Sterigenics International Inc., a sterilization services company owned by US-based private equity firm GTCR LLC, recently announced that it had entered into a definitive agreement to acquire Nordion Inc. which is a major Canadian health science company with global operations that provide sterilization technologies and medical isotopes products and services for the prevention, diagnosis and treatment of disease. Nordion’s products are used by pharmaceutical and biotechnology companies, medical-device manufacturers, hospitals, clinics and research laboratories.
In addition to the relatively standard competition/antitrust laws and the Investment Canada Act approval closing conditions, the transaction is also conditioned on the coming into force of amendments to the Nordion and Theratronics Divestiture Authorization Act (the “Nordion Act”).
The Nordion subsidiary that actually holds Nordion’s business assets is subject to the Nordion Act which places restrictions on the beneficial ownership or control of voting shares of Nordion by “non-residents” of Canada. These foreign ownership restrictions were imposed in connection with the privatization of Nordion’s business by the Canadian government in 1991 and likely constrained Nordion’s ability to consider strategic transactions involving non-Canadian investors.
Obtaining an amendment to federal legislation which was originally enacted to ensure ongoing Canadian ownership in a business previously owned by Canadian crown corporation is not a standard closing condition. However, in 2010 the current Conservative government lifted restrictions on the foreign ownership of domestic satellite companies in an effort to assist Canadian satellite company Telesat Canada to, among other things, source foreign capital investment. Given that precedent and the Conservative government’s generally pro-foreign investment policies, the parties were likely encouraged to seek an amendment to the Nordion Act that would permit the proposed transaction to proceed.
Proposed legislative amendments to the Nordion Act were in fact included in the most recent Budget Implementation Act, which was introduced to the House of Commons on March 28, 2014. Those amendments will remove the foreign ownership restrictions applicable to the shares of Nordion if the proposed transaction is ultimately approved under the Investment Canada Act. Assuming such approval is obtained, the acquired Nordion shares will no longer be governed by the Nordion Act for subsequent purchasers.
In order to obtain approval under the Investment Canada Act, Sterigenics will need to demonstrate to the satisfaction of the Industry Minster that the proposed transaction will likely be of “net benefit to Canada” and will also need to pass the security review process provided in that Act.
Given the Conservative government majority in Parliament, passage of the federal budget, including the amendments to the Nordion Act, is considered to be extremely likely.
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