Top 10 Deals of 2016

With low oil prices and an unfavourable exchange rate, forecasters may have predicted a discouraging environment for outbound transactions. Last year’s top deals defied the odds.
OVERALL IN 2016, there were several outbound deals, including Fortis’s acquisition of Michigan-based ITC Holdings and Enbridge’s acquisition of Spectra Energy. Lawyers told us that their “Canadian Champion” clients, be they Canadian-owned or otherwise, were faced with a lack of domestic targets. So in order to take their businesses to the next level, they had to move out or expand their footprint in the US and other countries.

One might have thought the unfavourable Canada/US exchange rate would have been more inhibiting. It was a “bump” certainly on at least one deal, but lawyers told Lexpert that many of their acquiring clients already had operations in the US and so had come to terms with the exchange-rate delta. And Canadian investors seemed to back them up, being fairly confident about the benefits of consolidation.

The outbound is not, of course, extant. In industrial sectors where Canadian ownership is mandated, consolidation took place between companies in Canada. This counter-trend is best exemplified in Corus’s purchase of Shaw Media, where the majority owner of both companies was the same Canadian family.

In both scenarios, lawyers we spoke to noticed the leadership at the top that drove their clients’ deal-making success. Indeed, a strong leadership team and ensuing corporate culture made both targets and acquirers attractive. This was exemplified in our Deal of the Year, the acquisition of ITC Holdings by Fortis.


1. FORTIS’ ACQUISITION OF ITC HOLDINGS

Relationships were the catalyst for Fortis Inc.’s acquisition of ITC Holdings Corp. — or at least a relationship. According to Fortis external counsel Jim Reid of Davies Ward Phillips & Vineberg LLP, it was a meeting between Barry Perry, CEO of Fortis Group, and Joseph Welch, founder and then CEO of ITC Holdings Corp., which got the deal rolling with Fortis.

Fortis notes on its website that the company owns 10 utility operations in 17 locations in Canada, the United States and the Caribbean. “This is their third significant US acquisition,” said Reid, “and the culmination of a longer-term strategy.” The leadership team at Fortis asks, “What companies are out there and what opportunities might there be?”

In this deal, the Can-Am currency exchange rate did amount to quite a bump. Exchange rates affected the financing metrics, and Fortis had a period of “pens down.” Said Reid: Fortis “re-evaluated, got a bit more creative. … If Fortis offered shares as well as cash,” the deal could work. This would require Fortis to get the approval of its own shareholders and get listed on the New York Stock Exchange.

The deal needed approval of both sets of shareholders, as it turned out. To make the accretion work, they brought in an equity partner. This involved Fortis running an auction and thereby bringing in a minority investor: GIC Private Ltd. Fortis Inc. and GIC’s acquisition of ITC Holdings Corp. required and received authorization from nine regulatory authorities, including the Federal Energy Regulatory Commission. A significant portion of Fortis’s business is now subject to FERC authority.

Fortis is now among the top 15 North American regulated investor-owned utilities ranked by enterprise value. “Today is a special day for Fortis and ITC,” Perry told media. “Our teams have worked tirelessly over the past year to make this acquisition happen, and we couldn’t be more pleased to welcome ITC to the Fortis group of utilities. The ITC acquisition is the largest in the history of Fortis, dramatically increasing our North American footprint. It establishes significant scale and a new platform in the electric transmission sector.”

And it started with that personal relationship. As Reid explains, a real personal relationship does not mean there is going to be a different result for shareholders if another bidder comes along. What it does mean, however, is that “when there are bumps in the road,” there is sufficient goodwill between the two leaders that they can “challenge their teams to come up with creative solutions.”

On the legal side, success has many parents, and several of the law firms involved were in the US. On the Canadian side, Reid gives credit to the in-house lead, David Bennett, and Bennett credits his team members, Paul Fitzpatrick, Regan O’Dea and Lindsay Hollett. Both Scotiabank and Goldman were on as financial advisors. The deal was “transformational,” said Reid. Notwithstanding the exchange-rate challenge, Reid said the “Canadian capital markets were very supportive” with Canadian investors seeming to take a “more patient view” of the overall and long-term picture.

