June 25, 2015
On April 24, 2015, the Canadian federal government’s latest updates to the foreign investment review framework came into effect. This includes a revision to the methodology for calculating net benefit review thresholds under the Investment Canada Act (ICA). While the ICA’s old threshold rules used a takeover target’s book value, the new threshold rules use the target’s “enterprise value”—a variable valuation that is subject to market fluctuations. In a piece examining the potential impact of this change on the foreign takeover process, Lexpert sought comment from co-head of our Competition and Foreign Investment Review Practice, Omar Wakil. Below is an excerpt of the article.
What’s important from a strategic perspective, however, is that, for the purposes of the ICA, enterprise value is calculated as of the date of the ICA filing. “Because enterprise value is effectively linked to the share price of a company, we could have situations where share fluctuations change the ICA status in the sense that the target might meet the net benefit threshold at one point in time but not at another,” says Omar Wakil of Torys LLP in Toronto.
To read the full article, click here.