It used to be a footnote on a deal lawyer's agenda. No more.
In 2012, regulatory risk took centre stage in Canada in an unprecedented way. In 2010, when Ottawa killed BHP Billiton Ltd.'s $40-billion run at Potash Corporation of Saskatchewan, savvy lawyers did step up their focus on prepping clients for clearing Canadian regulatory hurdles — but they did so proactively. Regulatory risk was on everyone's lips, yes, but the inclination was to dismiss BHP as a blip — a one-off incident, a deal so big and unique that it was impossible to argue it set any type of precedent.
That turned out to be a Pollyanna interpretation, as 2012 proved in spades. The deal that dominated the country's business headlines in 2011 – Maple Group Acquisition Corporation's bid for TMX Group Inc. – languished before the regulators until July 2012. Later in the year, the Canadian Radio-Television & Telecommunications Commission killed BCE Inc.'s $3.38-billion bid for Astral Media Inc. Before the markets digested this announcement, Investment Canada declared that the $6-billion purchase of Calgary's Progress Energy Corp. by Malaysian state-owned enterprise PETRONAS was not of net benefit to Canada (although it was eventually approved) — and made it clear to the China National Offshore Oil Corporation (CNOOC) that the federal government's various trade treaties and professions of love for China notwithstanding, its $15.1-billion bid for Calgary-based Nexen Inc. was not going to be a regulatory cakewalk either.
“For better or worse, the Canadian government has put itself on the map,” says Torys LLP's Sharon Geraghty. “It was not that long ago that Canadian regulatory risk was a small blip on the horizon.”
In 2012, it defined the year.
Experienced buyers tackled the spectre of Canadian regulatory risk head-on. Anglo-Swiss giant Glencore International plc effectively neutralized its Investment Canada risk by structuring its acquisition of Viterra Inc. in such a way that about half of Viterra's assets stayed in Canadian hands. Ironically, it apparently didn't plan as well for the Chinese regulatory deal risk (see below for details) ... perfectly correlated, those in the know say, to the Canadian regulatory risk faced by CNOOC. CNOOC made all sorts of commitments in its Nexen bid clearly intended to reassure Investment Canada, such as keeping management in Canada, making Calgary its North American headquarters, and maintaining its TSX listing. Others – like the unfortunate PETRONAS – were caught off guard with how long it took to get its eventual approval. (Or, as some have it, they were victims of Ottawa's need to pronounce on CNOOC and draft SOE-acquisition policy before approving any other SOE deals.)
When the regulators weren't putting would-be-dealmakers through the wringer, they were pronouncing on increasingly frequent and fractious conflicts between corporations and their shareholders. From the dramatic reshaping of Canadian Pacific Railway's board and management by Pershing Square Capital Management to the ongoing fisticuffs between Telus Corporation and Mason Capital Corp., 2012 was also the year of the activist – downright uppity, really – shareholder. It wasn't just hedge funds and institutional investors that were uppity either, points out Davies partner Melanie Shisher. Vancouver-based mining company Roxgold Inc. found itself in a proxy contest launched by an individual shareholder, Oliver Lennox-King — whose challenge (with the legal weight of a Davies team behind him) was successful.
The lesson of 2012 to Corporate Canada: keep your enemies close ... and your shareholders closer.
For law firms, the year's trends highlighted that a diversified practice base was a darn good thing. As Blake, Cassels & Graydon LLP's Jeffrey Lloyd points out, “Although the number of deals was down compared to last year, the significant deals that did get done were in a relatively wide range of industries.” In contrast to 2011, when mining deals dominated the headlines and law firm books, 2012 was comparatively quiet on the mining front, making deals in the industry – like the $3.4-billion acquisition of Quadra FNX Mining Ltd. by KGHM Polska Miedź S.A. or the resolution of the Rio Tinto-Ivanhoe Mines drama – all the more noticeable.
“What's old is new again in 2012 with the return to prominence of non-resource deals,” says Davies' Peter Hong. “We have some solid pieces of the Canadian economy represented in deal activity this year.”
Calgary's oil patch wasn't on fire either, despite half a handful of mega-deals like Pembina Pipeline Corp.'s $3.16-billion acquisition of Provident Energy Ltd., the difficult PETRONAS-Progress bid, and the massive CNOOC play for Nexen. In Ontario, while pension funds, banks and other institutional “usual suspects” sent some work lawyers' way, Bay Street was pretty quiet too.
Fortunately for national law firms, Quebec Inc. was hot, hot, hot. “Between Europe's low valuations, a strong Canadian dollar and cheap capital from Canadian well-endowed pension funds and well-capitalized banks, Quebec issuers went on a buying spree,” says Stikeman Elliott LLP's Benoît Dubord. Osler Hoskin & Harcourt LLP's Robert Yalden agrees, “Quebec saw more action in 2012 than it has in some time and closed the year out having been one of the busiest parts of Canada's M&A landscape.” Deals of note included another ambitious global play by Alimentation Couche-Tard in its $2.7-billion acquisition of Norway's Statoil Fuel & Retail unit, CGI Group's $3.1-billion purchase of UK-based Logica PLC, and Gaz Metro's acquisition of Central Vermont Public Service Corporation.
Quebec also provided the country with one of its most interesting hostile bids, as Cominar REIT took Canmarc REIT in an $838.2-million contested transaction, and one of its most ... entertaining securities decisions, as Resolute Forest Products managed to buy Fibrek Inc. — at $0.40 cents a share less than the competing white knight offer. As the year drew to a close, Quebec gave Corporate Canada another example of what lengths activist shareholders would go to, as Invesco Canada Ltd., after seeing Lowe's Companies Inc.'s bid for the Quebec-based retailer wither, decided to oust Rona Inc.'s board on its own.
As the Cominar deal showcases, 2012 was also a year of the REITs. As Blakes partner William Fung points out, “The year was punctuated with several notable M&A REIT deals.” Among them Dundee REIT buying Whiterock REIT for $608 million and dropping $1.26 billion on the iconic Scotia Plaza tower, as well as the $2-billion privatization of TransGlobe Apartment REIT by PD Kanco LP and Starlight Investments Ltd. Good news for REIT lovers going forward: Fung predicts 2013 “will be just as active for REITs/REOCs as 2012, given the expectation that interest rates will remain low.”
The REIT deals were the domestic piece of the story, and the Maple/TMX was as patriotic a deal as one could get — but almost everything else of note involved foreign players. “The globalization of deals in Canada has become the new normal, with foreign buyers continuing to snap up Canadian companies and US activist investors continuing to shake things up in Canadian boardrooms,” says Hong. “Purely domestic deals now stand out, like foreign purchases did years ago.”
Finally, 2012 was the year of back stories — the year of deals that started last year, last
cycle, or last decade. Maple's acquisition of TMX had a gestation period longer than an elephant — but that was nothing compared to the length of time that Rio Tinto's been stalking Ivanhoe. The buyout of Q9 Networks was effectively a wrap-up of the 2008 would-be leveraged buyout of BCE; Glencore's Viterra acquisitions unfolded in the context of a global Glencore-Xstrata plc merger dreamed of since 2006 and capitalized on the Agrium-CF Industries “fertilizer wars” of 2009. The Resolute purchase of Fibrek is a repatriation of assets that used to be part of Abitibi-Bowater — Resolute's former name.
Plus ça change, plus c'est la même chose. Again.
1. Deal of the Year. Maple/TMX:
Maple Group Acquisitions Corp. takes TMX, CDS and Alpha.
TIMELINE - Deal with London Stock Exchange announced on February 2, 2011; Maple bid announced on May 25, 2011; last regulatory hurdles cleared by July 11, 2012; officially closed September 14, 2012.
VALUE - $3.8 billion.
Here's the deal that captured the headlines of Canadian and global business pages throughout 2011 as the poster child for the tension between the globalization and re-domestication of capital markets, and held them through more than half of 2012 as the poster child for Canadian regulatory deal risk. It permanently changed the nature – and perhaps future strategic direction – of Canada's capital markets, and transformed the TMX into a vertically integrated exchange and clearing group.
Perhaps just as significantly, it made Canada's largest banks, heftiest pension funds – with a massive insurer and Canada's largest financial co-operative group thrown in, just to make life extra-interesting – pull consistently in one direction, and maintain their 13-member club in the face of considerable regulatory hurdles. (Not to mention the constant commentary from the Street that the club was fracturing and in imminent danger of falling apart.)
Well. In what was indeed a “Miracle on Bay Street,” they did not fall apart, they turned a hostile deal friendly, they sold the story to the shareholders, they brought four securities commissions and a concerned Competition Bureau onside. And they closed.
“It is probably one of the most important deals in Canada in the last decade,” says Torys' Sharon Geraghty, who led the TMX-side Torys team, which included the magic touch of long-time senior counsel for TMX Richard Balfour. For Torys and its client the TMX, the deal started as a run-of-the-mill – not! – proposed merger of equals between the TMX and the LSE. “That was challenging enough,” says Geraghty. Then came the Maple bid. The infamous undisclosed interested third party. A proxy fight.
“If this deal was a law school exam question, you'd be rolling your eyes at it,” Geraghty says. “And then they had a proxy fight — sure, like that would happen. And then you had two other major acquisitions (Alpha and CDS) happening at the same time — sure, that's realistic. If you hadn't been in it, you would not have believed a deal could have so many facets.”
Fortunately for all concerned, TMX general counsel Sharon Pel was an experienced M&A lawyer herself — and one with a sense of humour to boot. “When some horrible new thing came up, she'd just smile and say, ‘Well, we haven't had one of those yet,'” Geraghty recalls.
The other side wasn't laughing quite as much. If the deal was tense for the TMX, it was doubly – thirteenly, actually – tense for Maple. “It was tense through the whole piece,” says Vincent Mercier, the Davies partner who led the bank-side legal team. “Even post support agreement, we had to work for it.”
Of course, pre support agreement, particularly when the TMX was still engaged to the LSE and not allowed to talk to Maple at all, they had to work for it even harder, says McCarthy Tétrault LLP's Graham Gow, who led the pension-fund-side Maple legal team. The teams prepared their first bid documentation virtually in the dark (narrowly avoiding launching an illegal takeover bid in the US, among other things) and struggled with questions from the regulators, who wanted to know exactly what a Maple-owned TMX (plus Alpha, plus CDS) would look like.
Necessity being the mother of all invention, to stay onside with US securities laws, the Maple-side lawyers developed a brand new two-step integrated transaction structure that involved a partial bid for cash for 70 per cent of the TMX shares in the first step, followed by a plan of arrangement in step two to deliver share consideration to TMX shareholders. To use the structure, they needed to secure unprecedented exemptive relief from the Canadian securities regulators, as well as no action relief from the SEC. They got it — so future dealmakers take note, you've got an extra tool in your arsenal now.
And the banks and pension funds have TMX. And are joint partners in Alpha and CDX. And, the patriotic name aside, are convinced that the business case for the transaction was worth all the regulatory heartache.