KEY LEGAL PLAYERS

Fortis advisors:
Regan O’Dea, Paul Fitzpatrick, Lindsay Hollett (in-house); White & Case LLP; Davies Ward Phillips & Vineberg LLP (M&A/corporate securities, banking, tax); McInnes Cooper

ITC Holdings advisors: Simpson Thacher & Bartlett LLP; Jones Day LLP; Torys LLP (Canadian M&A, regulatory); Dykema LLP

Goldman Sachs advisor: Osler, Hoskin & Harcourt LLP (M&A)

Counsel to financial advisors/lenders: Skadden, Arps, Slate, Meagher & Flom LLP; Cravath, Swaine & Moore; Fasken Martineau DuMoulin LLP (M&A); Kirkland & Ellis LLP


2. SUNCOR’S ACQUISITION OF CANADIAN OIL SANDS

On March 21, 2016, Suncor Energy Inc. completed its acquisition of Canadian Oil Sands Ltd. The transaction began as an unsolicited takeover bid made by Suncor on October 5, 2015, under which Suncor offered 0.25 of a Suncor share for each COS share, and was subsequently completed following the signing of a Support Agreement by Suncor and COS on January 17, 2016, pursuant to which Suncor agreed to increase its offer price to 0.28 of a Suncor share for each COS share, with the amended offer supported by the COS board of directors. On February 5, 2016, Suncor acquired approximately 73 per cent of the COS shares and replaced the COS board of directors and management team with Suncor nominees. Suncor extended its offer until February 22, 2016, and acquired a further 11 per cent of the COS shares on that date. On March 21, Suncor completed the transaction by acquiring the remaining 16 per cent of the common shares of COS that Suncor did not own pursuant to a subsequent acquisition transaction approved at a meeting of COS shareholders.

As a result of the transaction, Suncor, which is Canada’s largest integrated oil company, increased its ownership position in the Syncrude oil sands project from 12 per cent to 48.74 per cent, as COS’s sole material asset was its 36.74-per-cent interest in Syncrude.

Suncor was represented by Blake, Cassels & Graydon LLP with a team that included Chad Schneider. Schneider had this to say about the deal: “The things that made it unique included that it is relatively rare to see a hostile deal in the oil patch. That wasn’t the way things were done. Also, this was a share exchange. Then layer on extreme uncertainty in the oil prices. No one was sure where the bottom was going to be. And there were new takeover rules,” which culminated in the shareholder rights plan.

Canadian Oil Sands’ in-house legal team was assisted by Osler, Hoskin & Harcourt LLP, with a team that included Noralee Bradley. Bradley added to Schneider’s description: “The transaction was both interesting and challenging from the COS perspective given the share consideration resulted in moving values for both COS and Suncor shares while the bid was in the market. COS had a single asset [operated independently by Syncrude/Imperial] in which both parties were joint-venture participants and large shareholders were commenting publicly on the deal.”

The board of directors of Canadian Oil Sands was represented by Norton Rose Fulbright Canada LLP.

KEY LEGAL PLAYERS

Suncor advisors: Janice Odegaard (in-house); Blake, Cassels & Graydon LLP (M&A, tax, litigation); Sullivan & Cromwell LLP (US matters)

COS advisors: Trudy Curran, Shaun Wrubell (in-house); Osler, Hoskin & Harcourt LLP (M&A)

Advisor to the board of COS: Norton Rose Fulbright Canada LLP (M&A)

Advisor to J.P. Morgan Securities: Davies Ward Phillips & Vineberg LLP (M&A, securities)


3. VAIL’S ACQUISITION OF WHISTLER BLACKCOMB

Vail Resorts Inc. completed its $1.4-billion acquisition of Whistler Blackcomb Holdings Inc. by way of plan of arrangement for cash and share consideration. Vail paid Whistler Blackcomb shareholders $17.50 in cash and 0.097294 shares of Vail Resorts common stock (or, for those Canadian shareholders who so elected, exchangeable shares) for each Whistler Blackcomb share held.

Whistler Blackcomb holds a 75-per-cent interest in each of Whistler Mountain Resort LP and Blackcomb Skiing Enterprises LP, which together carry on the four-season Whistler Blackcomb mountain resort business. The sprawling two-mountain ski area, north of Vancouver, was the official venue for alpine skiing events in the 2010 Winter Olympic Games and Paralympic Winter Games.

