Primary Objectives in a TOB
- The board of the seller is typically looking at avenues to enhance shareholder value, one of which is to solicit bids through an auction process
Issues
- How should personal relationships be managed and reconciled between the principals of the seller and that of the bidder to ensure the perception that conflicts of interests and any material non-public (insider) information exchange is avoided?
- How will the bidder lobby the seller to tender its shares to the take-over bid? What sweeteners (if any) should be offered as part of the transactions? E.G. – sizable premium to market, executive parachutes (e.g., executive(s) seeking retirement), a board seat on either the bidder or seller.
- How will the bidder lobby remaining minority shareholders to tender their share to the TOB? How will the strategy in lobbying any controlling shareholders differ from lobbying multiple minority shareholders, which in sum, may own a majority position in the shares?
- How widely dispersed is the share ownership that includes the minority shareholder base? Does it include any institutional investors, or is it retail investor dominated?
- If the bidder is looking to acquire 100% of the seller, should the bidder consider making a creeping TOB with an initial toe-hold position, and eventually accumulating an equity control position in the seller? What are the implications for securities disclosure rules? This is a more costly option due to transaction costs.
- How can the bidder position itself as the most preferred buyer despite other competing bidders in the auction process? Is there a strategic or tactical advantage for the bidder positioning itself in the market as a white knight bidder? If they lose the bid, it is likely to go to an identified ‘white knight’ bidder (this happens frequently)?
- Are there any strategic advantages for the bidder to make a hostile bid for the seller?
- How can the bidder impose contractual provisions to protect itself against the seller refusing to accept the bidder’s proposal?
- How long is the poison pill likely to take effect with the seller? How will this affect the negotiating strategy and terms and conditions for the bidder in making the bid attractive to the seller?
- Deal protection clauses (DPC) to be negotiated by the bidder have their limits. It’s important to be selective in which clauses will limit competing bidders while simultaneously remaining attractive to the seller in reducing uncertainty in closing the deal.
- Where there are few majority shareholders, there is a large minority shareholder base to consider that will require their approval above the 66 2/3% toe-hold position, to get to the 90% toe-hold before the “squeeze-out” transaction in acquiring 100% of the seller
Applicable Statutes
- Canadian – CBCA, OBCA; Ontario Securities Act (“Act”)
- US – Delaware General Corporation Law (DGCL), Williams Act
Analysis of Concerns
- Under what conditions (e.g., crown jewels) should lock-up agreements be devised as a DPC for the bidder?
- What are the limits of DPC’s for the bidder in ensuring it is the likely successful bidder without triggering a public auction for the seller?
- If the bidder entertains a solicited bid by the investment banker retained by the seller, how does this affect the perceived leverage for the bidder as it relates to the offer price and mobilizing minority shareholders to tender to the bid?
- Where two issuers are of roughly equal size (both large), how does this affect regulatory compliance with the securities disclosure regime?
- The policy basis of poison pills (or shareholders rights plans) under securities statutes have been inconsistent among provincial commissions across Canada. When is the ‘pill’ likely to expire?
- How do we ensure information leakage is minimized to prevent pre-bid price run ups, making the bid more expensive?
- Are shareholders trumping the needs of director primacy in ensuring the long-term interests of the corporation are in-tact? In other words, is shareholder democracy trumping director primacy?
- In operating within the spirit of 62-202, has the poison pill and any other defensive tactic been to a shareholder vote?