Naysayers: “Its importance is probably overblown.” Counterpoint: Really? How many national stock exchanges do we have, and how often do our banks and pension funds team up to buy them?
Award for understatement of the year: “The regulatory approval process was very difficult.” This from Vincent Mercier. Ah, yeah. Just a tad.
What you really want to know: Who called whom first, and who was really calling the shots with this whole co-counsel thing? It went like this: CIBC called Mercier at Davies first. Then the banks called the pension funds. The pension funds called McCarthys. The first job of the co-counsel wasn't very collaborative: Mercier was negotiating the banks' agenda and Gow and Gary Girvan were pushing the pension funds' agenda. But the clock was ticking, so it went sort of like this: in the morning, Davies and McCarthys would be at it hammer and tongs. (They called it “building consensus.” Ha.) In the afternoon, they'd plaster co-operative smiles on their faces and negotiate with the regulators, other stakeholders and eventually the TMX. The conflicting agendas of their stakeholders ensured that the co-counsel really were co-counsel. And that they did not waste the clients' time angling to get one in front of the other. “We both knew that if either team got silly about jockeying for positioning or anything like that, the clients would kill us,” says Gow. And yes, they're still speaking to each other.
Proof lawyers can be honest: “I'm sure the client, as much they loved us, were happy to see our infiltration of their day-to-day life come to an end,” says Geraghty. Not to mention the end of the bills. The integration efforts, of course, continue.
Fun Fact from the Prairies: And it's all thanks to the Calgary Stampede. No, really. There's TMX CEO Tom Kloet at a Calgary Stampede party in July 2011 and, across the room, he sees Scott Lawrence, CPPIB's Vice-President, Head of Relationship Investments, and CPPIB's lead business on the Maple bid. There's a view of the mountains, country music in the background, beer and beef floating around the room ... and The Conversation that, going forward, results in Kloet thinking of Maple as a potential partner and not an enemy. The Calgary Stampede. Where deals are made. Really.
KEY LEGAL PLAYERS
> Davies Ward Phillips & Vineberg LLP McCarthy Tétrault LLP Maple
> Torys LLP TMX Group
> Blake, Cassels & Graydon LLP and Davies Maple on competition
> Borden Ladner Gervais LLP
the Canadian Depository Securities Limited and Canada Pension Plan Investment Board
> Gowling Lafleur Henderson LLP Alberta Investment Management
Corporation
> Wildeboer Dellelce LLP Alpha Trading
> Cassels Brock & Blackwell LLP Alpha Trading as special competition counsel
> Fasken Martineau DuMoulin LLP
the lending syndicate to Maple
> Goodmans LLP BMO Capital Markets
and Bank of America Merrill Lynch, the joint lead financial advisors for TMX
> Bennett Jones LLP the Bank of Canada
> Stikeman Elliott LLP IIROC
US law firms with a piece of the action: Paul, Weiss, Rifkind, Wharton & Garrison LLP; Weil, Gotshal & Manges LLP, Allen & Overy LLP
2. Glencore/Viterra et al:
Glencore International plc buys Viterra Inc., with Richardson International, Agrium Inc. and CF Industries Holdings Inc. sidecars.
TIMELINE - Announced March 20, 2012.
Canadian regulatory approvals completed. Last headline: “The sole remaining regulatory approval is the approval of the Ministry of Commerce of the People's Republic of China.”
VALUE - $6.1 billion.
“Agriculture is the new mining,” says Torys' Jamie Scarlett, and in Canada, there's no deal that showcases this development better than global giant Glencore's acquisition – and simultaneous divestiture – of Viterra, all unfolding while Glencore chased its massive merger of fellow global giant Xstrata. Despite its engagement in pursuing a strategic global merger that would turn it into a company with $68-billion market cap, Glencore also went all out for little Canadian Viterra, which just 12 years ago was teetering on the edge of bankruptcy.
“Viterra's transformation from a CCAA case to a leading, focused agricultural business in 12 years was remarkable,” says Scarlett. Small wonder global-scale players took notice. And domestic ones got to benefit too.
How Glencore approached and structured the acquisition – the spectre of BHP/Potash perhaps before its eyes – was nothing short of brilliant. Even as it was negotiating with Viterra,
Glencore was talking with Agrium and Richardson about selling Viterra assets it did not yet own. In a year in which regulatory risk loomed large and Investment Canada and other regulators showed no compunction about killing deals, Glencore exhibited the sort of foresight other 2012 acquirers could have used. By effectively selling key Viterra assets to Agrium and Richardson before even bidding for Viterra, Glencore was able to sell the transaction to the regulators on the basis that a little over 50 per cent of Viterra's assets would remain in Canadian hands.
And it didn't launch the deal until knew it could successfully – pending the blessing of regulators – conclude all three deals at the same time. (The CF Industries negotiations came after its deals with Viterra, Agrium and Richardson were public.) Notably, none of the deals were contingent on any of the others closing, underscoring Glencore's confidence in its ability to reach end game.
Nicely played.
For the lawyers involved, “This was a deal involving never-ending, unexpected twists and turns, from the fast and furious auction process at the beginning of the deal, to the dynamics of dealing with a purchaser who has already pre-sold, in some cases, not once, but twice, a chunk of the target's assets, to the regulatory and political interest, it seemed like we were constantly confronted with situations that were unprecedented or very unusual,” says Torys' Patrice Walch-Watson. “That made for very interesting and challenging days, and nights, for the legal teams.”
Never mind the lawyers, though. As Stikeman's Jeffrey Singer notes, “This is a game-changer of a deal for everyone involved, which is pretty impressive given who is involved.” Glencore gets the parts of Viterra it really wants. Richards, Agrium and CF get key Canadian Viterra assets, each bolstering its slice of the domestic market. Investment Canada gets to feel good. And China gets to delay its competition approval for the deal until after Canada signed off on CNOOC.
Gotta love the irony.
The pitch that didn't work: “My managing partner said I should write to you about why this deal should be on the list. It's big.”
The pitch that did: “Who knew selling fertilizer could be so exciting?”
KEY LEGAL PLAYERS
> Bennett Jones LLP Glencore
> Torys LLP Viterra
> Blake, Cassels & Graydon LLP Agrium Inc.
> McCarthy Tétrault LLP Agrium Inc.
> Cassels Brock & Blackwell LLP CF Industries
> Stikeman Elliott LLP
Richardson International Limited
> Fasken Martineau DuMoulin LLP
the Board of Viterra
> Burnet, Duckworth & Palmer LLP AIMCo
> Felesky Flynn LLP Agrium Inc. on tax
> McCarthy Tétrault LLP
Glencore on global competition
International firms with a piece of the pie: Linklaters LLP (UK, US and China); King & Wood Mallesons (Australia); Curtis, Mallet-Prevost, Colt & Mosle LLP (US); Mourant Ozannes and Pestalozzi Attorneys at Law (Jersey); Ashurst LLP (Australia); Skadden, Arps, Slate, Meagher & Flom LLP (US); Simpson Grierson (New Zealand)
3. CNOOC/Nexen:
Chinese oil producer CNOOC Ltd. bids for Nexen Inc.
TIMELINE - Announced July 23, 2012. Investment Canada approval Dec. 7, 2012.
VALUE - $15.1 billion.
Let's make this clear: this play isn't important because of the $15.1-billion price tag. Nor because of the innate importance of the target. Nexen's a great Canadian success story — but no one in the patch or in Canada is deluded enough to think it's a Crown jewel or strategic asset. A big chunk of its assets are overseas. If the Yanks or the Aussies bid for Nexen tomorrow, it'd go to them without a murmur. If CNOOC negotiated to buy a 30-per-cent stake in Nexen, it'd be yesterday's news.
But because a state-owned enterprise from a non-democratic country wants to buy Nexen outright, and others are formally or informally in the queue, Investment Canada and the federal government got in a bind not even BHP's ill-fated bid for Potash put them in.
Canadian lawyers knew Investment Canada and Ottawa's actions taken on CNOOC/Nexen would determine the future of virtually every future resource play in Canada — played with Asian SOE money and other. As Osler's Emmanuel Pressman puts it, it's “the test case for new federal foreign investment policy.”
Don't get much more significant than that in 2012. “It's a deal that's being watched by potential investors from all over the world,” agrees Torys' Ron Deyholos. “Rightly or wrongly, it will be seen by many as a clear indicator of whether Canada is interested in foreign investment or not.” Deyholos is fresh from a China trip. “And, oh boy, are they watching. There wasn't a company or a law firm or banker that didn't ask about CNOOC/Nexen deal.”
“Approved or killed, its legacy will live on,” agrees McCarthy Tétrault's David Woollcombe.
On December 7, 2012, Investment Canada gave the deal, as well as the $6-billion acquisition of Progress Energy Resources Corp. by Malaysian-controlled PETRONAS, the green light. But the accompanying policy direction was a convoluted attempt to balance the country's desire to welcome foreign investment—and limit SOE investment, particularly over “leaders” and key assets in the Canadian economy.
A Canadian solution if ever there was one.
KEY LEGAL PLAYERS
> Stikeman Elliott LLP
China National Offshore Oil Company
> Blake, Cassels & Graydon LLP Nexen Inc.
> Burnet, Duckworth & Palmer LLP Nexen Board
> Richard A. Shaw Professional Corp. Nexen Board
> McCarthy Tétrault LLP
senior lenders to Nexen
> Osler, Hoskin & Harcourt LLP
Goldman Sachs and RBC
4. CP Rail/Pershing:
Pershing Square Capital Management battles Canadian Pacific Railway for control of board — and future of company.
TIMELINE - Started October 2011.
Officially launched January 9, 2012.
Wrapped up May 17, 2012.
VALUE - priceless (as far as business headline entertainment goes, anyway).
For Pershing, an investment of some
$1.4 billion, about a sixth its total assets
under management.
Corporate lawyers get pulled into proxy fights all the time. Well, maybe not all the time — often enough, let's say. But in 2012, the battle for control of CP initiated by William Ackman's Pershing Square elevated proxy fights to a new level. Call it “Clash of the Titans” or “near-Shakespearean drama” (nominating lawyers did both) — better yet, as Osler's Pressman does, call it “a bellwether event for Canadian shareholder activism.”
“Proxy contests are the new M&A,” says Davies' Patricia Olasker. “Historically, management under- performance, poor corporate governance or mediocre share-price performance were addressed through M&A transactions that moved assets from bad managers to good managers. Today, these issues are as likely to be resolved at the ballot box.”
When Ackman, wielding 14.2 per cent of the stock, told CP back in October 2011 that he wanted then president and CEO Fred Green gone, the Street thought he had started an unwinnable fight. By the time the shareholders spoke on May 17, 2012, he was clearly on top. “It was like a game of chess, with the Canadian business community watching every step,” says Davies' Alex Moore. “Every step along the way was studied and debated before action was taken.”
The takeaway lesson for lawyers and their corporate clients: “Nobody is immune,” says Fasken Martineau's Bill Orr. “CP had one of the most blue-chip of blue-chip boards you could have in Canada. ... If someone could go after them, they could go after just about anybody.”