Assisting Whistler’s in-house team, led by Thierry Keable, General Counsel and Corporate Secretary, was a team from Osler, Hoskin & Harcourt LLP, which included Jeremy Fraiberg.

Fraiberg told Lexpert: “Here you had an iconic Canadian asset, which had already announced its Renaissance Project,” a $350-million expansion plan (see http://renaissance.whistlerblackcomb.com) set out to expand use of the resort across four seasons. This plan is heightened as a mitigation strategy against the impact of climate change. Whistler was entering into development agreements with the BC government and the Squamish and Lil’Wat First Nations. In the process of moving forward on this stand-alone plan, Vail’s premium offer came along.

As reported in The Province, parties intend that the transaction will not affect the Renaissance plan or First Nations talks. Vail Resorts acknowledged that Whistler is located on the traditional territories of the Squamish and Lil’wat First Nations and said it “would continue negotiations to ensure those communities benefit.” Of interest to skiers and hikers, Vail Resorts has indicated it “will slash the price of a Whistler season pass starting in 2017 — normally around $2,000 — to roughly half that, and fold it into Vail’s popular 13-resort Epic Pass, which currently sells for US$809.”

KEY LEGAL PLAYERS

Vail advisors: David Shapiro (in-house); Gibson, Dunn & Crutcher LLP; Stikeman Elliott LLP (M&A)

Whistler Blackcomb advisors: Thierry Keable (in-house); Osler, Hoskin & Harcourt LLP (M&A)

Advisor to Whistler’s special committee: Farris, Vaughan, Wills & Murphy LLP (M&A)

Counsel to the special committee’s financial advisor: McCarthy Tétrault LLP (M&A)

KSL Capital Partners LLC advisor: Blake, Cassels & Graydon LLP (M&A, competition and tax)


4. ENBRIDGE’S BID FOR SPECTRA ENERGY

In a move touted as brave and bold, Enbridge Inc. of Calgary is purchasing Houston-based Spectra Energy Corp. for stock worth $37 billion. This will create a significant North American energy infrastructure player, to be called Enbridge Inc. and headquartered in Calgary. The combined company’s natural gas pipelines business will be based in Houston and the liquids pipelines business in Edmonton. According to a CBC report, “The companies say they expect to achieve operational savings worth about $540 million on an annualized basis, most of it achieved in the latter part of 2018. They also expect an additional $260 million of tax savings beginning in 2019. Under the proposed deal, shareholders of Enbridge would own about 57 per cent of the combined company and the rest would be owned by Spectra shareholders.”

As one BNN report contended, “The takeover, the most significant energy deal since oil and natural gas prices crashed in mid-2014, highlights how pipeline companies are under pressure to merge as they grapple with overcapacity and sliding tariffs that have slowed dividend growth and unnerved investors.”

Robert Vaux of Goodmans LLP, Spectra’s external Canadian counsel, pointed out that “Spectra shareholders” in this all-stock transaction “are going to be shareholders of a Canadian public board, governed by Canadian law.” Canadian lawyers are making that work.

KEY LEGAL PLAYERS

Enbridge advisors: Sullivan & Cromwell LLP; McCarthy Tétrault LLP (M&A)

Spectra Energy advisors: Wachtell Lipton Rosen & Katz LLP; Goodmans LLP (corporate, tax, pension & benefits, employment, competition, regulatory); Skadden, Arps, Salte, Meagher & Flom LLP (tax)

Counsel to Enbridge’s financial advisors: Alston & Bird LLP; O’Melveny & Myers LLP

Counsel to Spectra’s financial advisors: White & Case LLP


5. WASTE CONNECTIONS’ REVERSE MERGER WITH PROGRSESIVE WASTE SOLUTIONS

Waste Connections Inc. is an integrated solid waste services company that provides waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets in the US and Canada. It entered into an agreement with Progressive Waste Solutions Ltd. to merge in an all-stock transaction of an estimated value of $1.3 billion. Upon completion in June 2016, stockholders of Waste Connections owned approximately 70 per cent of the combined company, and shareholders of Progressive Waste Solutions owned approximately 30 per cent. The acquisition was structured using Progressive Waste Solutions as the continuing entity, which was renamed Waste Connections Inc. upon closing. Shares of Waste Connections common stock trade on the New York Stock Exchange and the Toronto Stock Exchange under the symbol WCN.

