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Torys Business Brief: Preparing For A COVID-19 Recovery – Coronavirus (COVID-19) – Canada – Mondaq News Alerts


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Co-Author by Rudyard Griffiths

Torys Business Brief focuses on key issues and actionable
knowledge for businesses to emerge from the COVID-19 crisis
resilient and well-positioned for the future. Each episode of Torys
Business Brief features in-depth, accessible interviews with Torys
lawyers, moderated by Munk Debates convener Rudyard Griffiths.
These episodes are accredited for CPD purposes.

What’s waiting for businesses on the other side of the
COVID-19 crisis? This week on Torys Business Brief,
Rudyard Griffiths speaks with Torys partners Mike Amm and Krista
Hill, who share what they are seeing on the ground working with
business leaders throughout the outbreak. This episode discusses
the top issues on leaders’ minds as they look to anticipate
post-pandemic realities: the dealmaking landscape, the role of
government as a major investor and more.

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A full episode transcript follows.

Rudyard Griffiths (00:02):
Hello and welcome to Torys Business Brief. I’m Rudyard
Griffiths. You may know me as the convener of the Munk Debates
where we bring together some of the world’s brightest minds and
sharpest thinkers to debate the top issues of the day.

As the host of Torys Business Brief, my role is to provide you,
the listener, with compelling conversation about the legal
challenges the COVID-19 pandemic presents for businesses and
business leaders. We’re all taking stock of the ongoing effects
of the pandemic. As the world continues to respond, businesses have
wide ranging issues to consider. This podcast will equip you with
actionable knowledge your business can use to emerge from the
current crisis resilient and ready to thrive.

RG (00:44): To do this, I’ll be drawing on
the expertise and insights of the lawyers working at the firm named
corporate law firm of the year by Chambers and Partners, Torys
LLP.

RG (01:24): On today’s business brief, we
speak with partners, Mike Amm and Krista Hill about the issues
business leaders must think through now, in the heart of the
crisis, in order to come out of the pandemic in a position of
strength.

Mike Amm is a partner at Torys focusing on M&A, corporate
finance, and governance matters including cross-border transactions
and Krista Hill is a partner and co-head of Torys infrastructure
practice. Krista has expertise in M&A and project development
both here in Canada and internationally. Mike, Krista, welcome to
Torys Business Brief.

Krista Hill (02:04): Thank you. Welcome.

Mike Amm (02:04): Thanks, Rudyard.

RG (02:05): Well look, let’s dive right in
here and I think we want to start off with both of you kind of
looking at the big picture maybe starting with you, Krista, what
are you hearing from your clients and the extent to which … What
are the top of mind issues for them as we move out of that kind of
acute crisis phase into the challenge of kind of managing this
pandemic and their response over a longer term period?

KH (02:34): Well, we’re starting to see, I
think generally across Canada in many of the provinces we appear to
have peaked in terms of the pandemic. We are starting to see some
light at the end of the tunnel. And so, the conversation shifted a
bit I think in the last few days and we see governments beginning
to consider lifting some of the social distancing measures in the
weeks to come. Really all levels of government in Canada are
starting to talk about this. But as you would expect, we’re
seeing a very cautious approach being voiced. So, I’d say
businesses, our clients are also really beginning to prepare for
their workforce to return on a part-time basis or full-time basis.
What that looks like really remains to be seen, but we are seeing
the businesses really starting to envision what that could look
like for them.

RG (03:35): Thanks Krista. Mike, what’s
your sense of, in terms of the corporations and CEOs that
you’re talking to about their view on the pace of this
recovery? Are they anticipating a quick bounce back? Are they
planning for a longer recovery? Give us a little sense of the
temperature out there in terms of the clients that you’re
talking to.

MA (03:58): Rudyard, I think there’s a
quite a lot of certainty about how the reopening and the recovery
will occur. I think many business leaders are expecting that there
will be an incremental return to normal operations on a gradual
basis with some of the social distancing restrictions being lifted,
some being kept for a period of time. They do recognize that
we’re in for a longer-term return to normal until there is a
vaccine available or some broader social immunity that’s
established. I think there’s a general realization that the
recovery will be a longer and staggered process with some bumps in
the road along the way.

KH (04:59): I agree with all of that. And I
think what’s interesting is this idea of return to
“normal” because I do think that we probably are going to
see a new normal coming out of this. I mean we’ve had millions
of people pick up one day and go home and start working at home the
next day and it’ll be interesting to see how much of that
carries over in this kind of forced trial period. If it has worked
out for your business, we may see more of that continuing to go on
as a way to achieve the social distancing that will still be
required.

RG (05:41): Mike, do you sense that a new
normal is really a big part of how businesses and business leaders
should be thinking about this? I guess I hear a lot of people
talking about this idea of 80%. We’re going to get back to 80%
and I guess I’m trying to figure out what does that practically
mean? Does that mean 80% of what it was before or 80% of something
that’s really quite new and could have some unintended
consequences but maybe also some unintended opportunities?

