AIP acquisition of Canam accommodated non-cash dividends to or rollovers by the key shareholders
Canam was a TSX-listed Quebec corporation whose shares were acquired by a subsidiary (the “Purchaser”) of a U.S. private-equity firm (American Industrial Partner Capital Fund VI, L.P.) The acquisition occurred for cash consideration, subject to two exceptions.
First, a group of shareholders, collectively holding 27% of the Canam shares (so that, collectively, they had significant influence over Canam) and consisting of (i) the CEO (Mr. Dutil) or family members or holding companies, holding around 12% of the shares, and (ii) two Quebec-based Funds, holding 15% of the shares, were permitted to first transfer their shares into new Quebec Holdcos (having no other assets, and no liabilities). The Holdcos were then permitted to pay non-cash dividends to their shareholders. The Holdco shareholders then sold their Holdco shares as part of the Quebec Plan of Arrangement for cash consideration (corresponding to the transaction value of the underlying Canam shares) except as described below. The dividends that a Holdco was permitted to pay prior to the effective time of the Arrangement were described as:
an increase in stated capital, a stock dividend, a cash dividend financed with a daylight loan or a dividend paid through the issuance of a promissory note with a determined principal amount and any such promissory note issued in relation to the payment of any such dividend shall no longer be outstanding as of the Effective Time.
Second, members of the same 27% group could timely elect to transfer their Canam or Holdco shares to the Purchaser for Purchaser shares with a value agreed to correspond to the cash consideration. It was anticipated that these “Rollover Shareholders” would hold as much as 40% of the equity of the Purchaser (which was also capitalized with debt).
Neal Armstrong. Summary of Canam Circular under Mergers & Acquisitions – Cross-border acquisitions – Inbound – Canadian Buyco.