Naysayers: “Not a deal!” Counterpoint: Haven't you heard? “Proxy fights are the new M&A.”
This is going to be your reality going forward, deal lawyers. So deal with it.
How to keep your corporate client safe from this: Ya can't. But if meaningful shareholder engagement's been something they've been just giving lip service to, encourage them to pay a bit more attention to it, will you? And when a US hedge fund starts buying up shares, get ready to rumble.
KEY LEGAL PLAYERS
> Davies Ward Phillips & Vineberg LLP Pershing Square Capital Management, L.P.
> Fasken Martineau DuMoulin LLP CP
5. Telus/Mason:
Telus Corp.'s attempt to collapse its voting/non-voting share structure into one class (with no compensation to the voters) and hedge fund Mason Capital Management LLC's efforts to stop it.
TIMELINE - Launched February 21, 2012. Ongoing, with Telus at press holding its ground.
VALUE - Telus is seeking to move about $9.5 billion of stock from one class to another.
In one corner: one of Canada's largest telecoms. In the other: an activist US hedge fund. Apparently at stake: Telus's desire to collapse its dual-share structure into a single class of common stock and Mason's desire to keep on making money out of the price differential between the two classes of shares. Really at stake: just how much power can an activist shareholder really wield?
“Telus/Mason is an important practical application of the ability of activist shareholders, through the power of the proxy process, to influence corporate conduct and modify behaviour in a range of corporate activity that goes beyond the traditional replacement of directors and indirectly management.”
The battle for CP's board was a strategist's dream (or nightmare). “Telus/Mason was a technician's battle waged with a wide array of legal tactics and proceedings before the courts, regulators and stock exchange,” enthuses one lawyer. Academics at every law school in the country followed it closely; the Harvard Law School Forum on Corporate Governance and Financial Regulation dedicated an entire series of papers on it. As court and regulatory reviews and decisions came in, they touched on a wide array of technical corporate and securities law, from the value of corporate control in dual-class companies in Canada to the limits of meeting requisitions and the CDS beneficial holder system. And, of course, they turned every business page reader into a de facto expert on empty voting.
At press, it looks like Telus has prevailed — but discounting activist shareholders' power to influence a company's path is a dangerous thing to do in 2012. “Telus/Mason is an important practical application of the ability of activist shareholders, through the power of the proxy process, to influence corporate conduct and modify behaviour in a range of corporate activity that goes beyond the traditional replacement of directors and indirectly management,” says Goodmans' Stephen Halperin (the firm's co-counsel to Mason on the file). And that, ultimately, is the lesson and legacy of the clash.
The naysayers: Seriously? This is not a deal. “A weak sister” to CP at best.
Why they're wrong: Yes, the technical aspects here will apply to a pretty narrow range of companies. But the real lesson here, which every Canadian public company and its lawyers need to learn, is that activist shareholders are here — and they will fight you if they don't like what you're doing.
We want to know: Does Telus know how many law firms it hired?
KEY LEGAL PLAYERS
> Osler, Hoskin & Harcourt LLP
as lead corporate solicitors
advising Telus and its Board
> Farris, Vaughan, Wills & Murphy LLP as BC counsel and litigation
counsel for Telus
> Norton Rose Canada LLP
as litigation counsel for Telus
> Skadden, Arps, Slate, Meagher & Flom LLP as US counsel for Telus
> Davies Ward Phillips & Vineberg LLP on the empty-voting policy issues
for Telus
> McCarthy Tétrault LLP Mason
> Goodmans LLP Mason
> Nathanson, Schachter & Thompson LLP as BC litigation counsel for Mason
6. Resolute/Fibrek/Mercer:
Resolute Forest Products (aka AbitibiBowater Inc.) takes Fibrek Inc.
TIMELINE - Announced Nov. 28, 2011
Closed August 1, 2012.
VALUE - $130 million.
This small but brutal hostile bid was watched with bated breath by securities lawyers from coast to coast, as the parties battled it out before the Ontario Securities Commission, the Quebec Securities Commission, the TSX, the Superior Court, and the Court of Appeal of Quebec, and tried to take their fight all the way up to the Supreme Court of Canada. Fraser Milner Casgrain LLP's Ralph Shay is still mourning the “once in a generation” opportunity the deal created for the SCC “to finally decide once and for all what directors of Canadian public companies can and cannot do to defend against hostile takeover bids.” Alas, the SCC declined to take on the challenge, and the uncertainty it left in its place is perhaps as significant to Canadian deal lawyers as the deal itself.
From a spectator's point of view, “It was a legal delight,” says one fan. From the belly of the beast, “this hostile takeover bid was among the most strategically challenging and contentious M&A transactions of the last decade,” enthuses Francis R. Legault, the Norton Rose partner who led the Resolute-side team on the transaction. The end result — Resolute's hostile offer of $1 per share prevailed over white knight Mercer's $1.40 per share offer.
The most original pitch: “For sure this belongs on the list. Gives us an excuse to talk about how dumb the Quebec regulators are. No way the result would have been the same in front of the OSC.”
KEY LEGAL PLAYERS
> Norton Rose Canada LLP
Resolute Forest Products Inc.
> Stikeman Elliott LLP
acted for Fibrek Inc.
> Davies Ward Phillips & Vineberg LLP Steelhead Partners, LLC.
> Torys LLP the locked-up shareholders (Fairfax Financial Holdings, Oakmont
Capital Inc. and Pabrai Investment Funds)
> Sangra Moller LLP Mercer
US law firm cameo: Paul, Weiss, Rifkind, Wharton & Garrison LLP
7. Cominar/Canmarc:
Cominar REIT's unsolicited takeover bid for Canmarc REIT.
TIMELINE - Hostile bid announced
November 28, 2011. Closed March 1, 2012.
VALUE - $838.2 million.
Whatever 2012 may not have been, it was clearly a year of the REITs. “2012 was definitely a very exciting year for Canada's REIT sector,” says Lavery partner Michel Servant. “The credit and capital markets environment has been very supportive of REIT financings.”
Echoes Davies' Sebastian Roy, “Between abysmal interest rates and a volatile stock market, investors have shown an insatiable appetite for REITs.” Hand-in-hand with that came REIT M&A, and grabbing centre stage among all REIT plays was Cominar's long-planned, carefully engineering hostile – and ultimately successful – run at Canmarc, which transformed Cominar into Canada's third largest REIT — and Quebec's largest commercial property owner.
The backstory starts five years ago, when the economy was on fire and Cominar, already ambitious, made a run at Alexis Nihon REIT. It lost out to Richard Homburg's Homburg Invest Inc., which would, as part of its financial struggles in 2009, spin out its real estate assets into Homburg Canada REIT, and in 2011, beset by more financial troubles and regulatory issues in Europe, change the REIT's name to Canmarc, to distance it in the public's eye from the troubled Homburg name.
Cominar CEO Michel Dallaire kept an eye on the coveted assets, and when a broker acting on behalf of Richard Homburg approached him to offer Cominar Homburg's five-per-cent stake in Canmarc, the game was on. Cominar formally approached Canmarc in November 2011 and was rebuffed, but managed to sweet-talk Canmarc off its poison pill before the fight went before the securities regulator, and after sweetening its bid, brought Canmarc onside with a friendly deal by January 16. By March 2012, the deal was sealed and Cominar had the Alexis Nihon assets it lusted after since 2006.
“2012 was definitely a very exciting year for Canada's REIT sector. The credit and
capital markets environment has been very supportive of REIT financings.”
Extra points: Smack in the middle of the takeover bid, Cominar carried out two bought-deal financings, one at $143.7 million in December 2011 when the deal was still hostile, and another at $201.2 million in February 2012 after it turned friendly. Not easy to do in the context of a hostile bid, when the markets are understandably loath to give an acquiror a blank cheque to go shopping with.
Howls from the trenches: A suggestion was made during the selection process that the trouble with this deal – with the related Starlight/Transglobe deal – was that, um, well, REITs are boring. Oops. Tongues off REITs, dear deal lawyer — “REITs ARE NOT BORING!” REIT-loving and REIT-representing lawyers screamed en masse. “Yes, admittedly, a REIT with a single property is not the most exciting thing in the world, but frankly nor is a public company when one family owns 85 per cent of the stock, and I do not care which exchange it is listed on!” hollered another. We stand corrected. REITs are not boring. In 2012, at least.
KEY LEGAL PLAYERS
> Davies Ward Phillips & Vineberg LLP Cominar
> Osler, Hoskin & Harcourt LLP Canmarc
> Fasken Martineau DuMoulin LLP
special committee of Canmarc
> Goodmans LLP
Canmarc's financial advisor, TD Securities Inc.
> Norton Rose Canada LLP
the syndicate of lenders, led by National Bank of Canada, Bank of Montreal
and Caisse centrale Desjardins
> Stewart McKelvey both REITs
on matters in the provinces
of Nova Scotia and New Brunswick
> Lavery, de Billy, L.L.P. the syndicate
of underwriters led by National Bank Financial Inc. and BMO Nesbitt Burns Inc.
in the related equity financings
8. Rio Tinto/Ivanhoe:
Rio Tinto secures controlling interest of Ivanhoe Mines and agrees to support US$7.3-billion financing plan.
TIMELINE - Backstory going back to 2006; Arbitration decision Dec 12, 2011.
Closed May 24, 2012.
VALUE - $7.3 billion as per financing plan.
With a dramatic backstory that goes back to 2006 – when global mining giant Rio Tinto first invested in Vancouver-based Ivanhoe's Oyu Tolgoi copper-gold mining project in Mongolia – the most current chapter of the Rio Tinto-Ivanhoe relationship may not be your typical M&A deal, but as far as legal heavy lifting and creativity goes, it's hard to beat.
“This was far from your run-of-the-mill M&A deal,” says McCarthy Tétrault's Shea Small, who led the Rio team. “It was a long and hard-fought battle by both sides for control.” Before it was over, it gave Canada its first successful creeping takeover in more than a decade. It included two public equity offerings that raised almost $3 billion. It involved the largest rights offering in Canadian history. Add to that the arbitration proceeding that killed Ivanhoe's shareholder-rights plan, the effective ousting of half the Ivanhoe board and its founder and then CEO Robert Friedland, the negotiations that resulted in the massive financing plan for that coveted Mongolian mine — and you've got the ingredients for a beautiful deal.
Icing: “It was successfully completed in the context of a consistently challenging
international geopolitical environment,” says Goodmans' Paul Goldman. And, when the dust settles, one of the world's largest copper/gold mines will finally go into full production.
Naysayers: “Shareholder pissing match that pitted a promoter against someone with money. Not much Canadian about this. Just the end of a long chess game — and Robert Friedman lost.” Counter: (a) don't diss chess here. We love chess; (b) 90 per cent of the legal work was Canadian (McCarthys and Goodmans have the cheque stubs to prove it); and (c) there is nothing more Canadian than mines in Mongolia. When they're owned by Vancouver-headquartered, TSX-listed companies, that is.
