Legal news and trends for Canadian in-house counsel and c-suite executives
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By Ryan Filson, partner, Maralynne Monteith, senior tax lawyer, and David Schulze, associate, WeirFoulds LLP Cross-border acquisition You get a call from Bud Richards, a Houston-based attorney who represents Tex Industries Inc., a Delaware cor- poration owned by an American individual who wants to acquire, for US$45 million, all of the shares of ABC Inc., an Ontario corporation that carries on a manufacturing business in Toronto. Bud wants you to help him structure, negotiate, paper, and close the deal. Bud asks you for your views on the structure of the deal. He tells you that the CFO of Tex Industries has told him that for a previous acquisition they incorporated a Delaware subsidiary corporation to serve as the acquisition company and that he wants to do that for this deal as well. What do you recommend? Bud recalls reviewing a client bulletin of your firm that mentioned the notice and review requirements under the Investment Canada Act that apply when a foreign corporation buys a Canadian business. Bud tells you that he assumes if he accepts your advice to establish a subsidiary in a Canadian jurisdiction to acquire the shares of ABC, then the Investment Canada Act does not come into play. What do you tell Bud? Bud calls you on a Sunday afternoon while you are walking the dog, and informs you that the vendor is asking whether the purchase price can be satisfied by the direct issue of US$45 million worth of shares of Tex Industries to the vendor without immediate tax consequences. He asks you whether this is possible. What do you tell him? Bud leaves you a voice message telling you that since the purchase price is calculated in U.S. dollars, Tex Industries wants to ensure that any judgment under the indemnities contained in the purchase agreement will be made in U.S. dollars, and that he has informed them that this would not be a problem. Is Bud correct? It is the day before the closing, and you have spent the entire day on the phone and battling e-mail traffic. Late at night, as you are reviewing the documents for the governance transition of ABC, you realize that you have not yet received instructions on who are to be the directors of ABC going forward. You call Bud and he tells you that the owner of Tex Industries is a control freak and insists that he be the only director of ABC. Is there any problem with that? INHOUSE DECEMBER 2010/JANUARY 2011 • 11 1 2 3 4 5 b) No a) Pr pr oblem. oblem. c) b) a) Bud is Bud is is not Bud not corr corr ect ect corr ect. but T and Tex ex b) Possible. Not a) possible. r but The eview d) pr c) further pr notice ovisions do ovisions pr Notice the apply b) He Both a) is to the ovisions ovisions apply investigations of will not. . right pr transaction. and notice the and of the Investment r eview the be r equir Investment Canada Canada Investment pr ed to ovisions determine to T use c) the ex to shar b) ex to T needs a) buy ex Industries of the T es egister Industries r shar Industries ABC with and should that es should the buy of incorporate should incorporate ABC. its Ontario shar name a the a new should Canada subsidiary Commission. , Delawar Securities of es ABC be in "T e dir ex itself a of Act Act Act the does whether Industries Industries apply apply , , Industries to Canadian subsidiary Investment not but Canada play the come r the can cannot into eview Act . ectly but jurisdiction (Canada) use first to Inc." it buy get get the the r r it esultesult seeks. it seeks.