“I can’t get no satisfaction,
I can’t get no satisfaction.
‘Cause I try and I try and I try and I try.
I can’t get no, I can’t get no.”
—Rolling Stones, (I Can’t Get No) Satisfaction, May, 1965
In 2004 Canadian shareholders got sick and tired of getting “no satisfaction.” They put the boot to corporate Canada. Instead of meekly following board or management recommendations or, if dissatisfied, quietly voting with their feet, they shouted, threatened law suits, obtained injunctions and shaped—or scuttled—the year’s largest and most interesting corporate transactions.
“We’re seeing an increased willingness on the part of institutional shareholders to steer deals,” says Stephen Halperin, co-chair of the corporate/securities practice group at Toronto-based Goodmans. And, one might add, to fight their battles in the media and in the courts.
Over the course of 2004 institutional shareholders blocked a move to take Magna Entertainment private. They publicly fought management and the board on the Molson/Coors merger. They played a prominent role in the Conrad Black shoving match at Hollinger. They tried to force Manitoba Telecom Services (MTS) to convert into an income trust. Some sued when MTS pursued other options. They voted down the board approved merger between IAMGOLD Corporation and Wheaton River Minerals, and some sued over the timing of the shareholders’ meeting. They launched proxy battles to change the make-up of boards. At Dimethaid Research Inc., they successfully ousted the board and CEO.
More often than not, they have been successful in getting what they wanted. The end result is that some of the most interesting transactions of 2004 were the deals that didn’t get done. Or deals that may not get done. 2004 has driven home the message, as Francis Allen, a senior corporate partner at Borden Ladner Gervais (BLG) in Toronto, puts it, that “announced deals don’t necessarily amount to done deals.”
While dissenting shareholders have proven to be the most dramatic wildcard of the year, clearing the Competition Bureau hurdle became the most time-consuming obstacle. With corporate consolidation in several sectors proceeding at breakneck pace, several of this year’s deals looked like they would never complete the competition review process. Indeed, by the time the TELUS takeover of Microcell got the green light, Microcell’s dance partner had changed to Rogers. And, at press time, West Fraser Timber’s acquisition of Weldwood of Canada, announced in July, is still winding its way through the Bureau.
Cutting across the rise of aggressive shareholder activism, and the increased complexity and importance of competition issues, is the global background against which Canadian deals take place. Deals that could convincingly cry out “I AM.Canadian!”—a la the now inapplicable Molson Canadian ads—were few and far between. Molson, involved in the highest profile cross-border merger of the year, certainly could not do so.
Even domestic consolidation, be it in forestry, oil and gas, telecommunications or mining, is but the precursor or in response to global consolidation. The proposed domestic merger between IAMGOLD and Wheaton River quickly escalated into attempts at continental and international mergers. IAMGOLD’s ultimate fate may be determined by negotiations between two South African companies. The self-imposed need for Molson and Coors to get to the altar is fuelled, in part, by the merger of Belgium’s Interbrew SA and Brazil’s American Beverage Company.
The corporate restructurings that spilled over from 2003—most notably Air Canada and Stelco—continued to drive home the importance of global interdependence. Air Canada was bailed out primarily by US and European investors. Stelco may find itself acquired by Russian steel giant OAO Severstal before it emerges from CCAA protection (US and Canadian bids are also in play at press).
The Top 10 Corporate Deals of 2004, selected after lengthy discussions with over 50 leading corporate lawyers across Canada, reflect, in various configurations, the three themes (shareholder activism, global corporate consolidation, global interdependence) noted above. In making this list, sheer monetary value is not determinative. The transactions had to be sizable and noteworthy. The latter criteria refers to the themes noted above, plus important corporate/legal tactics and innovative legal or financing structures. Thus, the $3.2 billion Petro-Canada sell-off did not make the list. Nor the $2.7 billion EnCana acquisition of Tom Brown. Our list includes transactions that did not get done, as well as deals that may not get done.
THE DEALS
1. Anticipation Factor. Rogers Collars Fido. On September 8, 2004, Robert McFarlane, chief financial officer of Calgary/Vancouver-based TELUS Corp., dismissed the possibility that Toronto-based Rogers Communications Inc. would take a run at Microcell. “I don’t think it affects our thinking very much,” he told the national press. At that point, the $1.1 billion bid by TELUS for Montreal-based Microcell had been on the table for 118 days and counting. No other suitors for Fido, the brand name under which Microcell’s cell phone service is marketed, had surfaced.
Microcell, while less than thrilled with the dollar value of the bid, was cooperative-inviting TELUS into its data room. After all, its management and board—along with everyone on the Street—knew, as Brian Levitt, co-chair of Osler, Hoskin & Harcourt, concluded: “Microcell had to be put out of its misery.” Plus, it seemed that Rogers had other things on its mind—like intense negotiations with AT&T Wireless over the latter’s minority stake in Rogers Wireless. The only other potential contender, Bell Canada, wasn’t in the picture.
“No, we didn’t think we had it in the bag,” laughs Clay Horner, a senior corporate partner at Oslers in Toronto. Horner represented TELUS throughout its hostile bid for Microcell. “Any of Rogers, TELUS, or Bell could have been the buyer.” That being said, TELUS certainly didn’t expect Rogers, after watching from the sidelines for almost five months, to outmaneuver it within one week.
By September 14, Rogers had shelled out almost $1.8 billion to AT&T Wireless for the minority holding in Rogers Wireless, disentangling itself in the process from a shareholder’s agreement that would have precluded making a deal with another wireless company, such as Microcell. Two days later, Rogers was filing the paperwork with the Competition Bureau—which was still reviewing the TELUS/Microcell deal. Two days after that Rogers and Microcell signed a $1.4 billion deal. The lawyers for both parties—Fasken Martineau DuMoulin (Rogers) and Stikeman Elliott (Microcell), respectively—had, according to Jonathan Levin at Faskens, “worked very intensively and with very little sleep over the 18th and 19th to negotiate and draft the documents.”
TELUS extended its offer but didn’t raise it. By the time the Competition Bureau cleared the Rogers/Microcell transaction on November 2, TELUS had ceded the field to Rogers Wireless. Overnight—or, as the lawyers like to put it, within 48 hours—Rogers became the largest wireless carrier in Canada, as well as the one carrier operating on the global system for mobile communication (GSM), a distinction it had previously shared with Microcell.
The deal’s size, at $1.4 billion, is modest even for 2004. And it’s not the relentless march towards domestic telecom consolidation that sets this deal apart. According to the corporate cognoscenti, what makes this deal the #1 deal for 2004 is the “anticipation factor.” Pundits argue that the play for Microcell is a harbinger of things to come: international consolidation. The GSM technology plays a key role here. Excepting Microcell, all of Rogers’ domestic competitors use the older CDMA (code division multiple access) system. GSM is the dominant system in Europe and it is poised to become the world standard. In the short term this means lucrative roaming charges for Rogers from international GSM users in Canada. In the long term, well, come international mergers, guess who’ll have an edge over the Canadian CDMA telco? It won’t be next year or the year after that, but it will come. Why was TELUS interested in acquiring a competitor with incompatible technology? Governments and regulators be damned, the telcos are clearing the deck.
That the acquisition of Microcell is part of a large game plan is clear when placed within the context of Rogers’ other activities in 2004. Given Microcell was its only domestic GSM competitor, Rogers was likely eyeing it long before Microcell ended up on the chopping block. That Microcell knew Rogers was the likeliest buyer is also evident; word on the Street has it that Microcell turned to Rogers the day after TELUS launched its hostile bid.
Of course, there was no way Rogers and Microcell could officially talk while Rogers was tied up with AT&T and governed by a shareholder’s agreement that prevented Rogers from making a deal with another wireless provider. Unofficially, well…let’s just say it’s a testament to corporate determination that after doing nothing with TELUS for five months, Microcell did everything with Rogers in two days. Even if TELUS suspected nothing, AT&T Wireless likely did, giving rise to an improbable situation, hypothetically, where Rogers would pay significantly more for an asset AT&T really didn’t want.
“It was an extremely exciting deal,” says Sidney Horn, who led the Stikeman Elliott team for Microcell. Its most challenging aspect, according to Horn, was…doing nothing. “It was a situation where, as a legal advisor, the best advice you could give your client is don’t do anything. Wait. There was a lot of pressure on the client and the advisors to make decisions where, over the long period of time, the best decision was to do nothing, just expose the company to the marketplace. To not do anything when facing that pressure is a real challenge for the board, management and advisors.”
Fortunately for Horn, he was right. After five months of doing nothing, Microcell was able to close the deal it wanted with Rogers. In 48 hours. Lawyers on all three sides emphasize the prominent role in-house corporate counsel played throughout both stages (TELUS/Microcell and then Rogers/TELUS/Microcell) of the transaction. According to Horner, Audrey Ho, general counsel at TELUS, “took a leadership role in integrating the legal component of the transaction with the business and legal analysis being undertaken at TELUS.” Sidney Horn credits Jocelyn Côté, vice-president legal affairs at Microcell, with “ensuring sound decision-making by senior management and the board of directors.” And the breakneck speed with which the Rogers/Microcell leg of the transaction proceeded was greatly facilitated, says Levin, by the contributions of David Miller, general counsel at Rogers, and Associate General Counsel Graeme McPhail.
It will take a few years to see if the Rogers gambit pays off. In the meantime, collaring Fido leaves it with fewer competitors, a Canadian monopoly on GSM, and a sense of accomplishment that it got the deal done in 48 hours. Officially.
Fun fact: Faskens was acting for AT&T Wireless on the sale of its interest in Rogers Wireless to Rogers. After closing that deal the firm was immediately back onside with its long-time client Rogers to snap up Microcell.
Canadian, eh? Five out of five maple leafs. A fight for a Canadian company by two Canadian companies, financed with Canadian money, and worked on by Canadian lawyers, preceded by a buy-back of a US interest in Rogers Wireless. But then, Rogers isn’t growing by leaps and bounds just to be on the top of the Canadian telecom heap, is it? The GSM technology it’s using, unique in Canada, but prevalent throughout Europe and the US, is positioning it for the next inevitable step, well ahead of industry regulators and governments.
