[Last updated: 1 January 2025, unless otherwise noted]

2.1 Takeover bids – legal framework

Each of the provincial and territorial Canadian securities administrators (CSAs) has jurisdiction over takeover bids in its respective province or territory through its provincial or territorial Securities Acts. All of the provincial and territorial acts have generally been harmonized. Further, the regulatory regime governing the conduct of takeover bids is harmonized in all Canadian jurisdictions through the application of National Instrument 62-104 Take-Over Bids and Issuer Bids (NI 62-104).

In Ontario, Québec, Alberta, Saskatchewan, Manitoba and New Brunswick, additional disclosure, valuation and security holder approval requirements may apply to certain transactions that involve the rights of minority security holders and which may raise conflict of interest concerns, specifically: insider bids, issuer bids, specified business combinations and related party transactions. These additional requirements can be found in Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101). In any event, these requirements apply to companies whose securities are listed on certain stock exchanges, such as the Toronto Stock Exchange or the TSX Venture Exchange.

National Policy 62-202 Take-Over Bids – Defensive Tactics (NP 62-202) sets out the view of the CSAs on takeover bid defensive tactics.

The early warning reporting regime (EWR regime) applies when a person or company acquires ownership of 10% or more (on a partially diluted basis) of the voting or equity securities of a reporting issuer. This provides the market with immediate notice that a particular person or company is accumulating a significant block of voting or equity securities of a reporting issuer. The provisions comprising the EWR regime can be found in NI 62-104 and National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues.

The target's corporate statute typically has application solely in the squeeze-out or follow-on transaction context. The applicable exchange also has some oversight over takeover bids, mostly relating to trading issues.

2.2 Corporate transactions

Friendly acquisitions in Canada are typically structured as corporate transactions under the target's corporate statute as amalgamations, reorganizations and, most often, plans of arrangement or "arrangements". Arrangements are court approved "mergers". They permit the parties to structure a combination in ways that are not contemplated by corporate statutes. They are also often used to address tax issues relating to the merger and usually combine many steps into one transaction in a specified order.

Arrangements are subject to requirements imposed by (i) the corporate statute governing the company, (ii) the securities regulatory authorities in the jurisdictions in which the company is a reporting issuer, such as many of the rules (including MI 61-101) described above and (iii) the company's stock exchange, to some degree.

2.3 Supervision and enforcement by the provincial or territorial regulatory authorities

Public takeover bids and plans of arrangement are subject to the supervision and control of securities regulatory authorities in the jurisdiction in which the company is a reporting issuer. The regulatory authority in the company's jurisdiction of incorporation or head office is, in most cases, the principal securities regulator of such company and the other jurisdictions generally defer to the principal regulator under a prescribed harmonization model.

The securities regulatory authority has a number of legal tools that it can use to supervise and enforce compliance with the applicable rules, including administrative fines, penalties and cease trade orders. In addition, sanctions could be imposed by the courts in case of non-compliance.

The securities regulatory authority also has the power to grant (in certain cases) exemptions from the rules that would otherwise apply to a public takeover bid or arrangement.

2.4 General principles

The primary objective of the takeover bid provisions and the provisions relating to corporate transactions of Canadian securities legislation is the protection of the bona fide interests of the shareholders of the target company. A secondary objective is to provide a regulatory framework within which takeover bids and other transactions may proceed in an open and even-handed environment. The takeover bid provisions should favor neither the offeror nor the management of the target company and should leave the shareholders of the target company free to make a fully informed decision.

2.5 Foreign investment restrictions

Foreign investment in Canada is regulated by the Investment Canada Act (ICA). Generally speaking, a foreign investor seeking to acquire control of an established Canadian business valued at or above a prescribed financial threshold must apply for review of the investment's likely net benefit to Canada and may not complete the acquisition until approval is obtained. The review threshold differs for investments from World Trade Organization (WTO) members (WTO Investors), private investors from jurisdictions with which Canada has trade agreements, state-owned investors, non-WTO investors and investments in Canadian cultural businesses. For all other investments valued below the prescribed financial threshold, foreign investors need only file a notification (before or within 30 days of closing) and the investment is not reviewable for net benefit. A notification is required when an investor from a WTO member jurisdiction indirectly acquires control of an existing Canadian business or when a foreign investor establishes a new business in Canada.

The ICA also contains an independent national security review regime (similar to the Committee on Foreign Investment in the United States) that applies to all acquisitions by foreign investors, regardless of value and level of ownership, and can result in conditions or prohibition if an acquisition is found likely to be injurious to Canada's national security. In the case of a reviewable investment, national security review will generally be conducted in parallel with net benefit review. For investments that require only a notification, foreign investors can obtain certainty in respect of national security risk by filing the notification before closing to allow the 45-day initial national security screening period to expire. Foreign investors may submit a voluntary notification for otherwise non-notifiable and non-reviewable investments to obtain certainty in respect of national security risk. If such a foreign investor chooses not to voluntarily notify, the amendments extend the national security review screening period from 45 days after closing to five years.

Recent amendments to the ICA will require foreign investors to file mandatory pre-closing notifications for certain investments in prescribed sectors that are not currently subject to review or notification. The prescribed sectors are likely to be similar to the “Sensitive Technology Areas” set out in Canada’s Guidelines on the National Security Review of Investments. These amendments are expected to come into effect in 2025.