Excerpt from best pitch: This deal's “as Canadian as a beaver smothered in maple syrup.” Sold.
KEY LEGAL PLAYERS
> McCarthy Tétrault LLP Rio Tinto
> Goodmans LLP Ivanhoe Mines
> McMillan LLP Citigroup
> Osler, Hoskin & Harcourt LLP
Goldman, Sachs & Co.
9. Q9:
Ontario Teachers' Pension Plan, Providence Equity Partners and Madison Dearborn Partners LLC, and BCE Inc. buy Q9 Networks.
TIMELINE - Announced June 1, 2012.
Closed October 16, 2012.
VALUE - $1.1 billion.
Well, hello there, private-equity funds. All signs of life from you are always welcome post-2008, and in this, both the largest private-equity deal of 2012 and the largest club deal of 2012, private equity shone — partnering up with one of Canada's most powerful pension plans and the telecom company they all wanted to buy back in 2007 to buy tech company Q9. While this deal didn't quite make it up to Bay Street lawyers for the BCE LBO they didn't get to do half a decade ago (time flies!), it did manage to resolve the bitter break-fee litigation that BCE and Teachers had been embroiled in ever since that deal came apart. For many lawyers, this aspect of the deal was its most significant.
As Oslers' Emmanuel Pressman says, “The club also used the deal to creatively resolve the long-standing litigation that followed the busted BCE buyout.” Thumbs up. Everything changes when you're a member of the club as opposed to its target, don't it?
The Naysayers: You think “the LBO that wasn't” was hard on BCE, Michael Sabia and that crew? You have no idea what it's done to some Bay Street lawyers, who recoil in horror from any deal that includes BCE and Teachers. Um, unless it involves hockey. In which case, everything's forgiven. See deal below.
KEY LEGAL PLAYERS
> Osler, Hoskin & Harcourt LLP
acquiring investors group
(Ontario Teachers' Pension Plan,
BCE Inc., Providence Equity Partners LLC, Madison Dearborn Partners LLC)
> McCarthy Tétrault LLP ABRY Partners
> Goodmans LLP BMO Capital Markets Corp. on acquisition financing
> Blake, Cassels & Graydon LLP
Bell on competition
> Torys LLP Ontario Teachers
Pension Plan regarding resolution
of break fee dispute with BCE
> Norton Rose Canada LLP
Bell on certain matters related to
the settlement of the break fee dispute
> Fasken Martineau DuMoulin LLP
as Canadian counsel for Providence
Equity Partners
10. MLSE:
Rogers Communications and Bell Canada buy Maple Leaf Sports and Entertainment from Ontario Teachers' Pension Plan Board.
TIMELINE - Announced: December 9, 2011. Closed: August 22, 2012.
VALUE - $1.07 billion.
It's hockey. It's Canada. It's the Maple Leafs. It's Teachers. It's two mortal enemies coming together to do a New Economy deal ... and having to work together to “encourage” Tanenbaum to approve their play by giving him a bigger interest in the business. Yeah, Larry, here's a bigger stake, and you don't have to put any more money on the table! That's how you play the game!
“Given the iconic nature of the asset, and the blue-chip cast of characters involved ... it's understandable why this was perhaps the most ‘public' of private M&A trades in recent history,” says Stikeman's Jeffrey Singer. “This was as far from your plain vanilla process as one can imagine. Orchestrating a disciplined strategy was as challenging as any other aspect of the transaction given the parties involved.”
Insider's look: Singer was, of course, reading the papers while doing the deal. And, he says, “It was always entertaining to read or listen to the press report as to how this deal was going, who held what cards and the like; of course, while occasionally they got aspects correct, it was amazing how far off they were as to the dynamics underlying the deal at the more critical of times.”
Bonus: Not killed by the CRTC. Something for Bell to celebrate in 2012.
KEY LEGAL PLAYERS
> Blake, Cassels & Graydon LLP
Bell and Rogers on, among other things, M&A, corporate and financing matters; Bell on competition matters
> Torys LLP Bell and Rogers
regarding league matters
> Fasken Martineau DuMoulin LLP
Bell and Rogers on CRTC matters
> McCarthy Tétrault LLP
Bell and Torys LLP for Rogers
on certain shareholder matters
> Davies Ward Phillips & Vineberg LLP for Rogers on competition matters
> Stikeman Elliott LLP Ontario
Teachers' Pension Plan
> Goodmans LLP Kilmer and
Lawrence Tanenbaum, with
McMillan LLP handling tax matters
> Goodmans LLP Maple Leaf Sports
& Entertainment Ltd. with respect
to financing matters
> Bennett Jones LLP Maple Leaf Sports
& Entertainment Ltd. on competition
> McCarthy Tétrault LLP MLSE
on CRTC and corporate matters
> Heenan Blaikie LLP BCE Master
Trust Fund
HONOURABLE MENTION
Atlantic Canada
Heard of Muskrat Falls? You will. With a current projected price tag of some $7.3 billion, this energy project from Atlantic Canada was, for the vested parties, “the most complex, historical and game changing deal in Canada” in 2012, involving the second largest underground hydroelectric facility in the world.
On July 31, 2012, the Government of Nova Scotia, Newfoundland crown corporation Nalcor Energy and private energy company Emera Inc. executed a whopping 13 multi-party agreements around $1.8 billion of the massive energy project, which will see Emera get 20 per cent of the power generated from Muskrat Falls in exchange for paying for 20 per cent of the project development costs. The deal's seen by the Atlantic governments and the private company as part of the transformation of “Atlantic Canada into an energy powerhouse,” says Emera's CEO Chris Huskilson.
“It's a game changer for Atlantic Canada,” says one enthusiast. “Newfoundland and Labrador will be solidified as a powerhouse when it comes to the export of electricity – and Nova Scotia provides the route to the US too.”
The executed agreements are an important milestone on the path to project completion, but the journey of game changing events is rarely smooth. At press, Atlantic Canadian media and the provincial Oppositions were fretting that Emera could still back out of the deal, leaving Nalcor – and the Newfoundland government – footing the full bill of the project. Negotiations are expected to continue until Christmas.
If the project delivers as proponents hope, it will provide the Atlantic provinces – and their customers – with least-cost renewable power at stable rates, while providing the provinces with long-term revenue, supporting power-hungry mining and other projects, and spurring further economic development. Game changer indeed.
KEY LEGAL PLAYERS
> Cox & Palmer for Emera Inc., with Gowling Lafleur Henderson LLP for Emera Inc. on environmental and regulatory matters
> McInnes Cooper for Nalcor
> Fasken Martineau DuMoulin LLP as lead Project Finance Counsel on behalf of Nalcor Energy
HONOURABLE MENTION
The Banks
The trends of regulatory risk, activist shareholders, long gestation and geographic diversification create the context that determined which deals made it onto Lexpert's Top 10 Deals of 2012 list – contentious deals, deals fraught with regulatory risk, deals defined by
deep backstories, transactions affected by activist shareholders – and which did not.
Canada's banks, for example, had an incredibly active year. While some of them were
buying TMX, others went shopping for other assets: National Bank bought HSBC's brokerage business; Scotiabank picked up ING DIRECT Canada from its Netherland parent; RBC snagged Ally Financial's Canadian operations. For Stikeman's Simon Romano, those deals are “part of re-domestication, maybe an anti-globalization trend” in the post-2008 financial sector — in which the well positioned Canadian banks are able to capitalize on the woes of foreign banks needing to monetize or shed non-core assets.
These are important deals, right? So why aren't they on the Lexpert list? We suspect they're victims of “the extraordinarily meticulous level of M&A preparedness” bank acquirers bring to the table, as Norton Rose Canada LLP's Pete Wiazowski, the lead lawyer for ING on the Scotia/ING deal, puts it. This is how a bank deal usually plays out: it's announced, it clears it regulatory hurdles, it closes. “It's easy to consider it ho-hum because it went so smoothly,” Wiazowski concedes.
But that doesn't make it unimportant. Go, Canadian banks, go!
HONOURABLE MENTION
KGHM Polska Miedz S.A. buys Quadra FNX Mining Ltd.
While most of Europe was effectively quivering under some version of the Companies (Countries) Creditors Arrangement Act, Poland's copper miner KGHM was the buyer in Canada's largest mining deal of 2012.
Now, in contrast to 2011, things were comparatively quiet on mining front in Canada. One of the year's most notable mining deals wasn't a deal per se, but the $1-billion financing of Inmet's Cobre Panama by Franco Nevada.
Despite the large price tag, the deal unfolded smoothly — and didn't cause any regulators any angst. Its real significance probably lies in this question: is this foray by a Polish company a one-time pop or an indicator of things to come? “India and China are openly competing for access to raw materials around the globe to fuel their economies. Japan and Korea are staking claims so that they don't get shut out. Whither Europe?” asks Blakes' Andrew McLeod.
Withering, we think.
Worst pitch: “It's a Polish deal! How often are you going to see that? Na zdrowie!”
Best pitch: “Countries of the former Soviet Bloc are not on anyone's radar. No one talks about them unless it is East Germany for context in discussing a doping scandal. Yet here is Poland, buying a Canadian mining company for its international interests. And they are retaining the management team to continue running the assets. How capitalist of them.”
KEY LEGAL PLAYERS
> Davies Ward Phillips & Vineberg LLP for KGHM Polska Miedz S.A.
> Blake, Cassels & Graydon LLP for Quadra FNX Mining Ltd.
> Cassels Brock & Blackwell LLP for the Special Committee of Quadra FNX.
US and global firms with a bite of the pie: Paul, Weiss, Rifkind, Wharton & Garrison LLP, Greenberg Traurig LLP, Freshfields Bruckhaus Deringer LLP
Editor's Note: About The Process
Lexpert's Top 10 Deals of the Year list, published annually since January 2004, is unique and distinct from league tables prepared by accountants, investment banks and financial analysts, and ranked, for the most part, by size of the transaction. This list is based on an extensive canvass conducted in October and November 2012 by Marzena Czarnecka of Canadian M&A, securities and corporate finance lawyers. The criteria this year included:
> The deal must be announced between Nov. 1, 2011, and Nov. 1, 2012, and closed or expected to close early in 2012, preferably by January 2012. Transactions with particularly long gestation periods, such as the Rio Tinto/Ivanhoe or Maple/TMX sagas also qualify.
> Canadian legal content of the deal must be significant.
> Most importantly, the deal must stand for more than itself: represent a trend, illustrate some aspect of the year's economic climate, or be a portent of things to come.
> There is no minimum size or preferred structure — this list's definition of “deal” is anything Canadian lawyers worked on that they considered to be significant.
Lexpert also co-sponsors, with Deloitte, The Globe and Mail and Thomson Reuters (Markets), the Canadian Dealmaker Awards. We 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 Lexpert Top Deals.
Certain of the deals are bound to overlap, while others do not. Top Deals tends more toward “lawyers' deals” in the sense that they comprise compelling legal issues. Clients aren't nearly as interested in compelling legal issues as lawyers are.