2. Beer Wars. The Molson/Coors merger started off innocently enough with a July 22nd announcement of a “merger of equals” between Canada’s largest brewer and the third-largest US brewer to form the $6 billion Molson Coors Brewing Company. The move by the two family-controlled breweries was not surprising. The industry is consolidating worldwide. The August merger between Belgium’s Interbrew and Brazil’s Ambev created the world’s largest brewer, changing in the process, ownership of Canada’s second-largest brewer, Labatt Brewing Company.
With management, both boards, and the family-controlled principal shareholders of both companies firmly behind the deal, both Peter H. Coors, chairman of Coors, and Eric Molson, chairman of Molson, didn’t anticipate—at least in public—any serious obstacles. (The Competition Bureau, for one, just waved them on through.)
Boy, was Eric wrong. Molson shareholders had reservations about the deal from the onset (what, exactly, were they (the shareholders) going to get for the “US$175 million in synergies identified” and let me spell “premium” for you). Even members of the Molson family were exploring other options. Ian Molson, in conjunction with Onex Corp. and London-based SABMiller PLC, were among those said to be considering taking a run.
But, it was when Molson shareholders read the preliminary proxy statement Coors filed with the SEC that it looked like the merger really might tank—$75 million breakup fee notwithstanding. At issue were millions in payouts to management and the right of Molson option holders—in other words executives, directors and employees who didn’t necessarily own Molson shares—to vote on the merger.
Shareholders went apoplectic. First out of the block was the Ontario Teachers Pension Plan. Following close behind was Montreal-based Jarislowsky Fraser Ltd. Both threatened legal action to prevent option holders from voting on the merger. Caisse de dépôt et placement du Québec and the Canada Pension Plan Investment Board, in no uncertain terms, voiced their strong objections.
By mid-October, Molson backpedaled on both issues, nixing the multimillion dollar change of control payments to Eric Molson and other executives and the plan to allow option holders to vote on the merger. In early November, Molson and Coors “found” an extra $318 million to “sweeten the bid” for Molson shareholders. The Eric Molson-controlled Pentland Securities (1981) Inc. shares were “voluntarily” excluded from the premium.
Molson and Coors shareholders are to vote on the proposed merger on December 13. Clay Horner is of the view that “Absent another dramatic development, the deal will get done.” Horner leads the Oslers team for Coors on the Canadian side of the transaction. Garth Girvan, a senior corporate partner at McCarthy Tétrault in Toronto, leads the team for Molson, a long-time firm client.
Fun fact: Coors has historically used Torys as its Canadian counsel. But, after the general counsel at Coors flipped the deal to New York-based Simpson Thacher & Bartlett, dropping Kirkland & Ellis who had initially been retained, Simpson Thacher then recommended Oslers as Canadian counsel. Oslers happily accepted, and just in time. At press time, the word was that Simpson Thacher is “out of favour” at Coors (although still on the file), with Kirkland & Ellis again driving the bus. “Who knows,” quips one Toronto corporate, “maybe Torys will get to do the deal before it’s all over.”
Canadian, eh? The deal is creating piles of work for Canadian lawyers and untold grist for the media mill. And it’s about beer—a topic close to the hearts of many Canadians. But all that “merger of equals” rhetoric aside, Molson Coors Brewing Company will inevitably become a US directed company and, as the brewing industry continues to consolidate, a global company. Whither Seagrams, whither Molsons.
3. IAMGOLD. Great Expectations. As Molson/Coors dominated the last quarter of 2004, the attempted merger between IAMGOLD and Wheaton River dominated the otherwise quiet midpoint of the year. “It was a soap opera,” quips Mitch Gropper, Q.C., a senior corporate partner at Farris in Vancouver. Farris acted for the Wheaton River Special Committee of Directors.
Like Molson/Coors, IAMGOLD/Wheaton River was supposed to be a friendly and quick merger between two companies anticipating global consolidation within their sector. The $2.9 billion deal would have made the new company one of the top 10 gold producers in the world. But the deal started to unravel even before the parties completed their due diligence.
First came the unsolicited bid for IAMGOLD from Colorado-based Golden Star Resources. Turned down by IAMGOLD’s Board of Directors, Golden Star successfully sued to delay the meeting that would have seen shareholders vote on the IAMGOLD/Wheaton River merger. Five institutional shareholders (Mackenzie Financial, AGF, Sprott Asset Management, John A. Levin & Co., Inc., Pollitt & Co.) did likewise.
Joining the fray, Idaho-based Coeur d’Alene Mines Corporation then bid for Wheaton River. Similarly turned down by Wheaton River’s Board, Coeur d’Alene publicly vented its dissatisfaction, claiming the Ontario Teachers Pension Plan and other key shareholders would vote against the Wheaton River/IAMGOLD merger. When Wheaton River held its meeting, despite the IAMGOLD/Golden Star litigation, at least one of its institutional investors, Fidelity Canada, expressed concerns that it was not treated fairly at the meeting and commenced legal proceedings. Wheaton River quickly announced it would hold another meeting and another vote. Meanwhile, IAMGOLD held its meeting first and shareholders rejected the Wheaton River merger.
Wheaton River continued to fend off Coeur d’Alene, Golden Star continued amending and extending its offer for IAMGOLD, and IAMGOLD hoped a better suitor would come along. In August South African gold producer Gold Fields Ltd. stepped forward. The combination of Gold Fields and IAMGOLD would create Gold Fields International Limited, the world’s seventh-largest gold producer. Before anyone had a chance to vote on the deal (or sue to have the vote delayed), South African-based Harmony Gold Mining Company Limited launched a hostile bid for Gold Fields, specifying its bid was contingent on Gold Fields not proceeding with the IAMGOLD acquisition.
The third time is not the charm. At press time, Gold Fields’ proposed merger with IAMGOLD was dashed when 48.2 per cent of Gold Fields shareholders voted for the deal at the meeting in Johannesburg. The proposal required at least 50 per cent carry to pass.
Talk about getting no satisfaction.
Not to be outdone, Toronto-based Goldcorp Inc. announced a friendly, all-stock $2.44 billion bid for Wheaton. Friendly? That’s how it started with IAMGOLD.
Apart from the histrionics, the bids and litigation swirling around IAMGOLD are significant because, as Jeffrey Barnes notes, “It shows mining is definitely back.” Barnes is a senior corporate partner at Fraser Milner Casgrain in Toronto. Fraser Milner is representing IAMGOLD. As Barnes points out, the latest leg of this transaction is the most interesting one. “It represents significant interest in a Canadian company from a truly global participant.”
Canadian, eh? When a hostile bid by one South African company for another South African company threatens to scuttle a Canadian company’s proposed merger, you know you’re not in Kansas anymore.
4. The Mother of All Restructurings. Air Canada entered CCAA on April Fool’s Day, 2003, and thereafter provided many major law firms with gainful employment throughout 2003 and 2004. Air Canada’s early claims that it was going to come out of CCAA by the end of the year proved wildly optimistic, as did the revised claim that recovery would be accomplished in the first quarter of 2004. The restructuring took up nine months of 2004, punctuated by the departure of Chief Restructuring Officer (CRO) Calin Rovinescu, which, of course, was preceded by the exit of Air Canada’s would-be saviour, Victor Li, and the $650 million Trinity Time Investments Ltd. would have pumped into the carrier.
Was the restructuring in jeopardy? Hardly. Unions cheered, saying they looked forward to being more cooperative with a new CRO (ouch), and Air Canada did not have to look far for a new sponsor. Cerberus Capital Management and Deutsche Bank jointly poured $1.1 billion into the airline and effectively got the concessions unions were unwilling to give to Li and Trinity. (Remember those $21 million “retention” bonuses for Rovinescu and CEO Robert Milton? The unions sure did.)
Cerberus, of course, had wanted a stake in Air Canada from the get-go. It didn’t stop trying even after the Air Canada Board went with the Trinity proposal. (“These guys don’t stop and they don’t lose,” says one lawyer close to the transaction.) The second Li walked, Cerberus was back in the game. In fact, overnight it went from being an unwanted suitor to our “best friend.” “We’re the bad guy who now is their best friend,” laughs Norman Steinberg, a senior corporate lawyer in the Montreal office of Ogilvy Renault. Steinberg’s firm represented Cerberus throughout Air Canada’s misadventure.
“It was a tremendous file for 2004, and Air Canada will hopefully be a good client for 2005,” says William Braithwaite, a senior corporate partner in the Toronto office of Stikeman Elliott. The legal team at Stikemans, led by Marvin Yontef and Sean Dunphy, steered the airline through the restructuring. The number of corporate and financial players (voluntary and involuntary) in the $12 billion makeover ensured virtually every major Canadian law firm a place at the table.
“The bar collectively throughout Canada is going to suffer a loss of income because this restructuring is done,” quips Sylvain Cossette, a corporate practitioner with Davies Ward Phillips & Vineberg in Montreal. Cossette led the Davies Ward team for Deutsche Bank.
The good news is it’ll probably take more than one operation to save this patient. The pundits say it’s not over yet.
Big winners: Obviously Stikeman Elliott walked away with the largest chunk of the legal change, but a number of other law firms have no cause for complaint. In the “Navigating Conflicts” category, the big winner is unquestionably Oslers, representing GE, Onex, Trinity Time and the Greater Toronto Airport Authority. (Stikeman Elliott should be taking notes.) Bringing up the rear among the Seven Sisters, in the “Boy, have we bet on the wrong horse” category is Goodmans, which had several clients…all, unfortunately, with unsuccessful equity proposals.
Canadian, eh? Well, it is the national carrier and, legally speaking, virtually all the work is in Canadian hands. But the money (and therefore the power) is global, as is the aviation industry… however much Air Canada likes to blame its woes on small domestic competitors.
