Mergers and Acquisitions
TSX and AIM Listed Mining Companies
Presenter: Janne Duncan
Partner, Toronto office
December 1, 2008
Calgary  Toronto  Moscow  Almaty/Atyrau  Caracas  Rio de Janeiro
Agenda
• Dealing with dual-listed companies
– Toronto Stock Exchange (TSX), Canada’s senior
exchange, or TSX Venture Exchange (TSX-V),
Canada’s junior exchange
– AIM
• Choosing the path for a merger & acquisition
– Take-over Bid
– Reverse Take-over
– Plan of Arrangement
Pre-Merger Considerations
• Where investors are located
– U.K. investors may continue to require AIM listing
– Liquidity issues
• AIM tends to have more institutional, less retail,
long-term investors
• On-going expenses
– underwriting, legal (all applicable jurisdictions),
audit, registrar and transfer fees, fees to stock
exchanges, fees to securities regulators
NOMADs – an additional cost for AIM-listed
companies
• AIM – Every AIM-listed company must have a:
– NOMAD (Nominated Advisor) –
• IPO stage – conducts extensive due diligence; guides
company through the admission process
• Post-Admission stage – provides advice on continuing
obligations under AIM and to the investors; monitors the
company (policing role)
– Broker – brings together buyers and sellers
– NOMAD and Broker can be performed by single firm (dual
roles policing/selling sometimes impractical)
– Expensive to split NOMAD and Broker role between two
firms
Doubling up
• Corporate governance (more problematic if
companies subject to U.K. company law)
• Continuous disclosure obligations
• Regulatory compliance
• Check to see if there are exemptions under
various rules for foreign issuers
Exemptions for Inter-listed Companies
• TSX will not require security holder approval for
new issuances, private placements, unlisted
warrants, and security based compensation
arrangements from issuers listed on another
exchange where at least 75% of the trading
value and volume over the six months
immediately preceding notification occurs on
that other exchange.
• AIM does not have equivalent exemption
Timely Disclosure – National Instrument 71-102 –
Continuous Disclosure and Other Exemptions
Relating to Foreign Issuers
“Designated foreign reporting issuers” – an issuer that qualifies as a
foreign reporting issuer (see below), and
• is not registered or required to file reports under the U.S. 1934 Act,
and
• not more than 10% of the equity securities are held by Canadians
• is subject to the reporting requirements of any of the following
jurisdictions: Australia, France, Germany, Hong Kong, Italy, Japan,
Mexico, the Netherlands, New Zealand, Singapore, South Africa,
Spain, Sweden, Switzerland, U.K.
“foreign reporting issuers” – an issuer incorporated or organized
outside of Canada, unless
• more than 50% of the shareholders are Canadian residents
• a majority of officers/directors are resident in Canada
• more than 50% assets are in Canada, or
• business is administered principally in Canada
Corporate Governance - Canada
• Canada is moving closer to U.S. rules on the following
matters:
–
–
–
–
Board independence
Audit committee independence
CEO/CFO SOX certifications
Executive compensation
• Canada is less litigious than U.S.
• Canadian corporate governance is less “rules based”
(lengthy, prescriptive rules) and more “principles-based”
(regulators prescribe “best practices” and issuers inform
investors whether they comply, and if not, why not)
Corporate Governance - UK
• AIM
– companies listed on AIM are not subject to the
UK’s Combined Code (UK Combined Code
applies only to the London Stock Exchangelisted companies)
– voluntary corporate governance guidelines
published by Quoted Companies Alliance (QCA),
although best practice is to comply with the UK
Combined Code as closely as possible
Comparison of Continuous Obligations for
Maintaining Listing on TSX / TSX-V and AIM
Requirement
TSX/TSX-V
AIM
Press Release
For material changes that would
affect share price, file immediately
For material changes that would
affect share price, file immediately
Material Change
Report
File within 10 days of a material
change
Not Applicable
Early Warning Reports
Shareholder to immediately notify
market when shareholdings reach
10% and thereafter every time an
additional 2% is acquired
Company to notify market as soon
as it is notified of any shareholder
exceeding or falling below 3%
Significant Acquisition
Report
Business acquisition report filed
within 75 days of acquisition if pass
one of three tests for significant
acquisition
Notification of substantial
transactions which exceed 10% of
any specified class tests e.g. assets
Communications with
Shareholders
Management information circular
and form of proxy to be filed and
delivered to shareholders in
connection with shareholder
meetings
Canadian documentation to be filed
and made available to shareholders
Comparison of Continuous Obligations for
Maintaining Listing on TSX / TSX-V vs AIM Contd…
Requirement
TSX/TSX-V
AIM
Annual Information
Form
(supports accelerated
prospectus offerings)
File within 90 days of financial
year end, accompanied by
material contracts.
