Authors: Jeremy Fraiberg and Alex Gorka
Minority shareholder protections
Acquisition transactions involving related parties such as significant or controlling shareholders, board members or senior management raise conflict of interest concerns and may implicate additional corporate and securities law requirements.
Certain Canadian securities regulators (including Ontario, Québec and Alberta) have established specific rules applicable to
- insider bids
- issuer bids (self-tender transactions)
- certain types of related party transactions
- certain types of business combination
These rules are set out in Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (MI 61-101) and are designed to afford certain protections to shareholders where conflicts of interest are present in transactions involving related parties. For example, a take-over bid may engage the “insider bid” rules in addition to the usual take-over bid rules in circumstances where an “insider” (e.g., a holder of more than 10% of the outstanding shares of the target) proposes to make a take-over bid. An arrangement may also engage the “business combination” rules in circumstances where a shareholder is compelled to sell its shares as a consequence of the transaction and where the transaction involves a related party that is either acquiring the company (either alone or with joint actors) or a related party is not treated identically to the general body of shareholders (e.g., because it is receiving a collateral benefit).
MI 61-101 regulates these transactions by giving minority shareholders the following procedural protections:
- a formal valuation by an independent valuator supervised by an independent committee of directors of the target company
- “majority of the minority” shareholder approval
- enhanced disclosure, including disclosure of prior valuations prepared for, and offers received by, the target in the past two years
Osler’s Mergers and Acquisitions Group
Our top-ranked M&A group advises on all types and sizes of transactions and has deep experience from decades of deal flow, be it for domestic, cross-border or multinational companies.
Learn moreMI 61-101 provides exemptions from the formal valuation and minority approval requirements in circumstances where, in general terms, there are no conflict-of-interest concerns between the related party and the target company and where there is no informational advantage about the target in the possession of the insider. These are highly technical rules that need to be carefully considered in the context of an M&A transaction.