5. Income Trust This, Will You? It started with the bright idea to turn a telecom into an income trust, aggressively pushed by several institutional shareholders. They tried and they tried, and they were convinced that Manitoba Telecom Services (MTS) had actually promised to convert itself into an income trust. And then what does the telco do? Transforms itself into Canada’s third largest telecommunications company by dropping $1.7 billion on Allstream (the restructured and parent-free AT&T Canada).
In 2004 shareholders weren’t going to take this sort of initiative lying down. Enterprise Capital Management, which owns about 5 per cent of MTS, asked the TSX to force MTS shareholders vote on the acquisition. Highfields Capital Management, one of the largest MTS shareholders, publicly called the Allstream transaction “a thinly veiled charade to satisfy the wishes of an entrenching management over the interests and wishes of a majority of the shareholders.” Highfields suggested that “the only parties supporting the proposed transaction are the managements of MTS and Allstream and their investment bankers promoting the transaction in exchange for large success fees.”
Next came the “marital dispute that should perhaps be heard in family court,” as Ontario Superior Court Justice Peter Cumming referred to the subsequent litigation between MTS and Bell Canada. Even more dissatisfied with the Allstream acquisition than Enterprise and Highfields, Bell, which owned 20 per cent of MTS, sought a court injunction to block the deal claiming it violated a 1999 agreement between Bell and MTS. Before it was all over, the file involved, amongst others, lawyers from Torys and Aikins, MacAulay & Thorvaldson on side for MTS; Stikeman Elliott and then BLG, McMillan Binch, and Cravath, Swaine & Moore for Allstream; Davies Ward for Bell; and Oslers for Highfields.
“It was just bizarre,” says Brian Levitt at Oslers. In the end MTS persevered and the shareholders settled down to watch, for a while at least. According to Levitt, “The impact of that transaction will take two to three years to play out.” In the meantime, in the year in which dissenting shareholders just about had it all their own way, chalk this one up for management and the board.
Canadian, eh? Income trusts are as Canadian as maple syrup, and so, of course, are the telecoms, although Allstream, nominally, is a former Canadian subsidiary of a US company. But who really owns them? Enterprise hails from Atlanta and Highfields from Boston. Money knows no borders.
6. Jean Coutu Enters the Big Leagues. Just as the Internet pharmacy controversy between Canada and the US reached its peak, Quebec-based Jean Coutu Group added 1,539 US drug stores to its existing 332 Brooks Pharmacies in the US and 320 Canadian outlets to become the fourth largest drugstore chain in North America. “It was a transformative deal for them,” says Sidney Horn at Stikeman Elliott. Horn’s assessment surely wins the massive understatement of the year award. The acquisition almost quadrupled the size of Coutu. Although the headquarters remain firmly in Quebec, the deal transformed what was in 1969 a one-shop operation into a major North American player.
It’s an ambitious and risky move—JC Penney Company Inc. sold Eckerd to Coutu because the stores were underperforming. The acquisition saddled Jean Coutu with an unaccustomed level of debt. But Coutu is one of that growing number of Quebec companies—including retailer Couche Tarde which acquired the Circle K chain last year, and CGI Group Inc. which purchased American Management Systems—intent on becoming part of the global (or at least continental) economy, and doing so while remaining in the driver’s seat.
“We’re seeing a number of deals going southbound because the stars are lining up,” comments Sylvain Cossette, a corporate partner in the Montreal office of Davies Ward. “Interest rates are still low, the Canadian dollar is high, and this is helpful to Canadian companies making acquisitions in the US.”
Canadian, eh? Cross-border deals inevitably raise important long-term issues, irrespective of whether the acquiring company is Canadian or US-based. Yvon Martineau, long-standing Jean Coutu counsel at Faskens, quarterbacked the transaction and retained the US counterpart. Stikeman Elliott and McCarthys got in on the financing. But, in what was for it a divestiture of US assets, JC Penney didn’t bother with Canadian counsel. With the majority of its holdings now in the US, it is inevitable that more and more of Coutu’s legal work—as well as other issues—will be US driven.
7. Déjà vu: Bain snaps up SuperPages. When Verizon Communications announced it was selling SuperPages a dozen suitors immediately queued, including rival Yellow Pages Group. Nevertheless, it was no surprise that the spoils went to Bain Capital. We’ve seen this before. Kohlberg Kravis Roberts & Co. partnered with Ontario Teachers and bought Yellow Pages in 2002. Then, within a year, turned it into an income fund and then exited by means of an immensely successful, oversubscribed $1.5 billion IPO.
The same thing happened in the US with Carlyle Group and Welsh, Carson, Anderson & Stowe buying Dex Media from Qwest Communications International Inc., then taking Dex public. If the modus operandi holds, Bain’s already working on their exit strategy. They were probably working on it before they opened negotiations with Verizon.
As Jay Swartz, a senior corporate partner at Davies Ward in Toronto points out, “The SuperPages transaction is very much illustrative of a trend, in which large private equity pools purchase these assets with a view to exiting quickly.” A Davies Ward team, led by Timothy Moran, represented Bain in the transaction.
Fun fact: TELUS Corp. sold SuperPages to Verizon three years ago for US$520 million. Verizon sold SuperPages to Bain for US$1.985 billion. Not bad.
Canadian, eh? Bain is based in Boston. Verizon is a US-based international company. SuperPages is a Canadian asset. So, technically it’s a Canadian deal. Plus, the big winner legal work–wise was Davies Ward, who will probably get to drive the bus on the income fund conversion and IPO that are bound to follow.
8. Income Trusts. The Next Generation. Progress Energy Ltd. and Cequel Energy Inc. merged and then converted into the $1.14 billion Progress Energy Trust. The three stage transaction (see below) was a welcome sign to oil patch lawyers, subsisting as they were on a long diet of trust conversions, that the trusts were developing more creative—and remunerative—approaches to packaging the aging assets of the Western Canadian Sedimentary Basin (WCSB).
As explained by Robert Engbloom, a senior corporate partner with Macleod Dixon in Calgary, the deal is special not just because it was the largest trust conversion of the year, but because it was “the first of its kind” for a sector where trusts are usually created from scratch, from one company’s assets or the conversion of a single producer. The Progress deal comprised a merger between Progress and Cequel, followed by a conversion of the merged entity into a trust, followed by a spin-off of two junior exploration companies, ProEx and Cyries.
Grant Zawalsky, a well-known corporate partner with Calgary-based Burnet, Duckworth & Palmer (BD&P), agrees with Engbloom as to the importance of the Progress deal. “If Calgary had a deal of the year, Progress was it.” BD&P represented Progress Energy. A Macleod Dixon team was on for Cequel.
Progress Energy has real significance for an industry in which the intermediate companies have been largely replaced by income trusts and in which more and more juniors are considering the trust option. “We’re seeing a shift of royalty trusts from just being a harvester of existing assets to a more sustainable model,” explains Engbloom. “Progress is an example of that.”
That the trusts are “coming of age” is also evident in transactions like the $500 million acquisition by Petrofund Energy Trust of Ultima Energy Trust, represented by BD&P and Bennett Jones respectively, and the $2.5 billion reclassification of Pengrowth Energy Trust’s trust units.
As explained by Perry Spitznagel, a senior corporate partner with Bennett Jones, “The Pengrowth reorganization is the first transaction to implement a solution to the non-resident ownership problems of income trusts. There’s going to be 10 or 15 of these coming down the pipe.” Likewise, the Petrofund/Ultima and Progress/Cequel mergers have set the stage for more of the same for 2005.
Fun fact: In 2004 income trusts officially came of age with Enerplus Resources Fund, the oil patch’s first trust, celebrating its 18th birthday. Enerplus was launched as a $9 million oil and gas income fund. Today its market value of $3.4 billion makes Enerplus Canada’s largest conventional oil and gas trust.
Canadian, eh? As Canadian as toques and beavers.
9. Patient Money. If you’ve never heard of OPTI Canada Inc., you’re not alone. Even in the oil patch Calgary-based OPTI is not a household name. But it soon will be. In 2001, OPTI entered into a 50/50 joint venture with Nexen Inc. to develop the oil sands at Long Lake. With the low hanging fruit in the WCSB long-gone, exploiting the oil sands is increasingly critical to the future of the oil and gas sector. Problem is, oil sands development is extremely expensive and comes with long time horizons. The Long Lake Project, expected to be the fourth largest oil sands project in the Athabasca region, carries with it a $3.4 billion price tag.
But this is old news, as is, to a certain extent, OPTI’s patented OrCrude™ technology, which is expected to deliver to Long Lake partners a $4 to $7 per barrel cost advantage over competitors. What put OPTI on the map is how it raised its share of that $3.4 billion price tag: $701 million through what is likely the largest private equity placement ever completed by a startup company in the Canadian oil and gas sector, $301 million through an IPO, and $800 million through a limited recourse project debt facility.
“It was quite remarkable to see the financial commitment to this project,” says Robert Engbloom, “particularly considering the company won’t produce anything for a few years yet. It shows the appetite there is for the tar sands right now.”
“The financing for this project came from all across the country,” notes David Smith, a senior corporate partner with Lawson Lundell which acted for BCIMC, one of the parties to the transaction. “It’s fairly dramatic in terms of the amount of capital raised in a relatively short period of time.”
Canadian, eh? Most of the money came from Canadian players such as TD Securities Inc., Scotia Capital Inc., and RBC Capital Markets. Both JV partners are headquartered in Calgary. Of course the Calgary-based OPTI was founded by the Israel-based ORMAT Group of Companies, a unit of which continues to own about 34.76 per cent of the company. Another 11.97 per cent is held by Boston’s Wellington Management. So, Canadian? Adequately so.
10. Repatriating Paper. “The forests have been busy this year,” notes Mitch Gropper at Farris. Indeed, it has been a year of unprecedented consolidation. In April Canfor Corp. completed a $630 million buy-out of Slocan Forest Products. After a heated battle, hostile bidder Tolko Industries finally acquired Riverside Forest Products for $387 million in November. Smaller deals included Riverside’s earlier acquisition of Lignum Inc. and Vancouver’s International Forest Products purchase of three Washington state mills from Crown Pacific Partners.
