Exchangeable shares aren’t dead

An Australian listed company (Mamba) is proposing to acquire all the shares of a Canadian listed company with the same focus on iron deposits (Champion) for share consideration.  Qualifying Canadian taxable shareholders can elect to exchange their shares on a s. 85 rollover basis for exchangeable shares of special-purpose "Canco" subsidiary of Mamba.  (Largely consistent with the Finance Explanatory Notes on derivative forward agreements) their shares are retractable for Mamba shares, but with an overriding call right in favour of Mamba to acquire the exchangeable shares for Mamba shares.

Departures from standard methodology include: the exchangeable shares must be redeemed by Canco (subject to the Mamba call right) on a date determined by the Canco directors between January 1, 2015 and the 3rd anniversary of their issue (an unusually early "sunset"); financial institutions are prohibited from receiving exchangeable shares; and the call right is exercised only by Mamba directly rather than using an SPV Canadian "Callco."

In contrast to a U.S. acquisition (e.g. Molycorp), there is no angst as to whether the exchangeable shares should be treated as shares of the foreign parent (Mamba).

Neal Armstrong.  Summary of Circular of Champion Iron Mines respecting its acquisition by Mamba Minerals under Mergers & Acquisitions – Cross-Border Acquisitions – Inbound – Exchangeable Share Acquisitions.