M&As bedevil the boardroom

by David Milstead for CTV News, November 17th, 2010.

The world of mergers and acquisitions is fraught with corporate governance concerns, from the acquirer giving the target’s shareholders ample opportunity to weigh an offer, to the selling company ensuring it’s going through proper procedures to get the deal done.

Even more broadly, the M&A market acts as a sort of corporate-governance enforcement mechanism, with companies seen as poorly governed ripe for acquisition. “Takeovers, in a sense, are the ultimate discipline on management,” said Edward Waitzer of Toronto’s Stikeman Elliott LLP.

To get a sense of the governance concerns at each stage of the merger process, the Globe interviewed Mr. Waitzer and a handful of Canada’s top M&A attorneys.

Preparing for an offer

There’s a certain amount of governance-related due diligence necessary before an offer is made. A potential acquirer needs to profile the board and shareholders of its target, determining, for example, whether there is significant insider control that may hamper a takeover, or if the board lacks expertise in M&A.

A company with its sights set on a merger has to consider whether to accomplish the deal through a negotiated plan of arrangement, or make a bid for the target’s outstanding shares.

A plan of arrangement generally requires two-thirds of the votes cast (not two-thirds of the number of shares outstanding). “A small number of angry people can have disproportionate weight,” says Simon Romano, a colleague of Mr. Waitzer’s at Stikeman Elliott.

Alternately, a company may make a tender offer for the target company’s shares. If its offer is for 50 per cent plus one share, it will still have to get a two-thirds shareholder vote, as well as a majority of the minority shareholder votes, to take over the remainder of the company. (continue reading… )

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