Dwarfing all of these transactions in size, if not drama (the battle for Riverside, like most hostile takeovers, takes first prize here), is West Fraser Timber’s proposed $1.26 billion purchase of Weldwood of Canada from International Paper.
“It’s by far the largest forestry transaction in years,” says Neil de Gelder, a leading corporate partner with the Vancouver office of Borden Ladner Gervais. “Its sheer size makes it notable in an industry not noted for recent transactions of this magnitude.” And, he adds, “It involves the repatriation of Weldwood to a Canadian company.”
If successful, the transaction will make West Fraser the third largest lumber producer in North America. The cloud on the horizon is not, as in so many other deals this year, a gaggle of dissatisfied shareholders. It is the Competition Bureau. The acquisition, announced in July, has not (at our press time) been given the green light from the Bureau. Given the Bureau’s review of the smaller Canfor/Slocan merger, it may be that West Fraser will have to divest some of its BC assets.
Canadian, eh? The five month (and counting) Competition Bureau review alone makes this deal as Canadian as the takeover of Microcell, International Paper notwithstanding. And the Toronto office of Blake, Cassels & Graydon is driving the bus for International Paper without US counsel riding piggyback.
ANALYSIS: Year of Dissent
This is the way it used to work—as Stephen Halperin at Goodmans points out—if institutional shareholders weren’t getting satisfaction or “didn’t like the direction a company was taking, they usually voted with their feet. Shareholders used to be quiet. They weren’t prepared to get involved.” No more. In 2004 shareholders, particularly institutional shareholders like the Canadian pension plans and US private equity made their presence felt, sending the boards and management of MTS, IAMGOLD, Wheaton River and, above all, Molson, running for cover.
So, what happened? In one word: Enron. The anger and threats of legal action that erupted when Molson shareholders found out that (a) option holders would vote on the proposed merger with Coors and (b) just how many millions Molson executives would pocket as a result of the transaction had its seeds in the corporate scandals that brought down Enron, Worldcom, Tyco, and Adelphi.
As Peter Jewett, a senior corporate lawyer at Torys, points out, it is important to note that if the Molson/Coors merger had been on the table five years ago “the plan to have option holders vote would have gone by without much notice.” Sylvain Cossette at Davies Ward in Montreal, whose firm represents Eric and Stephen Molson in the transaction, agrees. “There was nothing technically wrong with it. But, in 2004 we are living in a world of shareholder activism.”
Whether the Molson/Coors merger is consummated or not, it will effect future deals for years to come. Says Clay Horner, “For future deals people will be very careful what arrangements they make for executives, and they will consider very carefully how option holders are treated.” In other words, as option holders, not as shareholders.
Shareholder activism in the M&A arena, says Jewett, is an extension of increased shareholder activism generally. “They are more active as shareholders,” he explains. “They are sick and tired of some of the stuff that’s been happening.”
Like executives enjoying handsome profits while shareholders don’t. Coupling the option holder plan with lucrative compensation packages for Molson executives, while denying shareholders a premium, was a two-step guaranteed to generate an immediate confrontation. Says Jewett: “The compensation area is a lightning rod. Shareholders are very tired of seeing executives walk away with large compensation packages even when companies have not done well.” Halperin agrees—in part. “The activism is partly a spill-over from the corporate governance movement. But other factors are at play as well.
If post-Enron corporate governance provides the current rationale for the newfound activism of Canadian institutional shareholders, the aggressive tactics have been imported from US investment players and private equity pools who aren’t in the game to line the pockets of executives. The Canadian players, suggests Halperin, may be taking their lead from this class of investors, who have been shaping the future of the companies long before Enron. As Norm Steinberg at Ogilvy Renault puts it, “You’ve seen CALPERS be interventionist for a million years.”
It seems the Canadians have learned well, although US investors are still frequently first out of the gate. Such was the case at MTS, where Boston-based Highfields and Atlanta-based Enterprise exerted the most pressure prior to the Allstream acquisition. Similarly, and more successfully, it was New York-based Greenlight Capital who fought back against the privatization of Magna Entertainment.
But the pressure that had Molson backpedaling on both the option holders vote and executive compensation—as well as coughing up a premium for the non-Pentland shareholders—came primarily from Canadian institutional investors. And, in the aborted IAMGOLD/Wheaton River merger, US and Canadian shareholders attacked the management and boards of both companies in tandem.
“That’s the environment we live in now,” says Roy Shanks, senior vice president at proxy solicitation firm Georgeson Shareholder Canada. “Shareholders are stepping up and taking responsibility for the direction a company takes, rather than voting with their feet.” And, as pointed out by Glenn Keeling, Georgeson’s president and CEO, “what is happening now is what the future will hold.” Molson, Magna, IAMGOLD, and Dimethaid are not aberrations. They are, according to Keeling, the beginning of the “new normal.”
Keeling and Shanks link shareholder activism to another pervasive economic development: consolidation. In Canada, and globally, the mature industries in which institutional investors like to invest are consolidating, leaving fewer options. The largest investors, such as the Canadian pension funds, already operate under restrictive regulations that limit where they can go. Once they have an investment with potential, they are increasingly loath to walk away, even in the face of an unwelcome transaction or perceived incompetence on the part of management and board.
Shareholder drama aside, the consolidation deals of 2004 rarely brought something new to the table. As Brian Levitt at Oslers notes, “The year has played on the same old theme. There haven’t been any new or spectacular trends—just the relentless grind of consolidation.” Be it forestry, brewing, mining, telecom or energy, the year’s mergers and acquisitions continued to reflect the march towards global consolidation, either as preparation for, or defence against.
Many of the year’s deals were, in hindsight, inevitable—even when the shareholder wildcard derailed them for a while. If the global gold mining industry is consolidating, IAMGOLD and Wheaton River will merge…with someone, eventually. Allstream and Microcell both had bull’s eyes on their butts. In the energy sector the Progress/Cequel and Petrofund/Ultima mergers are the beginning of the inevitable rationalization segment in the oil patch cycle, from which no one, not even income trusts, are exempt.
2004, as summed up by Grant Zawalsky at BD&P, lacked deals with “the wow factor.” Although most corporate lawyers were busier than last year, it was a “busy but boring” year. This “non-event” aspect of 2004 is clearly illustrated by the significant transactions, in terms of size, that did not make the grade when leading corporate lawyers were asked to rank the top deals of 2004.
The $3.2 billion Petro-Canada sell-off, the largest equity offering ever done by a Canadian company—yawn. EnCana’s US$2.7 billion acquisition of Tom Brown—“a slam dunk.” Plus, hardly any Canadian legal work. The US$6.5 billion RR Donnelley/Moore Wallace merger—ditto. A legacy connection to Canada at best.
Energy income trust IPOs and conversions—well, they pay the bills. TD Bank’s acquisition of Bank North—TD can’t merge domestically yet, so it’s got to do something. The tail end of 2003 corporate restructurings. An income trust play or two. Overall, “better than last year” is about the most positive assessment coming from the legal profession—an appropriate epitaph for the year of “no satisfaction.”
Some players, of course, did get some satisfaction. “Trying” paid off for most of the activist shareholders, except perhaps the income trust enamoured shareholders at MTS. Unless the Competition Bureau throws them a curveball, all the players in the West Fraser/Weldwood deal will walk away happy. Jean Coutu wins the “only transformational deal of the year” crown, although skeptics warn it may have bitten off more than it can chew (growing is never easy, quadrupling…yikes). Most of the oil patch deals pleased the participants, if not all the lawyers (could we have just a little hostility and conflict? Please?).
But on many of the 2004 deals, losers outnumbered winners. TELUS didn’t get Microcell (although, in all fairness, it seems to be coping well). Rogers won that battle, but it shelled out more than it wanted for AT&T’s stake in Rogers Wireless, leaving it with a scary debt. Victor Li and Trinity walked away from Air Canada without getting anything, leaving the field to the aggressive and hungry Cerberus (and DeutscheBank), who got it all.
Yellow Pages didn’t get SuperPages, but Bain’s satisfied, having chalked up another win for the powerful US private equity investors. The battle for Riverside Forest had more losers than winners. But the unequivocal winner in the “no one got any” category are virtually all of the players in the IAMGOLD saga, in which everyone wanted to merge…and nobody got to—yet. At press time, Harmony reversed its position, announcing it was considering complaining to South African regulators over Gold Fields’ announcement that it was looking at alternatives to a merger with IAMGOLD.
If there is any real lesson coming out of 2004 it is, if you’re smart, you know when to back peddle, furiously. Most pundits now see the Molson/Coors merger as proceeding. Ian Molson may not get the satisfaction he wanted. But then again, it’s not over till it’s over. It is thus appropriate to wish Mr. Molson, and other frustrated players from 2004, well. In 2005 they may well find some solace in the closing lines from Mick Jagger, which are:
“You can’t always get what you want
No, you can’t always get what you want
But if you try sometimes, well you just might find
you get what you need!
—Rolling Stones,You Can’t Always Get What You Want (Let it Bleed, 1969)
Marzena Czarnecka is a Lexpert staff writer.
I can’t get no satisfaction.
‘Cause I try and I try and I try and I try.
I can’t get no, I can’t get no.”
—Rolling Stones, (I Can’t Get No) Satisfaction, May, 1965
In 2004 Canadian shareholders got sick and tired of getting “no satisfaction.” They put the boot to corporate Canada. Instead of meekly following board or management recommendations or, if dissatisfied, quietly voting with their feet, they shouted, threatened law suits, obtained injunctions and shaped—or scuttled—the year’s largest and most interesting corporate transactions.
“We’re seeing an increased willingness on the part of institutional shareholders to steer deals,” says Stephen Halperin, co-chair of the corporate/securities practice group at Toronto-based Goodmans. And, one might add, to fight their battles in the media and in the courts.