In 2012, regulatory risk took centre stage in Canada in an unprecedented way. In 2010, when Ottawa killed BHP Billiton Ltd.'s $40-billion run at Potash Corporation of Saskatchewan, savvy lawyers did step up their focus on prepping clients for clearing Canadian regulatory hurdles — but they did so proactively. Regulatory risk was on everyone's lips, yes, but the inclination was to dismiss BHP as a blip — a one-off incident, a deal so big and unique that it was impossible to argue it set any type of precedent.
That turned out to be a Pollyanna interpretation, as 2012 proved in spades. The deal that dominated the country's business headlines in 2011 – Maple Group Acquisition Corporation's bid for TMX Group Inc. – languished before the regulators until July 2012. Later in the year, the Canadian Radio-Television & Telecommunications Commission killed BCE Inc.'s $3.38-billion bid for Astral Media Inc. Before the markets digested this announcement, Investment Canada declared that the $6-billion purchase of Calgary's Progress Energy Corp. by Malaysian state-owned enterprise PETRONAS was not of net benefit to Canada (although it was eventually approved) — and made it clear to the China National Offshore Oil Corporation (CNOOC) that the federal government's various trade treaties and professions of love for China notwithstanding, its $15.1-billion bid for Calgary-based Nexen Inc. was not going to be a regulatory cakewalk either.
“For better or worse, the Canadian government has put itself on the map,” says Torys LLP's Sharon Geraghty. “It was not that long ago that Canadian regulatory risk was a small blip on the horizon.”
In 2012, it defined the year.
Experienced buyers tackled the spectre of Canadian regulatory risk head-on. Anglo-Swiss giant Glencore International plc effectively neutralized its Investment Canada risk by structuring its acquisition of Viterra Inc. in such a way that about half of Viterra's assets stayed in Canadian hands. Ironically, it apparently didn't plan as well for the Chinese regulatory deal risk (see below for details) ... perfectly correlated, those in the know say, to the Canadian regulatory risk faced by CNOOC. CNOOC made all sorts of commitments in its Nexen bid clearly intended to reassure Investment Canada, such as keeping management in Canada, making Calgary its North American headquarters, and maintaining its TSX listing. Others – like the unfortunate PETRONAS – were caught off guard with how long it took to get its eventual approval. (Or, as some have it, they were victims of Ottawa's need to pronounce on CNOOC and draft SOE-acquisition policy before approving any other SOE deals.)
When the regulators weren't putting would-be-dealmakers through the wringer, they were pronouncing on increasingly frequent and fractious conflicts between corporations and their shareholders. From the dramatic reshaping of Canadian Pacific Railway's board and management by Pershing Square Capital Management to the ongoing fisticuffs between Telus Corporation and Mason Capital Corp., 2012 was also the year of the activist – downright uppity, really – shareholder. It wasn't just hedge funds and institutional investors that were uppity either, points out Davies partner Melanie Shisher. Vancouver-based mining company Roxgold Inc. found itself in a proxy contest launched by an individual shareholder, Oliver Lennox-King — whose challenge (with the legal weight of a Davies team behind him) was successful.
The lesson of 2012 to Corporate Canada: keep your enemies close ... and your shareholders closer.
For law firms, the year's trends highlighted that a diversified practice base was a darn good thing. As Blake, Cassels & Graydon LLP's Jeffrey Lloyd points out, “Although the number of deals was down compared to last year, the significant deals that did get done were in a relatively wide range of industries.” In contrast to 2011, when mining deals dominated the headlines and law firm books, 2012 was comparatively quiet on the mining front, making deals in the industry – like the $3.4-billion acquisition of Quadra FNX Mining Ltd. by KGHM Polska Miedź S.A. or the resolution of the Rio Tinto-Ivanhoe Mines drama – all the more noticeable.
“What's old is new again in 2012 with the return to prominence of non-resource deals,” says Davies' Peter Hong. “We have some solid pieces of the Canadian economy represented in deal activity this year.”
Calgary's oil patch wasn't on fire either, despite half a handful of mega-deals like Pembina Pipeline Corp.'s $3.16-billion acquisition of Provident Energy Ltd., the difficult PETRONAS-Progress bid, and the massive CNOOC play for Nexen. In Ontario, while pension funds, banks and other institutional “usual suspects” sent some work lawyers' way, Bay Street was pretty quiet too.
Fortunately for national law firms, Quebec Inc. was hot, hot, hot. “Between Europe's low valuations, a strong Canadian dollar and cheap capital from Canadian well-endowed pension funds and well-capitalized banks, Quebec issuers went on a buying spree,” says Stikeman Elliott LLP's Benoît Dubord. Osler Hoskin & Harcourt LLP's Robert Yalden agrees, “Quebec saw more action in 2012 than it has in some time and closed the year out having been one of the busiest parts of Canada's M&A landscape.” Deals of note included another ambitious global play by Alimentation Couche-Tard in its $2.7-billion acquisition of Norway's Statoil Fuel & Retail unit, CGI Group's $3.1-billion purchase of UK-based Logica PLC, and Gaz Metro's acquisition of Central Vermont Public Service Corporation.
Quebec also provided the country with one of its most interesting hostile bids, as Cominar REIT took Canmarc REIT in an $838.2-million contested transaction, and one of its most ... entertaining securities decisions, as Resolute Forest Products managed to buy Fibrek Inc. — at $0.40 cents a share less than the competing white knight offer. As the year drew to a close, Quebec gave Corporate Canada another example of what lengths activist shareholders would go to, as Invesco Canada Ltd., after seeing Lowe's Companies Inc.'s bid for the Quebec-based retailer wither, decided to oust Rona Inc.'s board on its own.
As the Cominar deal showcases, 2012 was also a year of the REITs. As Blakes partner William Fung points out, “The year was punctuated with several notable M&A REIT deals.” Among them Dundee REIT buying Whiterock REIT for $608 million and dropping $1.26 billion on the iconic Scotia Plaza tower, as well as the $2-billion privatization of TransGlobe Apartment REIT by PD Kanco LP and Starlight Investments Ltd. Good news for REIT lovers going forward: Fung predicts 2013 “will be just as active for REITs/REOCs as 2012, given the expectation that interest rates will remain low.”
The REIT deals were the domestic piece of the story, and the Maple/TMX was as patriotic a deal as one could get — but almost everything else of note involved foreign players. “The globalization of deals in Canada has become the new normal, with foreign buyers continuing to snap up Canadian companies and US activist investors continuing to shake things up in Canadian boardrooms,” says Hong. “Purely domestic deals now stand out, like foreign purchases did years ago.”
Finally, 2012 was the year of back stories — the year of deals that started last year, last
cycle, or last decade. Maple's acquisition of TMX had a gestation period longer than an elephant — but that was nothing compared to the length of time that Rio Tinto's been stalking Ivanhoe. The buyout of Q9 Networks was effectively a wrap-up of the 2008 would-be leveraged buyout of BCE; Glencore's Viterra acquisitions unfolded in the context of a global Glencore-Xstrata plc merger dreamed of since 2006 and capitalized on the Agrium-CF Industries “fertilizer wars” of 2009. The Resolute purchase of Fibrek is a repatriation of assets that used to be part of Abitibi-Bowater — Resolute's former name.
Plus ça change, plus c'est la même chose. Again.
1. Deal of the Year. Maple/TMX:
Maple Group Acquisitions Corp. takes TMX, CDS and Alpha.
TIMELINE - Deal with London Stock Exchange announced on February 2, 2011; Maple bid announced on May 25, 2011; last regulatory hurdles cleared by July 11, 2012; officially closed September 14, 2012.
VALUE - $3.8 billion.
Here's the deal that captured the headlines of Canadian and global business pages throughout 2011 as the poster child for the tension between the globalization and re-domestication of capital markets, and held them through more than half of 2012 as the poster child for Canadian regulatory deal risk. It permanently changed the nature – and perhaps future strategic direction – of Canada's capital markets, and transformed the TMX into a vertically integrated exchange and clearing group.
Perhaps just as significantly, it made Canada's largest banks, heftiest pension funds – with a massive insurer and Canada's largest financial co-operative group thrown in, just to make life extra-interesting – pull consistently in one direction, and maintain their 13-member club in the face of considerable regulatory hurdles. (Not to mention the constant commentary from the Street that the club was fracturing and in imminent danger of falling apart.)
Well. In what was indeed a “Miracle on Bay Street,” they did not fall apart, they turned a hostile deal friendly, they sold the story to the shareholders, they brought four securities commissions and a concerned Competition Bureau onside. And they closed.
“It is probably one of the most important deals in Canada in the last decade,” says Torys' Sharon Geraghty, who led the TMX-side Torys team, which included the magic touch of long-time senior counsel for TMX Richard Balfour. For Torys and its client the TMX, the deal started as a run-of-the-mill – not! – proposed merger of equals between the TMX and the LSE. “That was challenging enough,” says Geraghty. Then came the Maple bid. The infamous undisclosed interested third party. A proxy fight.
“If this deal was a law school exam question, you'd be rolling your eyes at it,” Geraghty says. “And then they had a proxy fight — sure, like that would happen. And then you had two other major acquisitions (Alpha and CDS) happening at the same time — sure, that's realistic. If you hadn't been in it, you would not have believed a deal could have so many facets.”
Fortunately for all concerned, TMX general counsel Sharon Pel was an experienced M&A lawyer herself — and one with a sense of humour to boot. “When some horrible new thing came up, she'd just smile and say, ‘Well, we haven't had one of those yet,'” Geraghty recalls.
The other side wasn't laughing quite as much. If the deal was tense for the TMX, it was doubly – thirteenly, actually – tense for Maple. “It was tense through the whole piece,” says Vincent Mercier, the Davies partner who led the bank-side legal team. “Even post support agreement, we had to work for it.”
Of course, pre support agreement, particularly when the TMX was still engaged to the LSE and not allowed to talk to Maple at all, they had to work for it even harder, says McCarthy Tétrault LLP's Graham Gow, who led the pension-fund-side Maple legal team. The teams prepared their first bid documentation virtually in the dark (narrowly avoiding launching an illegal takeover bid in the US, among other things) and struggled with questions from the regulators, who wanted to know exactly what a Maple-owned TMX (plus Alpha, plus CDS) would look like.
Necessity being the mother of all invention, to stay onside with US securities laws, the Maple-side lawyers developed a brand new two-step integrated transaction structure that involved a partial bid for cash for 70 per cent of the TMX shares in the first step, followed by a plan of arrangement in step two to deliver share consideration to TMX shareholders. To use the structure, they needed to secure unprecedented exemptive relief from the Canadian securities regulators, as well as no action relief from the SEC. They got it — so future dealmakers take note, you've got an extra tool in your arsenal now.
And the banks and pension funds have TMX. And are joint partners in Alpha and CDX. And, the patriotic name aside, are convinced that the business case for the transaction was worth all the regulatory heartache.
