Talking a Buyer Out of the Cheap Version of a Cross-Border Deal

The situation

Tom called our office the week after his deal team had already sent a term sheet, which was not the order he had been told to do things in. He led acquisitions for a private equity-backed platform buying a mid-size specialty equipment manufacturer headquartered in Toronto, with a shareholder base split roughly evenly between Canadian holders and a group in the United States who had come in through an earlier financing round. The target was valued in the deal at somewhere between $50 million and $80 million depending on how earn-out contingencies were treated, and Tom's fund wanted the transaction closed inside two months. Two of the larger shareholders behind the earlier US financing round, Sylvain and Rejean, sat on the target's board and had indicated informally they would support a sale but wanted the process handled carefully given their own investors' expectations.

Tom's first question on the call was whether the fund could simply run a standard share purchase agreement, get majority sign-off, and use a short-form process to bring in the rest, the way the fund had done on two prior Ontario-only acquisitions. He had a term sheet already circulating that assumed exactly that. What he had not accounted for was that a meaningful share of the target's capitalization sat with shareholders whose rights, notice expectations, and dissent procedures were governed by rules on the other side of the border, not by the Business Corporations Act (Ontario) alone, and that treating them the same as the Canadian shareholders risked a transaction that looked closed but was not, in fact, safely closed everywhere it needed to be.

The pressure behind Tom's question was not abstract. His fund had a track record with its investment committee of closing add-on and platform acquisitions inside sixty days, and the two-month figure had already been mentioned to the committee before Tom's team even finished due diligence on this target. Slowing the process down, in Tom's mind, meant walking back a number he had effectively already committed to internally, which was not a conversation he wanted to have. He was also working from real experience: the fund's two prior Ontario-only deals had closed on that exact timeline using exactly the short-form structure his term sheet assumed, and nothing about those transactions had gone wrong. What Tom had not yet internalized was that the thing that made those two deals safe to rush, an entirely domestic shareholder base with rights defined by a single statute, was precisely the thing missing from this one.

Rejean, for his part, made clear on an early call that his own investors back in the United States had been burned before on a different deal by a Canadian buyer who treated a cross-border shareholder group as an afterthought, and that he was not interested in repeating that experience even if it meant a slower close. That comment, more than anything in our own analysis, was what first got Tom's attention, because it came from someone on his own side of the negotiating table rather than from outside counsel telling him to slow down.

The legal problem

When a target company has shareholders subject to different jurisdictions' securities and corporate law, a straightforward share purchase or amalgamation structured only around Ontario procedure can leave the buyer with a transaction that is valid for Canadian shareholders but vulnerable for American ones, or the reverse. A plan of arrangement, approved by an Ontario court after both an interim and a final hearing, is the structure Ontario corporate law provides for exactly this kind of complexity: it lets the court fold notice, voting, and dissent procedures for shareholders in different jurisdictions into a single coordinated process, rather than running two separate transactions that have to be stitched together and hoping nothing falls through the seam.

The complication in Tom's deal was that the dissent procedures available to the Canadian shareholders and the process available to the US-based holders were not identical. Dissent and appraisal rights under the Business Corporations Act (Ontario) are not a general entitlement of any dissenting shareholder: they attach only to specific fundamental changes, including an arrangement whose court order provides for them, and only if the shareholder objects in the prescribed way and meets strict deadlines, with a court fixing fair value only if the corporation's own initial offer is not accepted. Because this deal was structured as a plan of arrangement, the Ontario order could extend that conditional right to the Canadian shareholders. The US shareholders' rights depended on the terms of the instruments they held from the earlier financing round, which did not map cleanly onto the Ontario statutory process. Running one generic notice and one generic dissent mechanism across both groups, which is what Tom's cheap-and-fast plan effectively did, risked giving the US holders inadequate notice under their own governing terms while giving the Canadian holders more process than the deal timeline had budgeted for, a mismatch that could leave either group with grounds to challenge the arrangement after the fact, undoing the very speed Tom was trying to buy.

There was a second layer to the problem beyond notice mechanics. Even with proper notice, the court at a plan of arrangement's final hearing must be satisfied that the arrangement is fair and reasonable, judged across the affected shareholders as a group and with real attention to how the minority is treated, not simply that a majority had voted in favour. A record that shows one shareholder group received carefully tailored disclosure while another received a generic package built for a different jurisdiction's rules invites exactly the kind of scrutiny a buyer wants to avoid at that hearing. It is not that the court assumes bad faith. It is that a mismatched process is difficult to defend as fair when challenged, and a US shareholder group with its own counsel, once it noticed the gap, would have every reason to raise it, whether informally before the final hearing or formally as an objection at the hearing itself. Tom's fund had budgeted for neither outcome, having assumed, reasonably enough given its prior deals, that a court-approved arrangement was simply a formality once the majority had voted in favour.