Over the course of 2004 institutional shareholders blocked a move to take Magna Entertainment private. They publicly fought management and the board on the Molson/Coors merger. They played a prominent role in the Conrad Black shoving match at Hollinger. They tried to force Manitoba Telecom Services (MTS) to convert into an income trust. Some sued when MTS pursued other options. They voted down the board approved merger between IAMGOLD Corporation and Wheaton River Minerals, and some sued over the timing of the shareholders’ meeting. They launched proxy battles to change the make-up of boards. At Dimethaid Research Inc., they successfully ousted the board and CEO.
More often than not, they have been successful in getting what they wanted. The end result is that some of the most interesting transactions of 2004 were the deals that didn’t get done. Or deals that may not get done. 2004 has driven home the message, as Francis Allen, a senior corporate partner at Borden Ladner Gervais (BLG) in Toronto, puts it, that “announced deals don’t necessarily amount to done deals.”
While dissenting shareholders have proven to be the most dramatic wildcard of the year, clearing the Competition Bureau hurdle became the most time-consuming obstacle. With corporate consolidation in several sectors proceeding at breakneck pace, several of this year’s deals looked like they would never complete the competition review process. Indeed, by the time the TELUS takeover of Microcell got the green light, Microcell’s dance partner had changed to Rogers. And, at press time, West Fraser Timber’s acquisition of Weldwood of Canada, announced in July, is still winding its way through the Bureau.
Cutting across the rise of aggressive shareholder activism, and the increased complexity and importance of competition issues, is the global background against which Canadian deals take place. Deals that could convincingly cry out “I AM.Canadian!”—a la the now inapplicable Molson Canadian ads—were few and far between. Molson, involved in the highest profile cross-border merger of the year, certainly could not do so.
Even domestic consolidation, be it in forestry, oil and gas, telecommunications or mining, is but the precursor or in response to global consolidation. The proposed domestic merger between IAMGOLD and Wheaton River quickly escalated into attempts at continental and international mergers. IAMGOLD’s ultimate fate may be determined by negotiations between two South African companies. The self-imposed need for Molson and Coors to get to the altar is fuelled, in part, by the merger of Belgium’s Interbrew SA and Brazil’s American Beverage Company.
The corporate restructurings that spilled over from 2003—most notably Air Canada and Stelco—continued to drive home the importance of global interdependence. Air Canada was bailed out primarily by US and European investors. Stelco may find itself acquired by Russian steel giant OAO Severstal before it emerges from CCAA protection (US and Canadian bids are also in play at press).
The Top 10 Corporate Deals of 2004, selected after lengthy discussions with over 50 leading corporate lawyers across Canada, reflect, in various configurations, the three themes (shareholder activism, global corporate consolidation, global interdependence) noted above. In making this list, sheer monetary value is not determinative. The transactions had to be sizable and noteworthy. The latter criteria refers to the themes noted above, plus important corporate/legal tactics and innovative legal or financing structures. Thus, the $3.2 billion Petro-Canada sell-off did not make the list. Nor the $2.7 billion EnCana acquisition of Tom Brown. Our list includes transactions that did not get done, as well as deals that may not get done.
THE DEALS
1. Anticipation Factor. Rogers Collars Fido. On September 8, 2004, Robert McFarlane, chief financial officer of Calgary/Vancouver-based TELUS Corp., dismissed the possibility that Toronto-based Rogers Communications Inc. would take a run at Microcell. “I don’t think it affects our thinking very much,” he told the national press. At that point, the $1.1 billion bid by TELUS for Montreal-based Microcell had been on the table for 118 days and counting. No other suitors for Fido, the brand name under which Microcell’s cell phone service is marketed, had surfaced.
Microcell, while less than thrilled with the dollar value of the bid, was cooperative-inviting TELUS into its data room. After all, its management and board—along with everyone on the Street—knew, as Brian Levitt, co-chair of Osler, Hoskin & Harcourt, concluded: “Microcell had to be put out of its misery.” Plus, it seemed that Rogers had other things on its mind—like intense negotiations with AT&T Wireless over the latter’s minority stake in Rogers Wireless. The only other potential contender, Bell Canada, wasn’t in the picture.
“No, we didn’t think we had it in the bag,” laughs Clay Horner, a senior corporate partner at Oslers in Toronto. Horner represented TELUS throughout its hostile bid for Microcell. “Any of Rogers, TELUS, or Bell could have been the buyer.” That being said, TELUS certainly didn’t expect Rogers, after watching from the sidelines for almost five months, to outmaneuver it within one week.
By September 14, Rogers had shelled out almost $1.8 billion to AT&T Wireless for the minority holding in Rogers Wireless, disentangling itself in the process from a shareholder’s agreement that would have precluded making a deal with another wireless company, such as Microcell. Two days later, Rogers was filing the paperwork with the Competition Bureau—which was still reviewing the TELUS/Microcell deal. Two days after that Rogers and Microcell signed a $1.4 billion deal. The lawyers for both parties—Fasken Martineau DuMoulin (Rogers) and Stikeman Elliott (Microcell), respectively—had, according to Jonathan Levin at Faskens, “worked very intensively and with very little sleep over the 18th and 19th to negotiate and draft the documents.”
TELUS extended its offer but didn’t raise it. By the time the Competition Bureau cleared the Rogers/Microcell transaction on November 2, TELUS had ceded the field to Rogers Wireless. Overnight—or, as the lawyers like to put it, within 48 hours—Rogers became the largest wireless carrier in Canada, as well as the one carrier operating on the global system for mobile communication (GSM), a distinction it had previously shared with Microcell.
The deal’s size, at $1.4 billion, is modest even for 2004. And it’s not the relentless march towards domestic telecom consolidation that sets this deal apart. According to the corporate cognoscenti, what makes this deal the #1 deal for 2004 is the “anticipation factor.” Pundits argue that the play for Microcell is a harbinger of things to come: international consolidation. The GSM technology plays a key role here. Excepting Microcell, all of Rogers’ domestic competitors use the older CDMA (code division multiple access) system. GSM is the dominant system in Europe and it is poised to become the world standard. In the short term this means lucrative roaming charges for Rogers from international GSM users in Canada. In the long term, well, come international mergers, guess who’ll have an edge over the Canadian CDMA telco? It won’t be next year or the year after that, but it will come. Why was TELUS interested in acquiring a competitor with incompatible technology? Governments and regulators be damned, the telcos are clearing the deck.
That the acquisition of Microcell is part of a large game plan is clear when placed within the context of Rogers’ other activities in 2004. Given Microcell was its only domestic GSM competitor, Rogers was likely eyeing it long before Microcell ended up on the chopping block. That Microcell knew Rogers was the likeliest buyer is also evident; word on the Street has it that Microcell turned to Rogers the day after TELUS launched its hostile bid.
Of course, there was no way Rogers and Microcell could officially talk while Rogers was tied up with AT&T and governed by a shareholder’s agreement that prevented Rogers from making a deal with another wireless provider. Unofficially, well…let’s just say it’s a testament to corporate determination that after doing nothing with TELUS for five months, Microcell did everything with Rogers in two days. Even if TELUS suspected nothing, AT&T Wireless likely did, giving rise to an improbable situation, hypothetically, where Rogers would pay significantly more for an asset AT&T really didn’t want.
“It was an extremely exciting deal,” says Sidney Horn, who led the Stikeman Elliott team for Microcell. Its most challenging aspect, according to Horn, was…doing nothing. “It was a situation where, as a legal advisor, the best advice you could give your client is don’t do anything. Wait. There was a lot of pressure on the client and the advisors to make decisions where, over the long period of time, the best decision was to do nothing, just expose the company to the marketplace. To not do anything when facing that pressure is a real challenge for the board, management and advisors.”
Fortunately for Horn, he was right. After five months of doing nothing, Microcell was able to close the deal it wanted with Rogers. In 48 hours. Lawyers on all three sides emphasize the prominent role in-house corporate counsel played throughout both stages (TELUS/Microcell and then Rogers/TELUS/Microcell) of the transaction. According to Horner, Audrey Ho, general counsel at TELUS, “took a leadership role in integrating the legal component of the transaction with the business and legal analysis being undertaken at TELUS.” Sidney Horn credits Jocelyn Côté, vice-president legal affairs at Microcell, with “ensuring sound decision-making by senior management and the board of directors.” And the breakneck speed with which the Rogers/Microcell leg of the transaction proceeded was greatly facilitated, says Levin, by the contributions of David Miller, general counsel at Rogers, and Associate General Counsel Graeme McPhail.
It will take a few years to see if the Rogers gambit pays off. In the meantime, collaring Fido leaves it with fewer competitors, a Canadian monopoly on GSM, and a sense of accomplishment that it got the deal done in 48 hours. Officially.
Fun fact: Faskens was acting for AT&T Wireless on the sale of its interest in Rogers Wireless to Rogers. After closing that deal the firm was immediately back onside with its long-time client Rogers to snap up Microcell.
Canadian, eh? Five out of five maple leafs. A fight for a Canadian company by two Canadian companies, financed with Canadian money, and worked on by Canadian lawyers, preceded by a buy-back of a US interest in Rogers Wireless. But then, Rogers isn’t growing by leaps and bounds just to be on the top of the Canadian telecom heap, is it? The GSM technology it’s using, unique in Canada, but prevalent throughout Europe and the US, is positioning it for the next inevitable step, well ahead of industry regulators and governments.
2. Beer Wars. The Molson/Coors merger started off innocently enough with a July 22nd announcement of a “merger of equals” between Canada’s largest brewer and the third-largest US brewer to form the $6 billion Molson Coors Brewing Company. The move by the two family-controlled breweries was not surprising. The industry is consolidating worldwide. The August merger between Belgium’s Interbrew and Brazil’s Ambev created the world’s largest brewer, changing in the process, ownership of Canada’s second-largest brewer, Labatt Brewing Company.
With management, both boards, and the family-controlled principal shareholders of both companies firmly behind the deal, both Peter H. Coors, chairman of Coors, and Eric Molson, chairman of Molson, didn’t anticipate—at least in public—any serious obstacles. (The Competition Bureau, for one, just waved them on through.)