Naysayers: “Its importance is probably overblown.” Counterpoint: Really? How many national stock exchanges do we have, and how often do our banks and pension funds team up to buy them?
Award for understatement of the year: “The regulatory approval process was very difficult.” This from Vincent Mercier. Ah, yeah. Just a tad.
What you really want to know: Who called whom first, and who was really calling the shots with this whole co-counsel thing? It went like this: CIBC called Mercier at Davies first. Then the banks called the pension funds. The pension funds called McCarthys. The first job of the co-counsel wasn't very collaborative: Mercier was negotiating the banks' agenda and Gow and Gary Girvan were pushing the pension funds' agenda. But the clock was ticking, so it went sort of like this: in the morning, Davies and McCarthys would be at it hammer and tongs. (They called it “building consensus.” Ha.) In the afternoon, they'd plaster co-operative smiles on their faces and negotiate with the regulators, other stakeholders and eventually the TMX. The conflicting agendas of their stakeholders ensured that the co-counsel really were co-counsel. And that they did not waste the clients' time angling to get one in front of the other. “We both knew that if either team got silly about jockeying for positioning or anything like that, the clients would kill us,” says Gow. And yes, they're still speaking to each other.
Proof lawyers can be honest: “I'm sure the client, as much they loved us, were happy to see our infiltration of their day-to-day life come to an end,” says Geraghty. Not to mention the end of the bills. The integration efforts, of course, continue.
Fun Fact from the Prairies: And it's all thanks to the Calgary Stampede. No, really. There's TMX CEO Tom Kloet at a Calgary Stampede party in July 2011 and, across the room, he sees Scott Lawrence, CPPIB's Vice-President, Head of Relationship Investments, and CPPIB's lead business on the Maple bid. There's a view of the mountains, country music in the background, beer and beef floating around the room ... and The Conversation that, going forward, results in Kloet thinking of Maple as a potential partner and not an enemy. The Calgary Stampede. Where deals are made. Really.
KEY LEGAL PLAYERS
> Davies Ward Phillips & Vineberg LLP McCarthy Tétrault LLP Maple
> Torys LLP TMX Group
> Blake, Cassels & Graydon LLP and Davies Maple on competition
> Borden Ladner Gervais LLP
the Canadian Depository Securities Limited and Canada Pension Plan Investment Board
> Gowling Lafleur Henderson LLP Alberta Investment Management
Corporation
> Wildeboer Dellelce LLP Alpha Trading
> Cassels Brock & Blackwell LLP Alpha Trading as special competition counsel
> Fasken Martineau DuMoulin LLP
the lending syndicate to Maple
> Goodmans LLP BMO Capital Markets
and Bank of America Merrill Lynch, the joint lead financial advisors for TMX
> Bennett Jones LLP the Bank of Canada
> Stikeman Elliott LLP IIROC
US law firms with a piece of the action: Paul, Weiss, Rifkind, Wharton & Garrison LLP; Weil, Gotshal & Manges LLP, Allen & Overy LLP
2. Glencore/Viterra et al:
Glencore International plc buys Viterra Inc., with Richardson International, Agrium Inc. and CF Industries Holdings Inc. sidecars.
TIMELINE - Announced March 20, 2012.
Canadian regulatory approvals completed. Last headline: “The sole remaining regulatory approval is the approval of the Ministry of Commerce of the People's Republic of China.”
VALUE - $6.1 billion.
“Agriculture is the new mining,” says Torys' Jamie Scarlett, and in Canada, there's no deal that showcases this development better than global giant Glencore's acquisition – and simultaneous divestiture – of Viterra, all unfolding while Glencore chased its massive merger of fellow global giant Xstrata. Despite its engagement in pursuing a strategic global merger that would turn it into a company with $68-billion market cap, Glencore also went all out for little Canadian Viterra, which just 12 years ago was teetering on the edge of bankruptcy.
“Viterra's transformation from a CCAA case to a leading, focused agricultural business in 12 years was remarkable,” says Scarlett. Small wonder global-scale players took notice. And domestic ones got to benefit too.
How Glencore approached and structured the acquisition – the spectre of BHP/Potash perhaps before its eyes – was nothing short of brilliant. Even as it was negotiating with Viterra,
Glencore was talking with Agrium and Richardson about selling Viterra assets it did not yet own. In a year in which regulatory risk loomed large and Investment Canada and other regulators showed no compunction about killing deals, Glencore exhibited the sort of foresight other 2012 acquirers could have used. By effectively selling key Viterra assets to Agrium and Richardson before even bidding for Viterra, Glencore was able to sell the transaction to the regulators on the basis that a little over 50 per cent of Viterra's assets would remain in Canadian hands.
And it didn't launch the deal until knew it could successfully – pending the blessing of regulators – conclude all three deals at the same time. (The CF Industries negotiations came after its deals with Viterra, Agrium and Richardson were public.) Notably, none of the deals were contingent on any of the others closing, underscoring Glencore's confidence in its ability to reach end game.
Nicely played.
For the lawyers involved, “This was a deal involving never-ending, unexpected twists and turns, from the fast and furious auction process at the beginning of the deal, to the dynamics of dealing with a purchaser who has already pre-sold, in some cases, not once, but twice, a chunk of the target's assets, to the regulatory and political interest, it seemed like we were constantly confronted with situations that were unprecedented or very unusual,” says Torys' Patrice Walch-Watson. “That made for very interesting and challenging days, and nights, for the legal teams.”
Never mind the lawyers, though. As Stikeman's Jeffrey Singer notes, “This is a game-changer of a deal for everyone involved, which is pretty impressive given who is involved.” Glencore gets the parts of Viterra it really wants. Richards, Agrium and CF get key Canadian Viterra assets, each bolstering its slice of the domestic market. Investment Canada gets to feel good. And China gets to delay its competition approval for the deal until after Canada signed off on CNOOC.
Gotta love the irony.
The pitch that didn't work: “My managing partner said I should write to you about why this deal should be on the list. It's big.”
The pitch that did: “Who knew selling fertilizer could be so exciting?”
KEY LEGAL PLAYERS
> Bennett Jones LLP Glencore
> Torys LLP Viterra
> Blake, Cassels & Graydon LLP Agrium Inc.
> McCarthy Tétrault LLP Agrium Inc.
> Cassels Brock & Blackwell LLP CF Industries
> Stikeman Elliott LLP
Richardson International Limited
> Fasken Martineau DuMoulin LLP
the Board of Viterra
> Burnet, Duckworth & Palmer LLP AIMCo
> Felesky Flynn LLP Agrium Inc. on tax
> McCarthy Tétrault LLP
Glencore on global competition
International firms with a piece of the pie: Linklaters LLP (UK, US and China); King & Wood Mallesons (Australia); Curtis, Mallet-Prevost, Colt & Mosle LLP (US); Mourant Ozannes and Pestalozzi Attorneys at Law (Jersey); Ashurst LLP (Australia); Skadden, Arps, Slate, Meagher & Flom LLP (US); Simpson Grierson (New Zealand)
3. CNOOC/Nexen:
Chinese oil producer CNOOC Ltd. bids for Nexen Inc.
TIMELINE - Announced July 23, 2012. Investment Canada approval Dec. 7, 2012.
VALUE - $15.1 billion.
Let's make this clear: this play isn't important because of the $15.1-billion price tag. Nor because of the innate importance of the target. Nexen's a great Canadian success story — but no one in the patch or in Canada is deluded enough to think it's a Crown jewel or strategic asset. A big chunk of its assets are overseas. If the Yanks or the Aussies bid for Nexen tomorrow, it'd go to them without a murmur. If CNOOC negotiated to buy a 30-per-cent stake in Nexen, it'd be yesterday's news.
But because a state-owned enterprise from a non-democratic country wants to buy Nexen outright, and others are formally or informally in the queue, Investment Canada and the federal government got in a bind not even BHP's ill-fated bid for Potash put them in.
Canadian lawyers knew Investment Canada and Ottawa's actions taken on CNOOC/Nexen would determine the future of virtually every future resource play in Canada — played with Asian SOE money and other. As Osler's Emmanuel Pressman puts it, it's “the test case for new federal foreign investment policy.”
Don't get much more significant than that in 2012. “It's a deal that's being watched by potential investors from all over the world,” agrees Torys' Ron Deyholos. “Rightly or wrongly, it will be seen by many as a clear indicator of whether Canada is interested in foreign investment or not.” Deyholos is fresh from a China trip. “And, oh boy, are they watching. There wasn't a company or a law firm or banker that didn't ask about CNOOC/Nexen deal.”
“Approved or killed, its legacy will live on,” agrees McCarthy Tétrault's David Woollcombe.
On December 7, 2012, Investment Canada gave the deal, as well as the $6-billion acquisition of Progress Energy Resources Corp. by Malaysian-controlled PETRONAS, the green light. But the accompanying policy direction was a convoluted attempt to balance the country's desire to welcome foreign investment—and limit SOE investment, particularly over “leaders” and key assets in the Canadian economy.
A Canadian solution if ever there was one.
KEY LEGAL PLAYERS
> Stikeman Elliott LLP
China National Offshore Oil Company
> Blake, Cassels & Graydon LLP Nexen Inc.
> Burnet, Duckworth & Palmer LLP Nexen Board
> Richard A. Shaw Professional Corp. Nexen Board
> McCarthy Tétrault LLP
senior lenders to Nexen
> Osler, Hoskin & Harcourt LLP
Goldman Sachs and RBC
4. CP Rail/Pershing:
Pershing Square Capital Management battles Canadian Pacific Railway for control of board — and future of company.
TIMELINE - Started October 2011.
Officially launched January 9, 2012.
Wrapped up May 17, 2012.
VALUE - priceless (as far as business headline entertainment goes, anyway).
For Pershing, an investment of some
$1.4 billion, about a sixth its total assets
under management.
Corporate lawyers get pulled into proxy fights all the time. Well, maybe not all the time — often enough, let's say. But in 2012, the battle for control of CP initiated by William Ackman's Pershing Square elevated proxy fights to a new level. Call it “Clash of the Titans” or “near-Shakespearean drama” (nominating lawyers did both) — better yet, as Osler's Pressman does, call it “a bellwether event for Canadian shareholder activism.”
“Proxy contests are the new M&A,” says Davies' Patricia Olasker. “Historically, management under- performance, poor corporate governance or mediocre share-price performance were addressed through M&A transactions that moved assets from bad managers to good managers. Today, these issues are as likely to be resolved at the ballot box.”
When Ackman, wielding 14.2 per cent of the stock, told CP back in October 2011 that he wanted then president and CEO Fred Green gone, the Street thought he had started an unwinnable fight. By the time the shareholders spoke on May 17, 2012, he was clearly on top. “It was like a game of chess, with the Canadian business community watching every step,” says Davies' Alex Moore. “Every step along the way was studied and debated before action was taken.”
The takeaway lesson for lawyers and their corporate clients: “Nobody is immune,” says Fasken Martineau's Bill Orr. “CP had one of the most blue-chip of blue-chip boards you could have in Canada. ... If someone could go after them, they could go after just about anybody.”