Brent Kraus of Bennett Jones LLP, Waste Connections’ Canadian counsel, said this was a “significant strategic acquisition” from a very leader-driven team, referring to Chief Executive Officer Ron Mittelstaedt. The companies saw the opportunity to “apply a strong corporate structure” on both sides of the border.

John Ciardullo from Stikeman Elliott LLP, counsel to Progressive Waste Solutions, added, “The Progressive Waste board was dealing with a series of complicated issues, which culminated in a controlled auction that resulted in the deal with Waste Connections. For a variety of strategic and other reasons beneficial to the combined shareholder base, the transaction was structured as a reverse merger and involved the navigation of intricate cross-border tax, regulatory and commercial issues. The post-transaction performance of the combined company has been remarkable.”

KEY LEGAL PLAYERS

“Old Waste Connections” advisors: Patrick Shea (in-house); Locke Lord LLP; Latham & Watkins LLP; Bennett Jones LLP (M&A)

Progressive Waste Solutions advisors: Loreto Grimaldi (in-house); Stikeman Elliott LLP (M&A); Weil Gotshal & Manges LLP

Advisors to Bank of America: Goulston & Storrs PC; McCarthy Tétrault LLP (securities)

Advisor to an institutional purchaser advisor: Chapman and Cutler LLP (corporate finance)

Advisor to BMO Capital Markets: Davies Ward Phillips & Vineberg LLP (fairness opinion)


6. BCE’S ACQUISITION OF Q9 NETWORKS

This is a continuation of a 2012 deal then valued at $1.1 billion, in which an Investor Group comprising BCE, Ontario Teachers’ Pension Plan, Providence Equity Partners and Madison Dearborn Partners acquired Q9 Networks, the data centre operator that provides outsourced hosting and other data solutions to Canadian business and government customers. In 2016, BCE acquired the equity it did not already own in Q9 from the other investors in a transaction valued at approximately $675 million, including Q9 net debt.

BCE said, “The acquisition supports Bell’s ability to compete against domestic and international providers in the growing outsourced data services sector,” and a  Globe account put the case more particularly, “as it hopes to gain an edge in the increasingly competitive market to sell business customers hosting and cloud services.”

Goodmans LLP was external counsel for BMO Capital Markets, which led a first lien group of lenders as Barclays led a second group. The firm’s David Nadler commended the banks for their cooperation on this, “allowing the company to find a path forward, being purchased by Bell.” This, despite the fact that there were “a number of stakeholders, and it was hard to keep everything together at times.”

KEY LEGAL PLAYERS

BCE advisor: Blake, Cassels & Graydon LLP (competition, M&A, tax and financial services)

Advisor to Q9 Networks’ shareholder group: Osler, Hoskin & Harcourt LLP (M&A)

BMO Capital Markets advisor: Goodmans LLP

Investor group advisors (predecessor transaction): Weil, Gotshal & Manges LLP; Kirkland & Ellis LLP; Norton Rose Fulbright Canada LLP (litigation, finance); McCarthy Tétrault LLP


7. CORUS ENTERTAINMENT’S ACQUISITION OF SHAW MEDIA

On April 1, 2016, Corus Entertainment Inc. acquired the business of Shaw Media Inc. from Shaw Communications Inc. This acquisition more than doubled Corus’s size, creating a combined portfolio of brands encompassing 45 specialty television services, including leading women and lifestyle, kids, family and general entertainment brands; 15 conventional television channels; 39 radio stations; a global content business; book publishing; and a growing portfolio of digital assets.

Corus paid a purchase price of $2.65 billion for Shaw Media, subject to certain post-closing adjustments, which was satisfied by Corus through a combination of $1.85 billion in cash and the issuance by Corus to Shaw of 71,364,853 Class B Shares (CJR.B) at an agreed upon value of $11.21 per share.

