being a public company is less attractive in the current environment. Hoeppner: More and more issuers are de- termining that their cost of capital is less in a private company setting. ere is also an abundance of private equity available in the North American markets [and] the multiples being paid by private equity firms are rising as a result of the competition to deploy capital. We think issuers also believe that they can take a longer-term approach to the creation of value as a private com- pany as compared to the public markets, which seem to place a greater emphasis on shorter-term milestones. We are also seeing a continued increase in the costs and re- sources required to maintain a public com- pany, and additional shareholder activism and litigation in the public marketplace. Turner: We've certainly seen an uptick in deals outside the traditional mining and oil and gas sectors. Consolidation in the can- nabis sector in advance of legalization has been prevalent and Canadian technology companies have also been popular targets. Non-Canadian buyers, particularly those

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