![]() Presenting potential buyers with an overly seller-friendly definitive transaction agreement – as opposed to one with only key seller-focused deal protections – could also impact the transaction timetable and the success of the auction process. non-solicitation, no-hire, standstill, survival and other related provisions). It is worth noting that, as in the United States, market-accepted terms and their duration in Canada are often different for public and private targets, as well as for those applicable to strategic buyers as distinct from financial buyers (e.g. Conversely, yielding too much to auction participants could put a seller at a competitive disadvantage in the marketplace in the event of a broken auction. Failure to use market provisions could lead to delays as a result of dealing with comments of auction participants and their counsel. While Canadian confidentiality agreements are similar to those in other jurisdictions, the terms of the pre-bid confidentiality agreement still merit some strategic consideration. Comprehensive disclaimers are often included in the definitive transaction agreement, typically to preclude any reliance on the CIM. It is worth noting the recent Canadian trend toward shorter (or no) CIMs, particularly with well-organized and robust electronic data rooms. ![]() With input from financial and legal advisors, sellers need to consider the nature and content of a “teaser” and a confidential information memorandum (CIM) or similar document. These principles apply equally to distress scenarios or in more formal insolvency and bankruptcy proceedings in Canada where auctions are also common, including stalking horse bid processes. 7 As noted above, a seller needs to be wary of creating expectations with its shareholders and others as to the process. Although relatively few disputes over auction processes have been litigated in Canada, it is highly likely that Canadian courts would give wide deference to the auction or bid rules established by a seller, 6 including the right of the seller to change the auction or bid rules in certain circumstances. ![]() A seller choosing to hold an auction must carefully consider what the “rules of the game” will be. 4 It even permits some consideration of the interests of non-shareholder stakeholders, such as creditors and employees. 3 Instead, a director’s fiduciary duty in Canada is defined with respect to the longer-term interests of the company. Canadian jurisprudence has also rejected the general applicability of a strict Revlon duty to focus exclusively on the maximization of shareholder value in the context of change of control transactions. Under most Canadian company law regimes, these types of statements can potentially give rise to an “oppression” action should the auction turn out to be either highly conditional or not held at all. 1 At the same time, sellers must be cautious about any public statements which create a reasonable expectation among shareholders (among others) that an auction will be conducted or that it will be held on an unconditional or unrestricted basis. In many circumstances, a privately-negotiated sale, combined with a less formal canvass of the market, may be sufficient. Under Canadian law, a formal Revlon-style auction is not always necessary for a target board to satisfy its fiduciary duties in a change of control context. Before venturing into these tempting waters, sellers and buyers alike should take note of some key Canadian legal considerations. Despite the uncertainty and volatility continuing to affect both the global economy and North American capital markets, controlled auction transactions in the Canadian marketplace remain remarkably active, especially in the mid-market.
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