This deal exemplified the closely held nature of Canadian business. Corus was spun out of Shaw 15 years ago, with the Shaw family in common as the majority shareholder of both companies. They therefore had two companies in the broadcast television business. As Doug Bryce of Osler, Hoskin & Harcourt LLP explained, in a context of current trends in the broadcast TV business, Shaw moved to place the Wind mobile business in one company and to continue the broadcast TV (and radio) business in the other.

Because the acquisition constituted a related-party transaction for purposes of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101), it required a formal valuation (which was provided by Barclays Capital Canada Inc.) and Corus minority shareholder approval. Each of Corus and Shaw struck independent special committees to, among other things, review and negotiate the terms of the acquisition.

There was also a shareholder activism piece to this deal. The Catalyst Capital Group Inc. announced its opposition to the acquisition, conducted a dissident proxy campaign and made a case against the transaction to the OSC, which ultimately did not succeed.

Shaw was represented by Davies Ward Phillips & Vineberg LLP with a team led by Vincent Mercier.

The Shaw special board committee was represented by Goodmans LLP with a team that included Stephen Halperin and Robert Vaux.

The Corus special board committee was represented by Borden Ladner Gervais LLP with a team led by Frank Callaghan. He commented: “The Corus/Shaw/Catalyst saga, among other things, reinforced the importance of having a robust special committee process in a related-party transaction, not only to allow the board to fulfill its legal duties, but also to be able to answer to activist investors who will look for any flaw in the process to challenge a deal.

“The deal also highlighted the need of special committees to be sensitive to the fact that activist shareholders will add another level of scrutiny to the committee’s process and may try to involve regulators in the process.”

KEY LEGAL PLAYERS

Corus advisors: Gary Maavara (in-house); Osler, Hoskin & Harcourt LLP (M&A, corporate finance, regulatory); Dentons Canada LLP (corporate finance); McCarthy Tétrault LLP (regulatory)

Shaw advisors: Peter Johnson (in-house); Davies Ward Phillips & Vineberg LLP (M&A, litigation, tax, regulatory, banking)

Advisor to the Corus special committee: Borden Ladner Gervais LLP (M&A)

Advisor to the Shaw special committee: Goodmans LLP (securities)

Advisor to securities underwriters and lenders for the Corus debt financings: McCarthy Tétrault LLP (securities)

Catalyst Capital Group counsel: Bennett Jones LLP (litigation)

Barclays Capital advisor: Blake, Cassels & Graydon (M&A)


8. SPROTT’S TAKEOVER OF CENTRAL GOLDTRUST

On January 15, 2016, Sprott Asset Management LP completed its successful hostile takeover bid to acquire all of the outstanding units of Central GoldTrust in exchange for units of Sprott Physical Gold Trust on a net asset value to net asset value basis. The transaction was valued at more than $1 billion.

Sprott Asset Management was represented externally by Stikeman Elliott LLP with a team that included John Ciardullo and Paul Collins. Ciardullo said: “The Sprott transaction emphasized what I like most about what we do — the ability to come up with a really creative structure that ultimately gets tested and not only survives but serves to facilitate the delivery of a prized asset to your client and tangible value to the target’s security holders. Given the unique structure, non-stop court and securities regulatory activity, the deal was a roller-coaster ride from beginning to end.”

KEY LEGAL PLAYERS

Sprott Assett Management advisors: Arthur Einav (in-house); Stikeman Elliott LLP (M&A); Paul, Weiss, Rifkind, Wharton & Garrison LLP (US matters)

Central GoldTrust advisor: Dentons Canada LLP (M&A, securities)

Counsel to the Central GoldTrust’s special board committee: Bennett Jones LLP (litigation)

Purpose Investments advisor: Osler, Hoskin & Harcourt LLP


9. MCKESSON’S ACQUISITION OF REXALL

US-based health-care-services provider McKesson Corp., which already has a pharmaceutical footprint in Canada, has acquired Canada’s Rexall pharmacy chain (and related companies) in a $3-billion deal. McKesson, headquartered in San Francisco, currently owns smaller drugstores in Canada and supplies drugs to Rexall and other pharmacies. The intention was to acquire 470 Rexall stores. This  will add weight to Rexall as it competes with Shoppers Drug Mart, now owned by Loblaw Cos. Ltd.

