January 18, 2006
In the old days, a corporate marriage was a simple union blessed over brandies in the back room. Today, mergers are power struggles involving small armies of lawyers, bankers, directors, special committees, activist shareholders and regulators. The increasingly hostile environment is prompting lawyers to rethink the rules of the game.
For example, large U.S. investors are being drawn to Canada as part of a global hunt for higher investment returns to supplement lackluster stock market gains. Last year, raiders realized that Canada was fertile ground for hostile takeovers because regulators and courts in Canada, unlike in the United States, tend to limit the defences that companies can throw up when they have been targeted by an unfriendly buyer.
Sharon Geraghty says Canadian regulators take a dim view of companies that erect anti-takeover defences, such as poison pill plans, for longer than 45 days. “This has made Canada a good environment for hostile bids," says Sharon. "The interesting question is what are the long-term effects on the economy and the Canadian business community.”
Another development has been the proliferation and success of income trusts at raising cash from investors. They are now itching to spend money buying competitors and consolidating their market dominance. But the legal framework for income trust takeovers is almost non-existent.
The void is yielding inventive legal M&A work, says Phil Brown. “We have the flexibility to invent a lot of new ideas. We're going to have to be increasingly creative with trusts in the M&A field."