Torys’ Top M&A Trends for 2011

The year 2010 saw a resurgence in mergers and acquisitions activity, both in North America and internationally. But accompanying this increase in activity were rising concerns – some old, some new – about the way M&A deals are done: What are the appropriate limits (if any) on foreign investment? Who should ultimately decide whether to sell a company or allow it to be transformed? And if shareholders decide, how do you know that their votes are cast and captured correctly?

Global concern about unbridled foreign acquisitions has re-emerged. As we saw in the failed BHP Billiton/Potash transaction in Canada, governments are well aware of these concerns. If foreign investment in Canada is going to continue to grow in 2011, investors and acquirors will have to be creative and flexible in structuring transactions to satisfy the legal and the political aspects of their deals.

The increase in M&A activity has also highlighted the growing tension between boards of target companies and their shareholders. Who should have the final say in respect of transformative corporate transactions? Unlike courts and regulators in the United States, those in Canada are struggling with this question, and their past inconsistent decisions have led to unpredictable results. We expect that in 2011 the debate over this issue will intensify.

Given the expanding role of shareholders in decision making, we expect that the process by which shareholders exercise their votes will come under greater scrutiny in 2011. Regulators on both sides of the border are being urged to review the mechanics of the proxy system and the growing influence of proxy advisory firms. In 2011, we will see regulators and M&A advisers focus on the authenticity and accuracy of shareholder voting.