Boy, was Eric wrong. Molson shareholders had reservations about the deal from the onset (what, exactly, were they (the shareholders) going to get for the “US$175 million in synergies identified” and let me spell “premium” for you). Even members of the Molson family were exploring other options. Ian Molson, in conjunction with Onex Corp. and London-based SABMiller PLC, were among those said to be considering taking a run.
But, it was when Molson shareholders read the preliminary proxy statement Coors filed with the SEC that it looked like the merger really might tank—$75 million breakup fee notwithstanding. At issue were millions in payouts to management and the right of Molson option holders—in other words executives, directors and employees who didn’t necessarily own Molson shares—to vote on the merger.
Shareholders went apoplectic. First out of the block was the Ontario Teachers Pension Plan. Following close behind was Montreal-based Jarislowsky Fraser Ltd. Both threatened legal action to prevent option holders from voting on the merger. Caisse de dépôt et placement du Québec and the Canada Pension Plan Investment Board, in no uncertain terms, voiced their strong objections.
By mid-October, Molson backpedaled on both issues, nixing the multimillion dollar change of control payments to Eric Molson and other executives and the plan to allow option holders to vote on the merger. In early November, Molson and Coors “found” an extra $318 million to “sweeten the bid” for Molson shareholders. The Eric Molson-controlled Pentland Securities (1981) Inc. shares were “voluntarily” excluded from the premium.
Molson and Coors shareholders are to vote on the proposed merger on December 13. Clay Horner is of the view that “Absent another dramatic development, the deal will get done.” Horner leads the Oslers team for Coors on the Canadian side of the transaction. Garth Girvan, a senior corporate partner at McCarthy Tétrault in Toronto, leads the team for Molson, a long-time firm client.
Fun fact: Coors has historically used Torys as its Canadian counsel. But, after the general counsel at Coors flipped the deal to New York-based Simpson Thacher & Bartlett, dropping Kirkland & Ellis who had initially been retained, Simpson Thacher then recommended Oslers as Canadian counsel. Oslers happily accepted, and just in time. At press time, the word was that Simpson Thacher is “out of favour” at Coors (although still on the file), with Kirkland & Ellis again driving the bus. “Who knows,” quips one Toronto corporate, “maybe Torys will get to do the deal before it’s all over.”
Canadian, eh? The deal is creating piles of work for Canadian lawyers and untold grist for the media mill. And it’s about beer—a topic close to the hearts of many Canadians. But all that “merger of equals” rhetoric aside, Molson Coors Brewing Company will inevitably become a US directed company and, as the brewing industry continues to consolidate, a global company. Whither Seagrams, whither Molsons.
3. IAMGOLD. Great Expectations. As Molson/Coors dominated the last quarter of 2004, the attempted merger between IAMGOLD and Wheaton River dominated the otherwise quiet midpoint of the year. “It was a soap opera,” quips Mitch Gropper, Q.C., a senior corporate partner at Farris in Vancouver. Farris acted for the Wheaton River Special Committee of Directors.
Like Molson/Coors, IAMGOLD/Wheaton River was supposed to be a friendly and quick merger between two companies anticipating global consolidation within their sector. The $2.9 billion deal would have made the new company one of the top 10 gold producers in the world. But the deal started to unravel even before the parties completed their due diligence.
First came the unsolicited bid for IAMGOLD from Colorado-based Golden Star Resources. Turned down by IAMGOLD’s Board of Directors, Golden Star successfully sued to delay the meeting that would have seen shareholders vote on the IAMGOLD/Wheaton River merger. Five institutional shareholders (Mackenzie Financial, AGF, Sprott Asset Management, John A. Levin & Co., Inc., Pollitt & Co.) did likewise.
Joining the fray, Idaho-based Coeur d’Alene Mines Corporation then bid for Wheaton River. Similarly turned down by Wheaton River’s Board, Coeur d’Alene publicly vented its dissatisfaction, claiming the Ontario Teachers Pension Plan and other key shareholders would vote against the Wheaton River/IAMGOLD merger. When Wheaton River held its meeting, despite the IAMGOLD/Golden Star litigation, at least one of its institutional investors, Fidelity Canada, expressed concerns that it was not treated fairly at the meeting and commenced legal proceedings. Wheaton River quickly announced it would hold another meeting and another vote. Meanwhile, IAMGOLD held its meeting first and shareholders rejected the Wheaton River merger.
Wheaton River continued to fend off Coeur d’Alene, Golden Star continued amending and extending its offer for IAMGOLD, and IAMGOLD hoped a better suitor would come along. In August South African gold producer Gold Fields Ltd. stepped forward. The combination of Gold Fields and IAMGOLD would create Gold Fields International Limited, the world’s seventh-largest gold producer. Before anyone had a chance to vote on the deal (or sue to have the vote delayed), South African-based Harmony Gold Mining Company Limited launched a hostile bid for Gold Fields, specifying its bid was contingent on Gold Fields not proceeding with the IAMGOLD acquisition.
The third time is not the charm. At press time, Gold Fields’ proposed merger with IAMGOLD was dashed when 48.2 per cent of Gold Fields shareholders voted for the deal at the meeting in Johannesburg. The proposal required at least 50 per cent carry to pass.
Talk about getting no satisfaction.
Not to be outdone, Toronto-based Goldcorp Inc. announced a friendly, all-stock $2.44 billion bid for Wheaton. Friendly? That’s how it started with IAMGOLD.
Apart from the histrionics, the bids and litigation swirling around IAMGOLD are significant because, as Jeffrey Barnes notes, “It shows mining is definitely back.” Barnes is a senior corporate partner at Fraser Milner Casgrain in Toronto. Fraser Milner is representing IAMGOLD. As Barnes points out, the latest leg of this transaction is the most interesting one. “It represents significant interest in a Canadian company from a truly global participant.”
Canadian, eh? When a hostile bid by one South African company for another South African company threatens to scuttle a Canadian company’s proposed merger, you know you’re not in Kansas anymore.
4. The Mother of All Restructurings. Air Canada entered CCAA on April Fool’s Day, 2003, and thereafter provided many major law firms with gainful employment throughout 2003 and 2004. Air Canada’s early claims that it was going to come out of CCAA by the end of the year proved wildly optimistic, as did the revised claim that recovery would be accomplished in the first quarter of 2004. The restructuring took up nine months of 2004, punctuated by the departure of Chief Restructuring Officer (CRO) Calin Rovinescu, which, of course, was preceded by the exit of Air Canada’s would-be saviour, Victor Li, and the $650 million Trinity Time Investments Ltd. would have pumped into the carrier.
Was the restructuring in jeopardy? Hardly. Unions cheered, saying they looked forward to being more cooperative with a new CRO (ouch), and Air Canada did not have to look far for a new sponsor. Cerberus Capital Management and Deutsche Bank jointly poured $1.1 billion into the airline and effectively got the concessions unions were unwilling to give to Li and Trinity. (Remember those $21 million “retention” bonuses for Rovinescu and CEO Robert Milton? The unions sure did.)
Cerberus, of course, had wanted a stake in Air Canada from the get-go. It didn’t stop trying even after the Air Canada Board went with the Trinity proposal. (“These guys don’t stop and they don’t lose,” says one lawyer close to the transaction.) The second Li walked, Cerberus was back in the game. In fact, overnight it went from being an unwanted suitor to our “best friend.” “We’re the bad guy who now is their best friend,” laughs Norman Steinberg, a senior corporate lawyer in the Montreal office of Ogilvy Renault. Steinberg’s firm represented Cerberus throughout Air Canada’s misadventure.
“It was a tremendous file for 2004, and Air Canada will hopefully be a good client for 2005,” says William Braithwaite, a senior corporate partner in the Toronto office of Stikeman Elliott. The legal team at Stikemans, led by Marvin Yontef and Sean Dunphy, steered the airline through the restructuring. The number of corporate and financial players (voluntary and involuntary) in the $12 billion makeover ensured virtually every major Canadian law firm a place at the table.
“The bar collectively throughout Canada is going to suffer a loss of income because this restructuring is done,” quips Sylvain Cossette, a corporate practitioner with Davies Ward Phillips & Vineberg in Montreal. Cossette led the Davies Ward team for Deutsche Bank.
The good news is it’ll probably take more than one operation to save this patient. The pundits say it’s not over yet.
Big winners: Obviously Stikeman Elliott walked away with the largest chunk of the legal change, but a number of other law firms have no cause for complaint. In the “Navigating Conflicts” category, the big winner is unquestionably Oslers, representing GE, Onex, Trinity Time and the Greater Toronto Airport Authority. (Stikeman Elliott should be taking notes.) Bringing up the rear among the Seven Sisters, in the “Boy, have we bet on the wrong horse” category is Goodmans, which had several clients…all, unfortunately, with unsuccessful equity proposals.
Canadian, eh? Well, it is the national carrier and, legally speaking, virtually all the work is in Canadian hands. But the money (and therefore the power) is global, as is the aviation industry… however much Air Canada likes to blame its woes on small domestic competitors.
5. Income Trust This, Will You? It started with the bright idea to turn a telecom into an income trust, aggressively pushed by several institutional shareholders. They tried and they tried, and they were convinced that Manitoba Telecom Services (MTS) had actually promised to convert itself into an income trust. And then what does the telco do? Transforms itself into Canada’s third largest telecommunications company by dropping $1.7 billion on Allstream (the restructured and parent-free AT&T Canada).
In 2004 shareholders weren’t going to take this sort of initiative lying down. Enterprise Capital Management, which owns about 5 per cent of MTS, asked the TSX to force MTS shareholders vote on the acquisition. Highfields Capital Management, one of the largest MTS shareholders, publicly called the Allstream transaction “a thinly veiled charade to satisfy the wishes of an entrenching management over the interests and wishes of a majority of the shareholders.” Highfields suggested that “the only parties supporting the proposed transaction are the managements of MTS and Allstream and their investment bankers promoting the transaction in exchange for large success fees.”