Naysayers: “Not a deal!” Counterpoint: Haven't you heard? “Proxy fights are the new M&A.”
This is going to be your reality going forward, deal lawyers. So deal with it.
How to keep your corporate client safe from this: Ya can't. But if meaningful shareholder engagement's been something they've been just giving lip service to, encourage them to pay a bit more attention to it, will you? And when a US hedge fund starts buying up shares, get ready to rumble.
KEY LEGAL PLAYERS
> Davies Ward Phillips & Vineberg LLP Pershing Square Capital Management, L.P.
> Fasken Martineau DuMoulin LLP CP
5. Telus/Mason:
Telus Corp.'s attempt to collapse its voting/non-voting share structure into one class (with no compensation to the voters) and hedge fund Mason Capital Management LLC's efforts to stop it.
TIMELINE - Launched February 21, 2012. Ongoing, with Telus at press holding its ground.
VALUE - Telus is seeking to move about $9.5 billion of stock from one class to another.
In one corner: one of Canada's largest telecoms. In the other: an activist US hedge fund. Apparently at stake: Telus's desire to collapse its dual-share structure into a single class of common stock and Mason's desire to keep on making money out of the price differential between the two classes of shares. Really at stake: just how much power can an activist shareholder really wield?
“Telus/Mason is an important practical application of the ability of activist shareholders, through the power of the proxy process, to influence corporate conduct and modify behaviour in a range of corporate activity that goes beyond the traditional replacement of directors and indirectly management.”
The battle for CP's board was a strategist's dream (or nightmare). “Telus/Mason was a technician's battle waged with a wide array of legal tactics and proceedings before the courts, regulators and stock exchange,” enthuses one lawyer. Academics at every law school in the country followed it closely; the Harvard Law School Forum on Corporate Governance and Financial Regulation dedicated an entire series of papers on it. As court and regulatory reviews and decisions came in, they touched on a wide array of technical corporate and securities law, from the value of corporate control in dual-class companies in Canada to the limits of meeting requisitions and the CDS beneficial holder system. And, of course, they turned every business page reader into a de facto expert on empty voting.
At press, it looks like Telus has prevailed — but discounting activist shareholders' power to influence a company's path is a dangerous thing to do in 2012. “Telus/Mason is an important practical application of the ability of activist shareholders, through the power of the proxy process, to influence corporate conduct and modify behaviour in a range of corporate activity that goes beyond the traditional replacement of directors and indirectly management,” says Goodmans' Stephen Halperin (the firm's co-counsel to Mason on the file). And that, ultimately, is the lesson and legacy of the clash.
The naysayers: Seriously? This is not a deal. “A weak sister” to CP at best.
Why they're wrong: Yes, the technical aspects here will apply to a pretty narrow range of companies. But the real lesson here, which every Canadian public company and its lawyers need to learn, is that activist shareholders are here — and they will fight you if they don't like what you're doing.
We want to know: Does Telus know how many law firms it hired?
KEY LEGAL PLAYERS
> Osler, Hoskin & Harcourt LLP
as lead corporate solicitors
advising Telus and its Board
> Farris, Vaughan, Wills & Murphy LLP as BC counsel and litigation
counsel for Telus
> Norton Rose Canada LLP
as litigation counsel for Telus
> Skadden, Arps, Slate, Meagher & Flom LLP as US counsel for Telus
> Davies Ward Phillips & Vineberg LLP on the empty-voting policy issues
for Telus
> McCarthy Tétrault LLP Mason
> Goodmans LLP Mason
> Nathanson, Schachter & Thompson LLP as BC litigation counsel for Mason
6. Resolute/Fibrek/Mercer:
Resolute Forest Products (aka AbitibiBowater Inc.) takes Fibrek Inc.
TIMELINE - Announced Nov. 28, 2011
Closed August 1, 2012.
VALUE - $130 million.
This small but brutal hostile bid was watched with bated breath by securities lawyers from coast to coast, as the parties battled it out before the Ontario Securities Commission, the Quebec Securities Commission, the TSX, the Superior Court, and the Court of Appeal of Quebec, and tried to take their fight all the way up to the Supreme Court of Canada. Fraser Milner Casgrain LLP's Ralph Shay is still mourning the “once in a generation” opportunity the deal created for the SCC “to finally decide once and for all what directors of Canadian public companies can and cannot do to defend against hostile takeover bids.” Alas, the SCC declined to take on the challenge, and the uncertainty it left in its place is perhaps as significant to Canadian deal lawyers as the deal itself.
From a spectator's point of view, “It was a legal delight,” says one fan. From the belly of the beast, “this hostile takeover bid was among the most strategically challenging and contentious M&A transactions of the last decade,” enthuses Francis R. Legault, the Norton Rose partner who led the Resolute-side team on the transaction. The end result — Resolute's hostile offer of $1 per share prevailed over white knight Mercer's $1.40 per share offer.
The most original pitch: “For sure this belongs on the list. Gives us an excuse to talk about how dumb the Quebec regulators are. No way the result would have been the same in front of the OSC.”
KEY LEGAL PLAYERS
> Norton Rose Canada LLP
Resolute Forest Products Inc.
> Stikeman Elliott LLP
acted for Fibrek Inc.
> Davies Ward Phillips & Vineberg LLP Steelhead Partners, LLC.
> Torys LLP the locked-up shareholders (Fairfax Financial Holdings, Oakmont
Capital Inc. and Pabrai Investment Funds)
> Sangra Moller LLP Mercer
US law firm cameo: Paul, Weiss, Rifkind, Wharton & Garrison LLP
7. Cominar/Canmarc:
Cominar REIT's unsolicited takeover bid for Canmarc REIT.
TIMELINE - Hostile bid announced
November 28, 2011. Closed March 1, 2012.
VALUE - $838.2 million.
Whatever 2012 may not have been, it was clearly a year of the REITs. “2012 was definitely a very exciting year for Canada's REIT sector,” says Lavery partner Michel Servant. “The credit and capital markets environment has been very supportive of REIT financings.”
Echoes Davies' Sebastian Roy, “Between abysmal interest rates and a volatile stock market, investors have shown an insatiable appetite for REITs.” Hand-in-hand with that came REIT M&A, and grabbing centre stage among all REIT plays was Cominar's long-planned, carefully engineering hostile – and ultimately successful – run at Canmarc, which transformed Cominar into Canada's third largest REIT — and Quebec's largest commercial property owner.
The backstory starts five years ago, when the economy was on fire and Cominar, already ambitious, made a run at Alexis Nihon REIT. It lost out to Richard Homburg's Homburg Invest Inc., which would, as part of its financial struggles in 2009, spin out its real estate assets into Homburg Canada REIT, and in 2011, beset by more financial troubles and regulatory issues in Europe, change the REIT's name to Canmarc, to distance it in the public's eye from the troubled Homburg name.
Cominar CEO Michel Dallaire kept an eye on the coveted assets, and when a broker acting on behalf of Richard Homburg approached him to offer Cominar Homburg's five-per-cent stake in Canmarc, the game was on. Cominar formally approached Canmarc in November 2011 and was rebuffed, but managed to sweet-talk Canmarc off its poison pill before the fight went before the securities regulator, and after sweetening its bid, brought Canmarc onside with a friendly deal by January 16. By March 2012, the deal was sealed and Cominar had the Alexis Nihon assets it lusted after since 2006.
“2012 was definitely a very exciting year for Canada's REIT sector. The credit and
capital markets environment has been very supportive of REIT financings.”
Extra points: Smack in the middle of the takeover bid, Cominar carried out two bought-deal financings, one at $143.7 million in December 2011 when the deal was still hostile, and another at $201.2 million in February 2012 after it turned friendly. Not easy to do in the context of a hostile bid, when the markets are understandably loath to give an acquiror a blank cheque to go shopping with.
Howls from the trenches: A suggestion was made during the selection process that the trouble with this deal – with the related Starlight/Transglobe deal – was that, um, well, REITs are boring. Oops. Tongues off REITs, dear deal lawyer — “REITs ARE NOT BORING!” REIT-loving and REIT-representing lawyers screamed en masse. “Yes, admittedly, a REIT with a single property is not the most exciting thing in the world, but frankly nor is a public company when one family owns 85 per cent of the stock, and I do not care which exchange it is listed on!” hollered another. We stand corrected. REITs are not boring. In 2012, at least.
KEY LEGAL PLAYERS
> Davies Ward Phillips & Vineberg LLP Cominar
> Osler, Hoskin & Harcourt LLP Canmarc
> Fasken Martineau DuMoulin LLP
special committee of Canmarc
> Goodmans LLP
Canmarc's financial advisor, TD Securities Inc.
> Norton Rose Canada LLP
the syndicate of lenders, led by National Bank of Canada, Bank of Montreal
and Caisse centrale Desjardins
> Stewart McKelvey both REITs
on matters in the provinces
of Nova Scotia and New Brunswick
> Lavery, de Billy, L.L.P. the syndicate
of underwriters led by National Bank Financial Inc. and BMO Nesbitt Burns Inc.
in the related equity financings
8. Rio Tinto/Ivanhoe:
Rio Tinto secures controlling interest of Ivanhoe Mines and agrees to support US$7.3-billion financing plan.
TIMELINE - Backstory going back to 2006; Arbitration decision Dec 12, 2011.
Closed May 24, 2012.
VALUE - $7.3 billion as per financing plan.
With a dramatic backstory that goes back to 2006 – when global mining giant Rio Tinto first invested in Vancouver-based Ivanhoe's Oyu Tolgoi copper-gold mining project in Mongolia – the most current chapter of the Rio Tinto-Ivanhoe relationship may not be your typical M&A deal, but as far as legal heavy lifting and creativity goes, it's hard to beat.
“This was far from your run-of-the-mill M&A deal,” says McCarthy Tétrault's Shea Small, who led the Rio team. “It was a long and hard-fought battle by both sides for control.” Before it was over, it gave Canada its first successful creeping takeover in more than a decade. It included two public equity offerings that raised almost $3 billion. It involved the largest rights offering in Canadian history. Add to that the arbitration proceeding that killed Ivanhoe's shareholder-rights plan, the effective ousting of half the Ivanhoe board and its founder and then CEO Robert Friedland, the negotiations that resulted in the massive financing plan for that coveted Mongolian mine — and you've got the ingredients for a beautiful deal.
Icing: “It was successfully completed in the context of a consistently challenging
international geopolitical environment,” says Goodmans' Paul Goldman. And, when the dust settles, one of the world's largest copper/gold mines will finally go into full production.
Naysayers: “Shareholder pissing match that pitted a promoter against someone with money. Not much Canadian about this. Just the end of a long chess game — and Robert Friedman lost.” Counter: (a) don't diss chess here. We love chess; (b) 90 per cent of the legal work was Canadian (McCarthys and Goodmans have the cheque stubs to prove it); and (c) there is nothing more Canadian than mines in Mongolia. When they're owned by Vancouver-headquartered, TSX-listed companies, that is.