What we did

1. Mapped the shareholder base by governing rights, not just by geography. We worked through the target's capitalization table to identify exactly which shareholders held rights under the Business Corporations Act (Ontario) directly and which held rights defined by the earlier financing instruments, since the two groups did not divide cleanly along a Canada-US line. That distinction mattered because a notice process built on residency alone would have missed Canadian-resident holders whose rights actually flowed from the US instruments, and the map became the basis for every notice decision that followed.
2. Explained to Tom's team why the fast, cheap structure created real risk. This took more than one conversation. We laid out, with a specific example, how a US holder under-notified relative to their own instrument's terms could later argue the arrangement was not properly approved as to their shares, which would not just cost money to fix but could unwind pieces of a closed transaction.
3. Put the timeline risk in terms the investment committee would weigh seriously. Rather than argue procedure in the abstract, we framed the choice for Tom as a comparison: a five-week delay with a clean, defensible closing, against a two-month closing carrying a real chance of a post-closing challenge that could cost months and far more in legal fees to unwind.
4. Proposed a plan of arrangement structured around two coordinated notice tracks. Rather than one generic notice package, we built separate, appropriately tailored notice and voting materials for the two shareholder groups, both folded into the single court-supervised arrangement so the transaction still closed as one deal rather than two. This kept the deal from splintering into a Canadian process and a separate US-facing side agreement, which would have doubled the closing risk and given each group grounds to compare its treatment unfavourably against the other.
5. Sought the interim court order early enough to absorb the extra process. We built the additional two to three weeks the dual-track notice required into the interim hearing timeline up front, rather than discovering the delay midway and scrambling to justify it to the fund's investment committee. Filing early also meant the court set the notice period with full knowledge of the dual-track structure, so there was no later argument that the process had been rushed or improvised after the fact.
6. Coordinated with Sylvain and Rejean directly as board members representing the affected group. Because they sat on the target's board and had credibility with the US shareholder group, we worked with them to make sure the tailored notice materials for that group actually answered the questions those shareholders were likely to raise, reducing the odds of an objection at the final hearing.
7. Confirmed the exchange ratio and disclosure basis were identical across both notice tracks. The two groups received differently formatted materials suited to their own governing rights, but we made sure the underlying valuation, exchange ratio, and financial disclosure were exactly the same for both, so no group could later argue it had been given a worse deal dressed up in different paperwork.
8. Prepared the final hearing record to show fair, coordinated treatment of both groups. The court's fairness review at the final hearing benefits from a clear record showing each shareholder group received notice and process suited to its own governing rights. We built that record deliberately, with a chronology and cross-reference between the two notice tracks, rather than relying on a generic template that would have left the coordination between the two groups implicit instead of documented for the judge.

The outcome

The arrangement closed roughly five weeks later than Tom's original two-month target, largely because of the additional notice track and the slightly longer interim hearing runway it required. No shareholder in either group filed a dissent that proceeded to a contested valuation, and the final hearing approval went through without objection from either the Canadian or the US side.

Tom's fund absorbed the additional cost of running two coordinated notice tracks rather than one generic process, along with the five extra weeks against its original schedule. Set against that cost was the transaction the fund did not end up with: a closed deal later challenged by a group of US shareholders arguing they had not received the notice their own financing instruments entitled them to, which would have cost far more in both time and legal fees than the extra weeks spent getting the structure right the first time.

Sylvain, who had pushed for a careful process from the board side from the beginning, told our team afterward that the extra weeks were the least interesting part of the story for his co-investors. What mattered to them was that the arrangement closed in a way that did not leave anyone with a live grievance about how they had been treated, which is not something a fast, cheap version of the same deal would have delivered.

For Tom personally, the file changed how he approached the fund's next two acquisitions, both of which involved shareholders based outside Ontario. On the following deal, he raised the jurisdictional question with his own team before a term sheet went out, rather than after, and asked for a governing-rights map as a standard step before any acquisition with shareholders outside the province, treating it as a routine diligence item rather than a special request reserved for unusually complicated files. The investment committee, once shown the actual cost comparison between the five-week delay and the exposure it avoided, did not push back on the extra time nearly as hard as Tom had originally feared it would.

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