Next came the “marital dispute that should perhaps be heard in family court,” as Ontario Superior Court Justice Peter Cumming referred to the subsequent litigation between MTS and Bell Canada. Even more dissatisfied with the Allstream acquisition than Enterprise and Highfields, Bell, which owned 20 per cent of MTS, sought a court injunction to block the deal claiming it violated a 1999 agreement between Bell and MTS. Before it was all over, the file involved, amongst others, lawyers from Torys and Aikins, MacAulay & Thorvaldson on side for MTS; Stikeman Elliott and then BLG, McMillan Binch, and Cravath, Swaine & Moore for Allstream; Davies Ward for Bell; and Oslers for Highfields.
“It was just bizarre,” says Brian Levitt at Oslers. In the end MTS persevered and the shareholders settled down to watch, for a while at least. According to Levitt, “The impact of that transaction will take two to three years to play out.” In the meantime, in the year in which dissenting shareholders just about had it all their own way, chalk this one up for management and the board.
Canadian, eh? Income trusts are as Canadian as maple syrup, and so, of course, are the telecoms, although Allstream, nominally, is a former Canadian subsidiary of a US company. But who really owns them? Enterprise hails from Atlanta and Highfields from Boston. Money knows no borders.
6. Jean Coutu Enters the Big Leagues. Just as the Internet pharmacy controversy between Canada and the US reached its peak, Quebec-based Jean Coutu Group added 1,539 US drug stores to its existing 332 Brooks Pharmacies in the US and 320 Canadian outlets to become the fourth largest drugstore chain in North America. “It was a transformative deal for them,” says Sidney Horn at Stikeman Elliott. Horn’s assessment surely wins the massive understatement of the year award. The acquisition almost quadrupled the size of Coutu. Although the headquarters remain firmly in Quebec, the deal transformed what was in 1969 a one-shop operation into a major North American player.
It’s an ambitious and risky move—JC Penney Company Inc. sold Eckerd to Coutu because the stores were underperforming. The acquisition saddled Jean Coutu with an unaccustomed level of debt. But Coutu is one of that growing number of Quebec companies—including retailer Couche Tarde which acquired the Circle K chain last year, and CGI Group Inc. which purchased American Management Systems—intent on becoming part of the global (or at least continental) economy, and doing so while remaining in the driver’s seat.
“We’re seeing a number of deals going southbound because the stars are lining up,” comments Sylvain Cossette, a corporate partner in the Montreal office of Davies Ward. “Interest rates are still low, the Canadian dollar is high, and this is helpful to Canadian companies making acquisitions in the US.”
Canadian, eh? Cross-border deals inevitably raise important long-term issues, irrespective of whether the acquiring company is Canadian or US-based. Yvon Martineau, long-standing Jean Coutu counsel at Faskens, quarterbacked the transaction and retained the US counterpart. Stikeman Elliott and McCarthys got in on the financing. But, in what was for it a divestiture of US assets, JC Penney didn’t bother with Canadian counsel. With the majority of its holdings now in the US, it is inevitable that more and more of Coutu’s legal work—as well as other issues—will be US driven.
7. Déjà vu: Bain snaps up SuperPages. When Verizon Communications announced it was selling SuperPages a dozen suitors immediately queued, including rival Yellow Pages Group. Nevertheless, it was no surprise that the spoils went to Bain Capital. We’ve seen this before. Kohlberg Kravis Roberts & Co. partnered with Ontario Teachers and bought Yellow Pages in 2002. Then, within a year, turned it into an income fund and then exited by means of an immensely successful, oversubscribed $1.5 billion IPO.
The same thing happened in the US with Carlyle Group and Welsh, Carson, Anderson & Stowe buying Dex Media from Qwest Communications International Inc., then taking Dex public. If the modus operandi holds, Bain’s already working on their exit strategy. They were probably working on it before they opened negotiations with Verizon.
As Jay Swartz, a senior corporate partner at Davies Ward in Toronto points out, “The SuperPages transaction is very much illustrative of a trend, in which large private equity pools purchase these assets with a view to exiting quickly.” A Davies Ward team, led by Timothy Moran, represented Bain in the transaction.
Fun fact: TELUS Corp. sold SuperPages to Verizon three years ago for US$520 million. Verizon sold SuperPages to Bain for US$1.985 billion. Not bad.
Canadian, eh? Bain is based in Boston. Verizon is a US-based international company. SuperPages is a Canadian asset. So, technically it’s a Canadian deal. Plus, the big winner legal work–wise was Davies Ward, who will probably get to drive the bus on the income fund conversion and IPO that are bound to follow.
8. Income Trusts. The Next Generation. Progress Energy Ltd. and Cequel Energy Inc. merged and then converted into the $1.14 billion Progress Energy Trust. The three stage transaction (see below) was a welcome sign to oil patch lawyers, subsisting as they were on a long diet of trust conversions, that the trusts were developing more creative—and remunerative—approaches to packaging the aging assets of the Western Canadian Sedimentary Basin (WCSB).
As explained by Robert Engbloom, a senior corporate partner with Macleod Dixon in Calgary, the deal is special not just because it was the largest trust conversion of the year, but because it was “the first of its kind” for a sector where trusts are usually created from scratch, from one company’s assets or the conversion of a single producer. The Progress deal comprised a merger between Progress and Cequel, followed by a conversion of the merged entity into a trust, followed by a spin-off of two junior exploration companies, ProEx and Cyries.
Grant Zawalsky, a well-known corporate partner with Calgary-based Burnet, Duckworth & Palmer (BD&P), agrees with Engbloom as to the importance of the Progress deal. “If Calgary had a deal of the year, Progress was it.” BD&P represented Progress Energy. A Macleod Dixon team was on for Cequel.
Progress Energy has real significance for an industry in which the intermediate companies have been largely replaced by income trusts and in which more and more juniors are considering the trust option. “We’re seeing a shift of royalty trusts from just being a harvester of existing assets to a more sustainable model,” explains Engbloom. “Progress is an example of that.”
That the trusts are “coming of age” is also evident in transactions like the $500 million acquisition by Petrofund Energy Trust of Ultima Energy Trust, represented by BD&P and Bennett Jones respectively, and the $2.5 billion reclassification of Pengrowth Energy Trust’s trust units.
As explained by Perry Spitznagel, a senior corporate partner with Bennett Jones, “The Pengrowth reorganization is the first transaction to implement a solution to the non-resident ownership problems of income trusts. There’s going to be 10 or 15 of these coming down the pipe.” Likewise, the Petrofund/Ultima and Progress/Cequel mergers have set the stage for more of the same for 2005.
Fun fact: In 2004 income trusts officially came of age with Enerplus Resources Fund, the oil patch’s first trust, celebrating its 18th birthday. Enerplus was launched as a $9 million oil and gas income fund. Today its market value of $3.4 billion makes Enerplus Canada’s largest conventional oil and gas trust.
Canadian, eh? As Canadian as toques and beavers.
9. Patient Money. If you’ve never heard of OPTI Canada Inc., you’re not alone. Even in the oil patch Calgary-based OPTI is not a household name. But it soon will be. In 2001, OPTI entered into a 50/50 joint venture with Nexen Inc. to develop the oil sands at Long Lake. With the low hanging fruit in the WCSB long-gone, exploiting the oil sands is increasingly critical to the future of the oil and gas sector. Problem is, oil sands development is extremely expensive and comes with long time horizons. The Long Lake Project, expected to be the fourth largest oil sands project in the Athabasca region, carries with it a $3.4 billion price tag.
But this is old news, as is, to a certain extent, OPTI’s patented OrCrude™ technology, which is expected to deliver to Long Lake partners a $4 to $7 per barrel cost advantage over competitors. What put OPTI on the map is how it raised its share of that $3.4 billion price tag: $701 million through what is likely the largest private equity placement ever completed by a startup company in the Canadian oil and gas sector, $301 million through an IPO, and $800 million through a limited recourse project debt facility.
“It was quite remarkable to see the financial commitment to this project,” says Robert Engbloom, “particularly considering the company won’t produce anything for a few years yet. It shows the appetite there is for the tar sands right now.”
“The financing for this project came from all across the country,” notes David Smith, a senior corporate partner with Lawson Lundell which acted for BCIMC, one of the parties to the transaction. “It’s fairly dramatic in terms of the amount of capital raised in a relatively short period of time.”
Canadian, eh? Most of the money came from Canadian players such as TD Securities Inc., Scotia Capital Inc., and RBC Capital Markets. Both JV partners are headquartered in Calgary. Of course the Calgary-based OPTI was founded by the Israel-based ORMAT Group of Companies, a unit of which continues to own about 34.76 per cent of the company. Another 11.97 per cent is held by Boston’s Wellington Management. So, Canadian? Adequately so.
10. Repatriating Paper. “The forests have been busy this year,” notes Mitch Gropper at Farris. Indeed, it has been a year of unprecedented consolidation. In April Canfor Corp. completed a $630 million buy-out of Slocan Forest Products. After a heated battle, hostile bidder Tolko Industries finally acquired Riverside Forest Products for $387 million in November. Smaller deals included Riverside’s earlier acquisition of Lignum Inc. and Vancouver’s International Forest Products purchase of three Washington state mills from Crown Pacific Partners.
Dwarfing all of these transactions in size, if not drama (the battle for Riverside, like most hostile takeovers, takes first prize here), is West Fraser Timber’s proposed $1.26 billion purchase of Weldwood of Canada from International Paper.
“It’s by far the largest forestry transaction in years,” says Neil de Gelder, a leading corporate partner with the Vancouver office of Borden Ladner Gervais. “Its sheer size makes it notable in an industry not noted for recent transactions of this magnitude.” And, he adds, “It involves the repatriation of Weldwood to a Canadian company.”
If successful, the transaction will make West Fraser the third largest lumber producer in North America. The cloud on the horizon is not, as in so many other deals this year, a gaggle of dissatisfied shareholders. It is the Competition Bureau. The acquisition, announced in July, has not (at our press time) been given the green light from the Bureau. Given the Bureau’s review of the smaller Canfor/Slocan merger, it may be that West Fraser will have to divest some of its BC assets.
Canadian, eh? The five month (and counting) Competition Bureau review alone makes this deal as Canadian as the takeover of Microcell, International Paper notwithstanding. And the Toronto office of Blake, Cassels & Graydon is driving the bus for International Paper without US counsel riding piggyback.
