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Mergers and Acquisitions in Canada


When shares of a target company are sold to the purchaser, the target’s employment contracts and all its pension and benefit plans remain unaffected.

In general, no amendments, regulatory filings or other actions are required in a share sale with respect to the pension plan, as the target company remains the sponsor and administrator of the plan. Similarly, if the target company participates in a multi-employer pension plan (“MEPP”), its contribution obligations to the MEPP would also continue. There are some exceptions to this general rule.

The following are examples of pension issues that may be relevant in a share purchase.

Related Companies Participate in Target Company’s Pension Plan

If companies related to the target company are not part of the share acquisition, it is necessary to terminate their participation in the target company’s pension plan as of the closing date. Otherwise, post-closing, companies unrelated to the buyer will participate in the target company’s pension plan. Not only is this undesirable, but it will also cause the plan to fall under unique pension legislative requirements applicable to MEPPs. Among other things, MEPPs have significantly different administration rules under the pension legislation than those which apply to single-employer pension plans.

The pre-closing treatment of the accrued assets and liabilities of the employees of the related company will also have to be addressed. For example, the parties will have to decide if such assets and liabilities should remain in the target company’s pension plan or be transferred into a successor plan of the related company.

Assets of the Target Company’s Pension Plan Participate in a Master Trust

Where the target company is related to other Canadian companies with pension plans, it is common for assets of the target company’s pension plan to be co-mingled with assets of other pension plans sponsored by the seller or other related companies for investment purposes. These are referred to as master trust arrangements.

In this situation, the assets of the target company’s pension plan will have to be extracted from the master trust arrangement before closing. This may lead to negotiations between the seller and the purchaser as to the valuation of that portion of the master trust assets attributable to the target company’s pension plan, and the means by which such assets are to be distributed from the master trust (e.g. in cash or in kind or both).

Target Company is a Participating Employer in the Pension Plan of a Related Company

The target company in an acquisition may be a “participating employer” in a pension plan that is controlled by a company that is not part of the acquisition. The target company must take steps to terminate its participation in the seller’s pension plan, or the plan of the related company, as of the closing date. The issues that arise in this scenario are similar to those applicable to an asset sale scenario. For example, what kind of retirement plan will the target company provide to its employees post-closing?

Purchaser Requires Termination of Pension Plan

A purchaser could negotiate this provision into the sale agreement if the purchaser prefers to add the target company’s employees into its own existing pension and benefit plans post-closing (e.g. for economies of scale). This approach will, of course, be subject to the provisions of any applicable collective agreements.

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