Canadian Lawyer

44 A U G U S T 2 0 1 8 w w w . C A N A D I A N L a w y e r m a g . c o m makes a large grant of equity awards to the management team at the same share price the equity fund bought in at, she says. Public company awards are more likely to be staggered rather than imme- diate. And, of course, size matters. "If you were doing a $7-billion transaction and the change-of-control terms are worth $4 million, no one cares, right?" Howcroft asks rhetori- cally. "What's $4 million on a $7-billion deal? I think it's a bigger issue on small- and mid-sized transactions, where the amount of the change-of-control pay- out has an impact on the transaction price." But shareholder value is always first and foremost the concern for public companies, which can make a CEO's job precarious. A transaction that is in the best interests of shareholders "will likely lead to the termination of the CEO, because he'll be redundant in the acquisition," he says. So, the aim of the change of control is to provide those exiting employees "with a soft landing so they have an incentive to go out and do a deal to maximize shareholder value, even if it leads to the termination of their employment." There's a place for lawyers, of course, in protecting the interests of executives and other key staff who find themselves involved in change-of-control situa- tions. "I see CEOs getting independent legal advice more and more," says Bill Hart of Langlois lawyers in Montreal, who acts on behalf of senior manage- ment in change-of-control situations, primarily in unlisted companies. "It used to be that in-house counsel would give advice on the run and also in conflict," acting on behalf of the com- pany while also advising its employ- ees, says Hart. But, he says, "You must mark the difference: Who's representing who." More and more, he says, there is a need for independent counsel for top management. A CEO will be looking to protect their own personal investment in the company, to see that they are adequately covered by remuneration and that their rights are protected in non-competition provisions and more. "I think the bot- tom line is that the situation is becom- ing more complex for CEOs," says Hart. "There's more money attached" now. And when investment funds and other financial players buy a company, says Hart, they may want to exit after six or seven years at a profit. That means motivating the managers who are there, so that senior management thinks financially, from the profit per- spective, as well. "Remuneration packages are instru- ments of motivation," he says, though that question of motivation may be less crucial for other players in M&A deals; for example, when one company buys another. Different approaches are taken to executive compensation packages depending on the structure of the trans- action, notes Lacoursière. A strategic approach is taken in the context of publicly traded companies that are "a merger of equals," Lacour- sière says. "It's easier for the equity award of the target employees to be assumed to be substituted, essentially rolling over into the parent company, if it's a public company," so employ- ees can keep their stock options. For example, she says, when Loblaw Com- panies Limited acquired Shoppers Drug Mart Corporation for $12.4 billion in 2014, "some awards [to executives] were assumed or substituted in connection with the transaction." In the public company context, M&A transactions are scrutinized by Institutional Shareholder Services, a proxy advisory firm, which weighs in on pay practices and looks at what the so-called "triggers" are in a change-of- control situation as they affect executive compensation. Single-triggered acceleration of vesting (meaning the conveying to an employee of unconditional entitlement to a share in a pension fund, stock option plan or deferred compensation plan) occurs simply on the change of control of the target company in an M&A trans- action. However, in recent years, many pub- lic issuers have amended their incen- tive plans and severance arrangements to provide for "double-trigger" change- of-control provisions, meaning that outstanding awards will be accelerat- ed for a change in control only if an YOU WANT TO MAKE SURE THAT UNTIL THE TRANSACTION IS SIGNED, [YOU] MAKE SURE THAT YOUR TEAM IS WITH YOU, THAT THEY CONTINUE GROOMING THE BABY. ANDRÉ PERRAULT, PCI-Perrault Consulting L E G A L R E P O RT \ M & A A N D S E C U R I T I E S

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