Not required by TSX-V but file
material contracts within 120
days of year end.
Not Required
CEO & CFO
Certification
Concurrently with annual and
quarterly filings
Not Required
Interim Financial
Statements
File quarterly with Management’s
Discussion and Analysis (MD&A)
45 days after quarter end for
TSX, 60 days for TSX-V or date
of filing in foreign jurisdiction
Filed every 6 months within 3 months of
period end. Canadian quarterly financials
suffice, but must be filed at same time as
Canadian financials.
No MD&A
Annual Financials
File financial statements and
MD&A within 90 days of financial
year end (concurrent with AIF) or
date of filing in foreign jurisdiction
Filing required within six months of
financial year end (Canadian GAAP
acceptable)
No MD&A
Comparison of Continuous Obligations for
Maintaining Listing on TSX / TSX-V vs AIM Contd…
Requirement
TSX/TSX-V
AIM
Insider Reporting
Insiders (directors, officers and 10%
shareholders) to file insider report
within 10 calendar days of becoming
an insider and within 10 days of any
subsequent transaction.
Company to notify market as soon as
issuer “becomes aware” of trading by
directors.
Insider Trading
Prohibition against trading with
knowledge of undisclosed material
fact or material change. Restrictions
on trading by persons in “special
relationships”
Prohibition against trading with
knowledge of undisclosed price
sensitive information.
Share Compensation Plan
Disclosure
Annually disclosed and shareholder
approval required for plan and/or
amendments to plan
Not mandatory
Audit Committee
TSX requires fully independent audit
committee while TSX-V does not.
Not mandatory
Comparison of Continuous Obligations for
Maintaining Listing on TSX / TSX-V vs AIM Contd…
Requirement
TSX/TSX-V
AIM
Notice and Approval of New
Issuances
For all new issuances of
securities other than unlisted,
non-voting, non-participating
securities including private
placements, unlisted warrants,
and security based
compensation plans
Any change in the number of
AIM securities in issue
requires liaising with Issuer
Implementation the day before
new issuance
Security Holder Approval
Required if the proposed
transaction materially affects
control of the listed issuer; or
provides consideration to
insiders in aggregate of 10%
or greater of the market
capitalization of the listed
issuer and has not been
negotiated at arm's length.
None
Blackout Periods
• Blackout periods - prevent directors, officers and
insiders from trading with knowledge of material nondisclosed information
• TSX/TSX-V – typically, scheduled black-outs start the
first day of a new financial quarter and end when
financial statements for the previous financial quarter
are released
• AIM – if company reports half yearly, insiders may not
trade for the two months preceding the notification of its
half-yearly report
• Compliance with both regimes creates issues for
insiders trying to exercise options (even if hold
underlying stock)
National Instrument 43-101 of the Canadian
securities administrators
• Scientific and technical data must be prepared
by a “qualified person” (as defined in NI 43-101)
• Must use specified terminology from the
Canadian Institute of Mining & Metallurgy (CIM)
to report quantities and grades of “mineral
resources” – inferred; indicated; measured –
and “mineral reserves” – probably; proven
• Technical report must support the company’s
disclosure
• Non-conforming disclosure is restricted
National Instrument 43-101 of the Canadian
securities administrators
Foreign issuer exemption
- Incorporated outside of Canada
- Securities traded on the NYSE; Nasdaq; LSE; Australian
stock exchange; Johannesburg stock exchange
- In compliance with those jurisdictions
- Less than 10% of equity securities owned by nonCanadians
- Can complete private placements and M&A deals in
Canada without having to comply with NI 43-101
National Instrument 43-101 of the Canadian
securities administrators
• Foreign issuers (incorporated or organizedcan
comply with
• JORC (Australia)
• SAMREC (South Africa)
• USGS Circular 831 (U.S.)
