Waivable Conditions in Takeover Bids: Case Discussion of Western Energy Services Corp. v Savanna Energy Services Corp., 2023 ABCA 125

The appellant, Western Energy Services Corp. (“Western”), appealed an Order dismissing its summary judgment application and granting summary dismissal in favour of the respondent, Savanna Energy Services Corp. (“Savanna”). Western claimed for a $20 Million termination fee arising out of an Arrangement Agreement under which Western sought to acquire all shares in Savanna. Western’s “white knight” takeover proposal was recommended by Savanna’s Board after an earlier unsolicited bid was submitted by Total Energy Services Inc. (“Total”).

Initially, Total made an unsolicited takeover bid to acquire all shares in Savanna. Total’s takeover bid included a non-waivable condition requiring the deposit of more than 50% of Savanna’s shares before the takeover could take effect, in compliance with applicable securities regulations. Total’s takeover bid also included a waivable condition requiring the deposit of more than two-thirds of Savanna’s shares. The two-thirds requirement was waivable at Total’s sole discretion.

Savanna’s Board recommended against its shareholders accepting the Total bid and sought competing “white knight” bids. Savanna and Western then entered into the Arrangement Agreement featuring a more favourable price per share for Savanna’s existing shareholders, representing a premium over the value of the Total offer. The Arrangement Agreement also included a termination fee provision obligating Savanna to pay a $15 Million fee if Savanna terminated the Agreement in certain circumstances, including if it accepted a new or newly amended takeover bid instead of Western’s bid.

In response to Savanna’s Board’s publication of the Arrangement Agreement and its recommendation of the Western bid, Total elected to waive the requirement that a minimum of two-thirds of Savanna’s shares be tendered. Total filed a notice of variation with the securities regulator confirming the change in its takeover bid from requiring the tendering of two-thirds of Savanna’s shares to only requiring tendering of a minimum of 50% of Savanna’s shares. Western and Savanna then amended the Arrangement Agreement to increase the value of Western’s offer and increase the termination fee from $15 Million to $20 Million.

Total subsequently secured over 50% of Savanna’s shares and completed its takeover of a majority of Savanna’s shares. Savanna then terminated the Arrangement Agreement and Western sought payment of the $20 Million Termination Fee. Western took the position that the Total offer had been amended and the termination fee was payable.

The Court’s decision turned on whether Total’s decision to waive the two-thirds tendering requirement constituted an amendment to the Total takeover bid. If it did, the amendment would have constituted a triggering event under the Arrangement Agreement and the termination fee would have been payable. The Court determined that Total’s right to unilaterally waive the two-thirds tendering agreement existed from the outset when it initially submitted its bid. No amendment to the bid was required for Total to waive the two-thirds requirement.

Despite the fact that Total had advised the securities regulator of its decision to amend the terms of its takeover bid to require only 50% of shareholder approval and not two-thirds, the Court determined that the change to the conditions of the takeover bid in the securities filing did not necessarily constitute an amendment to the takeover bid itself. Relying on the unambiguous wording of the Arrangement Agreement, the Court determined that Total’s decision to exercise its right to waive the two-thirds tendering requirement did not constitute an amendment to the Total takeover bid, meaning that no triggering event had occurred entitling Western to payment of the termination fee.

A key takeaway from the Court’s decision is that filing a notice of change to an offeror’s takeover bid with the securities regulator does not necessarily constitute an amendment to the takeover bid itself. If the language of the takeover bid entitles the offeror to unilaterally waive a condition, the offeror’s decision to waive that condition may not constitute an amendment to the bid.

Please contact Patrick Sullivan or Gordon Becher of our commercial and securities litigation team for advice or questions relating to any of your commercial or securities litigation matters.