Excerpt from best pitch: This deal's “as Canadian as a beaver smothered in maple syrup.” Sold.
KEY LEGAL PLAYERS
> McCarthy Tétrault LLP Rio Tinto
> Goodmans LLP Ivanhoe Mines
> McMillan LLP Citigroup
> Osler, Hoskin & Harcourt LLP
Goldman, Sachs & Co.
9. Q9:
Ontario Teachers' Pension Plan, Providence Equity Partners and Madison Dearborn Partners LLC, and BCE Inc. buy Q9 Networks.
TIMELINE - Announced June 1, 2012.
Closed October 16, 2012.
VALUE - $1.1 billion.
Well, hello there, private-equity funds. All signs of life from you are always welcome post-2008, and in this, both the largest private-equity deal of 2012 and the largest club deal of 2012, private equity shone — partnering up with one of Canada's most powerful pension plans and the telecom company they all wanted to buy back in 2007 to buy tech company Q9. While this deal didn't quite make it up to Bay Street lawyers for the BCE LBO they didn't get to do half a decade ago (time flies!), it did manage to resolve the bitter break-fee litigation that BCE and Teachers had been embroiled in ever since that deal came apart. For many lawyers, this aspect of the deal was its most significant.
As Oslers' Emmanuel Pressman says, “The club also used the deal to creatively resolve the long-standing litigation that followed the busted BCE buyout.” Thumbs up. Everything changes when you're a member of the club as opposed to its target, don't it?
The Naysayers: You think “the LBO that wasn't” was hard on BCE, Michael Sabia and that crew? You have no idea what it's done to some Bay Street lawyers, who recoil in horror from any deal that includes BCE and Teachers. Um, unless it involves hockey. In which case, everything's forgiven. See deal below.
KEY LEGAL PLAYERS
> Osler, Hoskin & Harcourt LLP
acquiring investors group
(Ontario Teachers' Pension Plan,
BCE Inc., Providence Equity Partners LLC, Madison Dearborn Partners LLC)
> McCarthy Tétrault LLP ABRY Partners
> Goodmans LLP BMO Capital Markets Corp. on acquisition financing
> Blake, Cassels & Graydon LLP
Bell on competition
> Torys LLP Ontario Teachers
Pension Plan regarding resolution
of break fee dispute with BCE
> Norton Rose Canada LLP
Bell on certain matters related to
the settlement of the break fee dispute
> Fasken Martineau DuMoulin LLP
as Canadian counsel for Providence
Equity Partners
10. MLSE:
Rogers Communications and Bell Canada buy Maple Leaf Sports and Entertainment from Ontario Teachers' Pension Plan Board.
TIMELINE - Announced: December 9, 2011. Closed: August 22, 2012.
VALUE - $1.07 billion.
It's hockey. It's Canada. It's the Maple Leafs. It's Teachers. It's two mortal enemies coming together to do a New Economy deal ... and having to work together to “encourage” Tanenbaum to approve their play by giving him a bigger interest in the business. Yeah, Larry, here's a bigger stake, and you don't have to put any more money on the table! That's how you play the game!
“Given the iconic nature of the asset, and the blue-chip cast of characters involved ... it's understandable why this was perhaps the most ‘public' of private M&A trades in recent history,” says Stikeman's Jeffrey Singer. “This was as far from your plain vanilla process as one can imagine. Orchestrating a disciplined strategy was as challenging as any other aspect of the transaction given the parties involved.”
Insider's look: Singer was, of course, reading the papers while doing the deal. And, he says, “It was always entertaining to read or listen to the press report as to how this deal was going, who held what cards and the like; of course, while occasionally they got aspects correct, it was amazing how far off they were as to the dynamics underlying the deal at the more critical of times.”
Bonus: Not killed by the CRTC. Something for Bell to celebrate in 2012.
KEY LEGAL PLAYERS
> Blake, Cassels & Graydon LLP
Bell and Rogers on, among other things, M&A, corporate and financing matters; Bell on competition matters
> Torys LLP Bell and Rogers
regarding league matters
> Fasken Martineau DuMoulin LLP
Bell and Rogers on CRTC matters
> McCarthy Tétrault LLP
Bell and Torys LLP for Rogers
on certain shareholder matters
> Davies Ward Phillips & Vineberg LLP for Rogers on competition matters
> Stikeman Elliott LLP Ontario
Teachers' Pension Plan
> Goodmans LLP Kilmer and
Lawrence Tanenbaum, with
McMillan LLP handling tax matters
> Goodmans LLP Maple Leaf Sports
& Entertainment Ltd. with respect
to financing matters
> Bennett Jones LLP Maple Leaf Sports
& Entertainment Ltd. on competition
> McCarthy Tétrault LLP MLSE
on CRTC and corporate matters
> Heenan Blaikie LLP BCE Master
Trust Fund
HONOURABLE MENTION
Atlantic Canada
Heard of Muskrat Falls? You will. With a current projected price tag of some $7.3 billion, this energy project from Atlantic Canada was, for the vested parties, “the most complex, historical and game changing deal in Canada” in 2012, involving the second largest underground hydroelectric facility in the world.
On July 31, 2012, the Government of Nova Scotia, Newfoundland crown corporation Nalcor Energy and private energy company Emera Inc. executed a whopping 13 multi-party agreements around $1.8 billion of the massive energy project, which will see Emera get 20 per cent of the power generated from Muskrat Falls in exchange for paying for 20 per cent of the project development costs. The deal's seen by the Atlantic governments and the private company as part of the transformation of “Atlantic Canada into an energy powerhouse,” says Emera's CEO Chris Huskilson.
“It's a game changer for Atlantic Canada,” says one enthusiast. “Newfoundland and Labrador will be solidified as a powerhouse when it comes to the export of electricity – and Nova Scotia provides the route to the US too.”
The executed agreements are an important milestone on the path to project completion, but the journey of game changing events is rarely smooth. At press, Atlantic Canadian media and the provincial Oppositions were fretting that Emera could still back out of the deal, leaving Nalcor – and the Newfoundland government – footing the full bill of the project. Negotiations are expected to continue until Christmas.
If the project delivers as proponents hope, it will provide the Atlantic provinces – and their customers – with least-cost renewable power at stable rates, while providing the provinces with long-term revenue, supporting power-hungry mining and other projects, and spurring further economic development. Game changer indeed.
KEY LEGAL PLAYERS
> Cox & Palmer for Emera Inc., with Gowling Lafleur Henderson LLP for Emera Inc. on environmental and regulatory matters
> McInnes Cooper for Nalcor
> Fasken Martineau DuMoulin LLP as lead Project Finance Counsel on behalf of Nalcor Energy
HONOURABLE MENTION
The Banks
The trends of regulatory risk, activist shareholders, long gestation and geographic diversification create the context that determined which deals made it onto Lexpert's Top 10 Deals of 2012 list – contentious deals, deals fraught with regulatory risk, deals defined by
deep backstories, transactions affected by activist shareholders – and which did not.
Canada's banks, for example, had an incredibly active year. While some of them were
buying TMX, others went shopping for other assets: National Bank bought HSBC's brokerage business; Scotiabank picked up ING DIRECT Canada from its Netherland parent; RBC snagged Ally Financial's Canadian operations. For Stikeman's Simon Romano, those deals are “part of re-domestication, maybe an anti-globalization trend” in the post-2008 financial sector — in which the well positioned Canadian banks are able to capitalize on the woes of foreign banks needing to monetize or shed non-core assets.
These are important deals, right? So why aren't they on the Lexpert list? We suspect they're victims of “the extraordinarily meticulous level of M&A preparedness” bank acquirers bring to the table, as Norton Rose Canada LLP's Pete Wiazowski, the lead lawyer for ING on the Scotia/ING deal, puts it. This is how a bank deal usually plays out: it's announced, it clears it regulatory hurdles, it closes. “It's easy to consider it ho-hum because it went so smoothly,” Wiazowski concedes.
But that doesn't make it unimportant. Go, Canadian banks, go!
HONOURABLE MENTION
KGHM Polska Miedz S.A. buys Quadra FNX Mining Ltd.
While most of Europe was effectively quivering under some version of the Companies (Countries) Creditors Arrangement Act, Poland's copper miner KGHM was the buyer in Canada's largest mining deal of 2012.
Now, in contrast to 2011, things were comparatively quiet on mining front in Canada. One of the year's most notable mining deals wasn't a deal per se, but the $1-billion financing of Inmet's Cobre Panama by Franco Nevada.
Despite the large price tag, the deal unfolded smoothly — and didn't cause any regulators any angst. Its real significance probably lies in this question: is this foray by a Polish company a one-time pop or an indicator of things to come? “India and China are openly competing for access to raw materials around the globe to fuel their economies. Japan and Korea are staking claims so that they don't get shut out. Whither Europe?” asks Blakes' Andrew McLeod.
Withering, we think.
Worst pitch: “It's a Polish deal! How often are you going to see that? Na zdrowie!”
Best pitch: “Countries of the former Soviet Bloc are not on anyone's radar. No one talks about them unless it is East Germany for context in discussing a doping scandal. Yet here is Poland, buying a Canadian mining company for its international interests. And they are retaining the management team to continue running the assets. How capitalist of them.”
KEY LEGAL PLAYERS
> Davies Ward Phillips & Vineberg LLP for KGHM Polska Miedz S.A.
> Blake, Cassels & Graydon LLP for Quadra FNX Mining Ltd.
> Cassels Brock & Blackwell LLP for the Special Committee of Quadra FNX.
US and global firms with a bite of the pie: Paul, Weiss, Rifkind, Wharton & Garrison LLP, Greenberg Traurig LLP, Freshfields Bruckhaus Deringer LLP
Editor's Note: About The Process
Lexpert's Top 10 Deals of the Year list, published annually since January 2004, is unique and distinct from league tables prepared by accountants, investment banks and financial analysts, and ranked, for the most part, by size of the transaction. This list is based on an extensive canvass conducted in October and November 2012 by Marzena Czarnecka of Canadian M&A, securities and corporate finance lawyers. The criteria this year included:
> The deal must be announced between Nov. 1, 2011, and Nov. 1, 2012, and closed or expected to close early in 2012, preferably by January 2012. Transactions with particularly long gestation periods, such as the Rio Tinto/Ivanhoe or Maple/TMX sagas also qualify.
> Canadian legal content of the deal must be significant.
> Most importantly, the deal must stand for more than itself: represent a trend, illustrate some aspect of the year's economic climate, or be a portent of things to come.
> There is no minimum size or preferred structure — this list's definition of “deal” is anything Canadian lawyers worked on that they considered to be significant.
Lexpert also co-sponsors, with Deloitte, The Globe and Mail and Thomson Reuters (Markets), the Canadian Dealmaker Awards. We 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 Lexpert Top Deals.
Certain of the deals are bound to overlap, while others do not. Top Deals tends more toward “lawyers' deals” in the sense that they comprise compelling legal issues. Clients aren't nearly as interested in compelling legal issues as lawyers are.
