CRA rules on use of s. 88(1)(d) bump to eliminate sandwich structure following a spin-off by public company Target and cash acquisition of Target shares by the Canadian buyco of U.S. public company

A s. 88(1)(d) bump letter deals with a Canadian target with indirect non-resident subsidiaries which, under a plan of arrangement, spins off a Spinco to its shareholders under s. 86, with its remaining shares then acquired by a Canadian subsidiary (BidAmalco) of a U.S. public company (Buyer) in order that there can be a winding-up of Target into BidAmalco, a bump of the shares of the non-resident subsidiaries and their distribution out of BidAmalco so as to eliminate the sandwich structure.  As it was an all cash deal, there was no need to wrestle with the new rules which accommodate share consideration paid by Buyco provided that not more than 10% of the value of the Buyer shares is attributable to Target’s property – and, in any event, the transactions may have been implemented before the effective date of those new rules.  The ruling letter was issued after the bump designation had already been made by BidAmalco.

Spinco agreed with Buyer that for the following two years it would not purchase Buyer shares or debt, or any securities that derive their value, directly or indirectly, from such securities.  (Such a purchase would be problematic under s. 88(1)(c)(vi)(B)(III)(2) given that initially Target and Spinco2 have the same shareholders in common.)

Neal Armstrong.  Summary of 2013 Ruling 2011-0397081R3 under s. 88(1)(c)(vi)(B)(III).