ANALYSIS: Year of Dissent
This is the way it used to work—as Stephen Halperin at Goodmans points out—if institutional shareholders weren’t getting satisfaction or “didn’t like the direction a company was taking, they usually voted with their feet. Shareholders used to be quiet. They weren’t prepared to get involved.” No more. In 2004 shareholders, particularly institutional shareholders like the Canadian pension plans and US private equity made their presence felt, sending the boards and management of MTS, IAMGOLD, Wheaton River and, above all, Molson, running for cover.
So, what happened? In one word: Enron. The anger and threats of legal action that erupted when Molson shareholders found out that (a) option holders would vote on the proposed merger with Coors and (b) just how many millions Molson executives would pocket as a result of the transaction had its seeds in the corporate scandals that brought down Enron, Worldcom, Tyco, and Adelphi.
As Peter Jewett, a senior corporate lawyer at Torys, points out, it is important to note that if the Molson/Coors merger had been on the table five years ago “the plan to have option holders vote would have gone by without much notice.” Sylvain Cossette at Davies Ward in Montreal, whose firm represents Eric and Stephen Molson in the transaction, agrees. “There was nothing technically wrong with it. But, in 2004 we are living in a world of shareholder activism.”
Whether the Molson/Coors merger is consummated or not, it will effect future deals for years to come. Says Clay Horner, “For future deals people will be very careful what arrangements they make for executives, and they will consider very carefully how option holders are treated.” In other words, as option holders, not as shareholders.
Shareholder activism in the M&A arena, says Jewett, is an extension of increased shareholder activism generally. “They are more active as shareholders,” he explains. “They are sick and tired of some of the stuff that’s been happening.”
Like executives enjoying handsome profits while shareholders don’t. Coupling the option holder plan with lucrative compensation packages for Molson executives, while denying shareholders a premium, was a two-step guaranteed to generate an immediate confrontation. Says Jewett: “The compensation area is a lightning rod. Shareholders are very tired of seeing executives walk away with large compensation packages even when companies have not done well.” Halperin agrees—in part. “The activism is partly a spill-over from the corporate governance movement. But other factors are at play as well.
If post-Enron corporate governance provides the current rationale for the newfound activism of Canadian institutional shareholders, the aggressive tactics have been imported from US investment players and private equity pools who aren’t in the game to line the pockets of executives. The Canadian players, suggests Halperin, may be taking their lead from this class of investors, who have been shaping the future of the companies long before Enron. As Norm Steinberg at Ogilvy Renault puts it, “You’ve seen CALPERS be interventionist for a million years.”
It seems the Canadians have learned well, although US investors are still frequently first out of the gate. Such was the case at MTS, where Boston-based Highfields and Atlanta-based Enterprise exerted the most pressure prior to the Allstream acquisition. Similarly, and more successfully, it was New York-based Greenlight Capital who fought back against the privatization of Magna Entertainment.
But the pressure that had Molson backpedaling on both the option holders vote and executive compensation—as well as coughing up a premium for the non-Pentland shareholders—came primarily from Canadian institutional investors. And, in the aborted IAMGOLD/Wheaton River merger, US and Canadian shareholders attacked the management and boards of both companies in tandem.
“That’s the environment we live in now,” says Roy Shanks, senior vice president at proxy solicitation firm Georgeson Shareholder Canada. “Shareholders are stepping up and taking responsibility for the direction a company takes, rather than voting with their feet.” And, as pointed out by Glenn Keeling, Georgeson’s president and CEO, “what is happening now is what the future will hold.” Molson, Magna, IAMGOLD, and Dimethaid are not aberrations. They are, according to Keeling, the beginning of the “new normal.”
Keeling and Shanks link shareholder activism to another pervasive economic development: consolidation. In Canada, and globally, the mature industries in which institutional investors like to invest are consolidating, leaving fewer options. The largest investors, such as the Canadian pension funds, already operate under restrictive regulations that limit where they can go. Once they have an investment with potential, they are increasingly loath to walk away, even in the face of an unwelcome transaction or perceived incompetence on the part of management and board.
Shareholder drama aside, the consolidation deals of 2004 rarely brought something new to the table. As Brian Levitt at Oslers notes, “The year has played on the same old theme. There haven’t been any new or spectacular trends—just the relentless grind of consolidation.” Be it forestry, brewing, mining, telecom or energy, the year’s mergers and acquisitions continued to reflect the march towards global consolidation, either as preparation for, or defence against.
Many of the year’s deals were, in hindsight, inevitable—even when the shareholder wildcard derailed them for a while. If the global gold mining industry is consolidating, IAMGOLD and Wheaton River will merge…with someone, eventually. Allstream and Microcell both had bull’s eyes on their butts. In the energy sector the Progress/Cequel and Petrofund/Ultima mergers are the beginning of the inevitable rationalization segment in the oil patch cycle, from which no one, not even income trusts, are exempt.
2004, as summed up by Grant Zawalsky at BD&P, lacked deals with “the wow factor.” Although most corporate lawyers were busier than last year, it was a “busy but boring” year. This “non-event” aspect of 2004 is clearly illustrated by the significant transactions, in terms of size, that did not make the grade when leading corporate lawyers were asked to rank the top deals of 2004.
The $3.2 billion Petro-Canada sell-off, the largest equity offering ever done by a Canadian company—yawn. EnCana’s US$2.7 billion acquisition of Tom Brown—“a slam dunk.” Plus, hardly any Canadian legal work. The US$6.5 billion RR Donnelley/Moore Wallace merger—ditto. A legacy connection to Canada at best.
Energy income trust IPOs and conversions—well, they pay the bills. TD Bank’s acquisition of Bank North—TD can’t merge domestically yet, so it’s got to do something. The tail end of 2003 corporate restructurings. An income trust play or two. Overall, “better than last year” is about the most positive assessment coming from the legal profession—an appropriate epitaph for the year of “no satisfaction.”
Some players, of course, did get some satisfaction. “Trying” paid off for most of the activist shareholders, except perhaps the income trust enamoured shareholders at MTS. Unless the Competition Bureau throws them a curveball, all the players in the West Fraser/Weldwood deal will walk away happy. Jean Coutu wins the “only transformational deal of the year” crown, although skeptics warn it may have bitten off more than it can chew (growing is never easy, quadrupling…yikes). Most of the oil patch deals pleased the participants, if not all the lawyers (could we have just a little hostility and conflict? Please?).
But on many of the 2004 deals, losers outnumbered winners. TELUS didn’t get Microcell (although, in all fairness, it seems to be coping well). Rogers won that battle, but it shelled out more than it wanted for AT&T’s stake in Rogers Wireless, leaving it with a scary debt. Victor Li and Trinity walked away from Air Canada without getting anything, leaving the field to the aggressive and hungry Cerberus (and DeutscheBank), who got it all.
Yellow Pages didn’t get SuperPages, but Bain’s satisfied, having chalked up another win for the powerful US private equity investors. The battle for Riverside Forest had more losers than winners. But the unequivocal winner in the “no one got any” category are virtually all of the players in the IAMGOLD saga, in which everyone wanted to merge…and nobody got to—yet. At press time, Harmony reversed its position, announcing it was considering complaining to South African regulators over Gold Fields’ announcement that it was looking at alternatives to a merger with IAMGOLD.
If there is any real lesson coming out of 2004 it is, if you’re smart, you know when to back peddle, furiously. Most pundits now see the Molson/Coors merger as proceeding. Ian Molson may not get the satisfaction he wanted. But then again, it’s not over till it’s over. It is thus appropriate to wish Mr. Molson, and other frustrated players from 2004, well. In 2005 they may well find some solace in the closing lines from Mick Jagger, which are:
“You can’t always get what you want
No, you can’t always get what you want
But if you try sometimes, well you just might find
you get what you need!
—Rolling Stones,You Can’t Always Get What You Want (Let it Bleed, 1969)
Marzena Czarnecka is a Lexpert staff writer.
Lawyer(s)
Stephen H. Halperin
Francis R. Allen
Robert G. McFarlane
Brian Levitt
Jon Levin
Clay Horner
Sidney M. Horn
Audrey T. Ho
Jocelyn Côté
David P. Miller
Graeme H. McPhail
Garth (Gary) M. Girvan
Mitchell H. Gropper
Jeff Barnes
Calin Rovinescu
Norman M. Steinberg
William J. Braithwaite
Marvin Yontef
Sean F. Dunphy
Sylvain Cossette
Peter Cumming
Jay A. Swartz
Timothy H. Moran
Grant A. Zawalsky
Perry Spitznagel
Firm(s)
Goodmans LLP
Magna Entertainment Corp.
Molson Breweries Canada
Hollinger Inc.
Manitoba Telecom Services Inc.
IAMGold Corporation
Wheaton River Minerals Ltd
Dimethaid Research Inc.
Borden Ladner Gervais LLP (BLG)
Innovation, Science and Economic Development Canada - Competition Bureau
TELUS
Fido Solutions Inc.
Rogers Communications
West Fraser Timber Co. Ltd.
West Fraser Mills Limited
Farano Green
Suncor Energy Inc.
Encana Corporation
Tom Brown Inc.
Osler, Hoskin & Harcourt LLP
Rogers Communications Inc.
AT&T Wireless
Fasken Martineau DuMoulin LLP
Stikeman Elliott LLP
Labatt Brewing Co.
Onex Corporation
Securities and Exchange Commission
Ontario Teachers' Pension Plan Board
Caisse de dépôt et placement du Québec
Canada Pension Plan Investment Board
McCarthy Tétrault LLP
Torys LLP
Simpson Thacher & Bartlett LLP
Kirkland & Ellis LLP
FARRIS
Mackenzie Financial Corporation
AGF Management Limited
Sprott Inc.
Pollitt & Co. Inc.
Fidelity Investments Canada Limited
Gold Fields Limited
Goldcorp Inc.
Dentons Canada LLP
Cerberus Capital Management, LP
Deutsche Bank AG - Canada Branch