• IMM system (UK)
without having to comply with NI 43-101
Technical Reports – TSX Exchange
Requirements
TSX Company Manual
• Appendix B: Disclosure Standards for
Companies Engaged in Mineral Exploration,
Development and Production
TSX Venture Exchange Corporate Finance
Manual
• Appendix 3F Mining Standards Guidelines
• Appendix 3E News Release Guidelines
Competent Person’s Report
• LSE Guidance for Mining and Oil and Gas Companies
– mining company seeking admission to AIM must submit a
Competent Person’s Report (CPR) that details all material
assets, licenses, joint ventures or other arrangements
– CPR must be produced by a person who meets the
criteria specified by AIM, contain certain information and
valuations specified in the AIM Rules and be dated no
more than six months prior to the date of the admission
document
– drafted in accordance with an internationally recognised
standard of reporting for results, resources and reserves
such as CIM, IMM or JORC.
Public Mergers and Acquisitions: Paths
• Select the appropriate path for merger or
acquisition
– Take-over Bid
– Reverse Take-over
– Plan of Arrangement
Comparison of Take-over Bids Rules
• Canada
– Trigger: acquisition will
result in holding 20% or
more of voting shares
– Formal take-over bid offer
via take-over bid circular
must be made to all
security holders
– Offer must be open for
minimum of 35 days
– Minimum bid price equal to
what offeror made to any
holder within the previous
90 days
• United Kingdom
– Trigger: acquisition of 30%
– Mandatory equal offer
must be made to all
security holders
– Offer must be open for
minimum of 21 days
– Minimum bid price equal to
what offeror made to any
holder within the previous
3 months
– Regulatory oversight by
Takeover Panel
Exemptions to Take-over Bid Rules
• Normal Course
– Less than 5% of outstanding voting shares
during a 12 month period
– Includes convertibles: warrants, options held
• Private Purchase
– Purchased from fewer than 5 persons
– Consideration does not exceed 115% of the
market price
Early Warning Disclosure
• If a shareholder acquires (other than under a formal bid)
ownership constituting 10% or more of the issuer's
outstanding securities of that class, the shareholder
must issue a news release containing the information
required by National Instrument 62-103 (which includes
number of securities acquired and held and the purpose
for the acquisition)
• After the 10% threshold is reached, the early warning
disclosure requirements described above will apply
each time the shareholder acquires ownership of, or the
power to exercise control or direction over, an additional
2% or more up to 20%
UK Takeover Code
• The U.K. Take-over Code applies to public or
private companies that have their registered
office in the U.K. and which are considered to
have their central place of management and
control in the U.K.
• Issue: identify whether the Code applies in
circumstances where the company is registered
in the U.K., and has its principal office in the
U.K., but is managed from outside the U.K.
Canadian Take-over Bid Timetable
Day Event
-10
Approach Target Board/Management
Announce bid
Request Shareholders List
-2
Obtain Shareholders List
-1
Finalize Bid Documentation
0
Mail bid documentation
15
Directors’ Circular by target company directors including their recommendation is
to be completed and mailed
35
Shortest period for expiry of bid and the first day on which securities deposited
pursuant to the bid may be taken up. The bidder must take up and pay for
securities deposited under the bid where all conditions have been satisfied or
waived not later than 10 days after the expiry of the bid and must pay for shares
taken up not later than 3 days after securities are taken up.
UK Takeover Timetable
Day
Event
-28
Announcement by offeror of intention to bid for target
0
Last day for mailing out of offer document
+14
Last day for posting target’s written response to the offer
+21
First day on which offer may end
+39
Last day for target to announce material new information
+42
Accepting withdrawals of acceptances
+46
Last day for offeror to revise its offer
+60
Last day for offer to reach 50% acceptance to go forward
+81
Last day for offer to be declared wholly unconditional at 90%
+95
Last day for paying the offer consideration to target shareholders who accepted by day 81
Securities exchange offers
• Formal take-over bid circular for securities
exchange offers – must contain prospectus level
disclosure under Canadian securities laws
• Prospectus required for consideration securities
under U.K. law (unless an exemption is
available) even if the securities are not going to
be listed in the U.K.