Rexall was externally represented by Dentons Canada LLP, with a team led by Shawna Vogel.

Patricia Olasker, leading the Davies Ward Phillips & Vineberg LLP team for McKesson, says: “The transaction represents a significant strategic acquisition by McKesson in the Canadian market. The acquisition reflects McKesson’s view that Canada’s health-care landscape is rapidly changing, marked by a move of primary care into pharmacies. McKesson Corp. has operated in Canada for about 100 years, both through McKesson Canada, which operates a network of independent pharmacies in Canada, and also directly as a supplier of medicines, supplies and information technologies to pharmacies, manufacturers, hospitals and other health-care institutions. This acquisition strengthens McKesson’s position in Canada’s pharmaceutical supply chain. It also expands McKesson’s presence in the retail pharmacy space with the addition of approximately 470 Rexall and Rexall Pharma Plus corporate-owned stores to its existing pharmacy banner business.”

In December, the transaction reached another milestone when the Competition Bureau signed off, pending the divestiture of 28 drugstores across Canada.

KEY LEGAL PLAYERS

McKesson advisors: Jennifer Zerczy (in-house); Davies Ward Phillips Vineberg LLP (M&A, antitrust, tax, pension/employment, real estate, environmental, regulatory, IP, litigation)

Rexall advisors: Dentons Canada LLP (M&A); Bennett Jones LLP (competition)


10. ALIMENTATION COUCHE-TARD’S BID FOR CST BRANDS

Alimentation Couche-Tard Inc. has had a history of expanding through acquisition. Sébastien Thériault of Davies Ward Phillips & Vineberg LLP, Couche-Tard’s external counsel, proudly described the company’s expansions to date in North America and Europe.

This, however, is their biggest deal to date — an agreement to purchase gas-station chain CST Brands Inc. for nearly US$4 billion, in order to expand into Texas and eastern Canada. (The equity value of the deal is estimated at US$3.78 billion. Including debt, the offer is valued at about US$4.4 billion.) “It’s a great fit geographically,” Brian Hannasch, Chief Executive Officer of Laval, Québec-based Couche-Tard, told reporters. “Our strength is in the US Southeast, the West Coast and the Midwest. Texas is one of the fastest growth markets in the US.”

As a significant component of financing the deal, Couche-Tard also announced that it will sell certain CST Canadian assets to Parkland Fuel Corp. for approximately US$750 million after the initial transaction closes — with the number of stores subject to review by the Competition Bureau. Chris Wolfenberg, for the Fasken Martineau DuMoulin LLP team that is advising Parkland, commended the companies for their willingness to negotiate a parallel, interdependent yet separate deal with Parkland.

KEY LEGAL PLAYERS

Alimentation Couche-Tard advisors: Faegre Baker Daniels LLP; Davies Ward Phillips & Vineberg LLP (M&A, competition, labour & employment)

Advisors to CST Brands: Wachtell Lipton Rosen & Katz LLP; Stikeman Elliott LLP (M&A)

Bank of America, Merrill Lynch advisor: Willkie Farr & Gallagher LLP

Parkland advisor: Fasken Martineau DuMoulin LLP (M&A, banking, real estate, environmental, tax);  Torys LLP (competition); Bennett Jones LLP (advisors on financing)

Advisor to the underwriters for the Parkland offerings: Dentons Canada LLP (securities, corporate finance)

Imperial Oil advisor:
Blake, Cassels & Graydon LLP (energy, corporate, real estate, tax, franchise law, litigation, competition/antitrust and foreign investment)

In addition to the Top 10 Deals of the Year, Lexpert also co-sponsors the Canadian Dealmakers Awards, in partnership with Deloitte, The Globe and Mail and Thomson Reuters (Markets). Lexpert will report on these awards in the March issue of the magazine, at which time it will be interesting to compare the winners with the Top 10 Deals chosen by Lexpert. Certain deals are bound to overlap, while others may not. It’s important to note that our Top Deals feature tends to profile more of the “lawyers’ deals” in the sense that they include transactions with compelling and complex legal issues, whereas the Dealmakers award program honours transactions that have the greatest impact to the business community.

With files from Gena Smith. Jean Cumming is Editor-in-Chief and Market Director of Lexpert.