close
  1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar


Mergers and Acquisitions in Canada


A purchaser should request copies of as many pension plan disclosure documents as possible, including:

  1. 1.     current and historical plan texts, funding agreements (i.e. trust agreements, insurance contracts), employee communications, and all amendments thereto;
  1. 2.     actuarial valuation reports and cost certificates;
  1. 3.     collective agreements;
  1. 4.     recent financial statements;
  1. 5.     investment policies;
  1. 6.     funding agent and investment manager reports;
  1. 7.     correspondence from regulators dealing with material issues; and
  1. 8.     legal opinions obtained regarding plan terms, such as the right to take contribution holidays and to charge expenses to the plan assets.

The intent of any due diligence process should be to determine how the seller’s pension plan(s) is structured and administered, and how the assets are invested. It should also identify contribution and administration costs and liability implications (e.g. unfunded liabilities, outstanding claims by plan members, issues raised by regulators and any promise to employees to increase the pension benefits offered).

Ideally, if a purchaser is proposing a post-closing for the purpose of withdrawing surplus from the seller’s/target’s pension plan, or using such surplus for contribution holidays or to offset a deficit in another pension plan of the purchaser, then the purchaser should review all current and historical plan and funding documents of the seller’s pension plan to determine if any of these proposed actions are legally permitted. Practically speaking, given the time constraints of, and the limited documentation that is available during the due diligence process, it is very difficult for a purchaser to obtain a legal opinion on these proposed actions. If that is the case, the purchaser should not simply assume, when putting together its bid for the business, that any of these proposed actions can be carried out (especially since in the case of employer surplus withdrawals and pension plan mergers, regulatory approval would be required post-closing and may not necessarily be obtained). Furthermore, as noted above, the terms of the collective agreement that are applicable to the target employees would impact the post-closing pension plan arrangements.

With respect to funding issues in a DB plan that are identified in the due diligence process, the purchaser should consult with its own actuary for additional information and assistance. For due diligence relating to DC plans, some of the concerns, among others, would be the manner in which plan members have been advised of their investment choices, whether sufficient investment choices were provided, the manner in which the target company monitored the performance of the investment options offered and selected by plan members, and whether the investment options were permitted under applicable laws.

Within the past 12 months, we have seen the U.K. Pensions Regulator take action to impose liability on Canadian companies that were heavily involved in the operation of U.K. affiliates that operated drastically underfunded pension plans. Similarly, ERISA in the U.S. contains provisions that would enable the U.S. Pension Benefits Guarantee Corporation to seek damages against Canadian companies that participate in an ERISA defined control group that contains underfunded U.S. pension plans. Given the rising reliance on these “long-arm” laws by the U.S. and U.K. pension regulation and guarantee entities, a potential purchaser should carefully consider the involvement of any Canadian entity in the control or direction of U.S. or U.K. affiliates that sponsor pension plans.

Additional posts from the blog

May

21

New Bill Heightens Potential for More Investment Canada Reviews of SOE Acquisitions

by Sandra Walker

Last week the Canadian Government introduced amendments to the Investment Canada Act (ICA) to implement its revised policy towards state-owned enterprises (SOEs) which it announced in December last year. At that time, while it approved the acquisition by Chinese SOE, CNOOC, of Canadian oil and gas company, Nexen, the Government announced its intention to prohibit acquisitions of control of Canadian oil sands businesses by SOEs except on an exceptional basis. It also stated that joint ventures and minority investments were welcome. In addition, the government indicated it would closely monitor SOE acquisitions in other sectors of the economy and would distinguish between SOE and non-SOE investments when setting the ICA review threshold. (See Focus on Foreign Investment Review, December 2012)

May

13

The Autorité des marchés financiers Proposes An Alternative Approach to Securities Regulators Intervention in Defensive Tactics

by Guy Paul Allard

On March 14, 2013, the Autorité des marchés financiers (“AMF”) published for comments a consultation paper (the “AMF Proposal”) pertaining to defensive tactics in response to take-over bids. This consultation is taking place concurrently with the one launched the same day by the Canadian Securities Administrator (“CSA”) with the release of proposed National Instrument 62-105 Security Holder Rights Plans and proposed Companion Policy 62-105CP Security Holder Rights Plans (collectively, “62-105”). Unlike the CSA’s 62-105, the AMF Proposal addresses all defensive tacticsii, not only security holders rights plans.

May

10

Proposed New Framework for Rights Plans a Potential Game Changer for Hostile Bids

by Daniel Katzin

The Canadian Securities Administrators published for comment a proposed new regulatory framework for rights plans under proposed National Instrument 62-105 Security Holder Rights Plans and proposed Companion Policy 62-105CP Security Holder Rights Plans (collectively, “62-105”). If adopted, 62-105 would provide issuers with a game changing tool to respond to hostile take-over bids, where a target board will be able to use a rights plan as leverage to negotiate with a potential bidder.



Privacy Policy | Terms of Use
Dentons
FMC Law

© 2017 Dentons