Post-Bid
• Following the successful completion of the bid, if
more than 90% of the shares are acquired, the
compulsory acquisition proceedings could be
commenced which, depending on whether there
are any dissents could take up to 2 to 3 months.
• If less than 90% is achieved, the bidder would
then consider a second-stage transaction.
Second Stage Transactions
•
Compulsory Acquisition
– If the bid is successful in getting 90% of the shares, there is a compulsory
acquisition right available under the Business Corporations Act, which is
subject to a right of dissent and payment of fair value.
•
Second Step Transaction
– If less than 90% is acquired, bidder can attempt a second step ttransaction.
– Corporate rules require two-thirds approval.
– If the second stage transaction is a going private transaction (the party
being taken out does not get equity or voting shares) and there is an
intention at the time of the original bid to conduct a take-out transaction, a
formal valuation must be prepared and included in the original bid
document, together with disclosure of any prior valuations. This valuation
can be eliminated at the discretion of the securities commissions in the
event that the bidder lacks sufficient information relating to the target
company, which is often the case with a bid which is not supported by
management.
Going Private Transactions
•
•
Policy 9.1/Q-27
Going Private Transaction (take-out for cash):
–
–
–
–
Additional disclosure
Requires formal valuation, unless exempt or waived
Suggests a formation of a special committee
Requires minority approval - two-thirds, unless cash price exceeds average
of the high and low end values under the formal valuation, in which case it
is 50%. The “buyer” can vote securities acquired on first stage transaction
only if:
• 1) intent to effect the take-out transaction is disclosed in the materials
relating to the first stage transaction.
• 2) either a summary of a valuation was provided in the prior transaction or
no valuation was required at law or under an exemption.
• 3) the consideration paid per security is at least equal in value to the
consideration per security paid to in the prior transaction.
• 4) any shares acquired under the take-over bid that were subject to a “lockup” agreement with a shareholder who participated in the negotiation of the
take-over bid cannot be voted in the minority approval.
Reverse Take-Overs (RTOs)
Acquiring control (over 50%) of an already listed company is a
reverse take-over
The TSX/TSX-V may require shareholder approval of the reverse takeover
• “Information Circular” – the disclosure document sent to
shareholders to solicit their vote in favour of the back-door listing
(shareholder approval is a TSX/TSX-V requirement)
• Prospectus-level disclosure will be required
• If the transaction is non-arm’s length, formal valuations, majority of
the minority approval by shareholders may be required
• TSX/TSX-V reviews the information circular
• Canadian securities regulars do not review the information circular
(different than the U.S.)
Canadian Plan of Arrangement
• A merger or acquisition can be accomplished by
way of a statutory plan of arrangement
• Canada Business Corporations Act (CBCA) as
well as under provincial corporations statutes.
• Shareholder meeting
• Court order
Canadian Plan of Arrangement Requirements
• Canada
– Negotiate arrangement agreement
– Mail information circular with details of the plan of
arrangement to shareholders
– Obtain an interim court order which details
• Structure and approval requirements
• Shareholder dissent rights
• Hold shareholders meeting to vote. Needs 2/3 approval to
pass
–
–
–
–
Obtain shareholder approval
Obtain Exchange approval
Obtain final court order
File amalgamation application and articles
Arrangements under the UK Companies Act
• An amalgamation, or some other restructuring
of a group of companies, can also be
undertaken under the provisions of Part 26 of
the Companies Act.
• Court reviews the scheme documentation
before it is put to shareholders at an initial
hearing
• Need 75% shareholder approval
Plans of Arrangement
• Advantages
– Flexible mechanism
– Deemed fairness by the
court is hard to
challenge post facto
– Good for complex
structures with different
consideration for
classes
• Disadvantages
– Lose control over timing
– Target controls the proxy
circular
– Protracted negotiations
Delisting after Merger
• AIM – done through dealing notice
• TSX – apply for delisting by letter to TSX with
copy of resolution authorising delisting
Macleod Dixon’s Offices
Calgary,
Toronto
Moscow
Caracas
Almaty,
Atyrau
Rio de
Janeiro