The Canadian Securities Administrators have issued a notice affirming that takeover and issuer bids can include financing conditions.

The notice spells out the position of the CSA staff regarding the acceptability of conditions in financing arrangements for takeover bids and issuer bids. CSA staff previously had taken the position that the inclusion of some conditions in takeover and issuer bids is acceptable, provided the conditions are customary and minimal.

However, earlier this year an Ontario court issued a judgment that raised some uncertainty regarding the legal status of financing conditions. The judgment of the Ontario Superior Court of Justice in BNY Capital Corp. v. Katotakis, said, “ ‘Adequate arrangements’ has been interpreted to mean that there must be accurate, clear and unequivocal assurance that the financing is in place in the sense that a public shareholder contemplating tendering his or her shares to the bid can be unequivocally assured that the funds are available to complete the purchase.”

CSA staff consider a prospective buyer has complied with the bid financing requirement if it reasonably believes the possibility is remote that it will not be able to pay for tendered securities because of a financing condition not being satisfied. In these circumstances, there is sufficient assurance that the funds are available to complete the purchase, even though there are some conditions on the financing arrangements. It notes that CSA staff will continue to interpret the financing requirement in this manner.

The Ontario Securities Commission proposes to introduce a rule that would confirm financing arrangements may have a limited degree of conditionality. The proposed rule is consistent with staff’s interpretation of the financing requirement, the CSA noted.