MA (06:12): I think you’re quite right
Rudyard, that the 80% is really referring to something that’s a
bit new that’s not exactly what was in place prior to the
crisis. Business leaders are thinking about staggering the return
of their workforce. Perhaps they don’t all come back at the
same time. Perhaps there are shifts that are on or shifts that are
off for a period of time. Certainly, some of the social distancing
requirements in terms of gatherings and sizes of meetings that can
be held will be affected. Workers who can work from home will
probably continue to do that for a little bit longer than what we
might expect and certainly I think there’s going to be a big
change in travel.

MA (07:03): Certainly, international travel
restrictions are likely to stay in place for some time and I think
that is going to really determine the character of how we recover
and how we reopen, but it certainly won’t be in the short term
back to pre-crisis normal. It will be something new that will be
more scaled back and that will create more challenges for
businesses in terms of how they navigate that and implement their
strategies in a less than 100% economy.

RG (07:44): Krista, just out of curiosity, what
is this been like for you? Managing a busy practice, doing that in
a very different way than you were six weeks ago. What is your new
normal look like and is that something that you feel you can work
with or there’s some real challenges there? What’s it like
for you?

KH (08:07): Well, certainly there have been
challenges. My spouse is also a practicing lawyer. We have
13-year-old twins that are doing online homeschooling. So, the four
of us during school days each go to separate rooms and our internet
certainly is getting the full load during those times. But it’s
interesting, I’ve practiced for over 25 years and thought about
if this had been … Well certainly when I started practicing in
the mid-90s we wouldn’t have been able to do any of this. We
would have just gone home and neither we nor our clients would have
been able to carry on pretty much in any fashion. But even 10, 15
years ago the technology was nowhere near advanced and I think we
would have really struggled.

KH (09:06): To a certain extent that this
happened in 2020 I think has allowed a significant part of the
economy to continue at home. Of course, nobody wants to be in this
situation. And the one thing we are quite concerned about is the
mental health of our people, our employees, our clients, our
families as it goes on, prolonged effects and can affect
people’s mental health.

RG (09:40): Hi, thanks for listening to Torys
Business Brief. For more information on how organizations and
business leaders should be addressing the challenges of the
COVID-19 pandemic, visit torys.com you’ll find a wealth
of in-depth resources featuring the analysis and insights of Torys
lawyers. Again, that website is torys.com/coivd19.

RG (10:06): Let’s move on and start talking
about some kind of practical advice and insights that both of you
can offer listeners in terms of, as we’ve discussed moving out
of this initial phase of reaction into a big government policy
response to this crisis, new regulation, new opportunity, but also
some new risks to manage and maybe, Michael, if I could start with
you just to give us a sense as our kind of securities and markets
expert on this edition of the podcast, what are you seeing in terms
of best practices around security disclosures, other public company
issues related to a very fast changing marketplace?

MA (10:53): Sure Rudyard. I think that our
clients, almost universally, the first stage of their reaction to
the crisis was to really try and deal with questions from the
market and investors and quite frankly their own organizations
about the initial impact of the pandemic on their business. Whether
that is the safeguarding our employees through enhanced safety
practices and distancing, whether it was borrowing under credit
lines and ensuring liquidity, whether it was other business
continuity plans. It was really important at the outset for
management teams to demonstrate that they were taking all the right
steps and proactively addressing what they could as a very
uncertain situation.

MA (11:58): One of the particular issues that
came up shortly after that was how public companies would treat
their guidance and in many cases they had released a forward
looking guidance for financial performance well before the shutdown
occurred and very quickly many of them suspended or withdrew that
guidance really on the recognition and realization that it was
going to be difficult to figure out exactly how the crisis would
unfold and would affect them.

MA (12:38): Another sort of big issue that a
lot of public companies have been dealing with in the light of all
of this has been their approach to their dividends. Do they
maintain their dividends, do they cut their dividends? It’s
been a tough thing and a very sensitive topic because they do want
to show confidence in their business. They do want to balance the
interests of their employees and workforce who may be subject to
cut backs and they certainly want to preserve liquidity. So many
issuers have been trying to grapple with and balance those concerns
and each one has had to make a call on that. That is unique to its
own circumstances and we certainly have seen many companies reduce
their dividend payouts or cut them. And as a related point
there’s been a lot of focus on do issuers continue with share
buyback programs?

MA (13:44): And I think that those have been
much more sensitive in terms of a lightning rod of should an issue
where be considering using funds for repurchases given the impact
and uncertainty of the crisis. And again, there’s no single
answer that applies to all issuers. It’s a highly
contextualized balancing act to get to the right answer but also be
sensitive to the sort of market and social implications of those
decisions.

RG (14:22): Krista, you are kind of resident
M&A–Mergers and Acquisitions–expert on this edition
of the Torys Business Brief podcast. So, we went into this
crisis with a fairly kind of strong and active M&A environment
in Canada. Give us a sense of where we’re at now, but also
maybe more importantly what your feelings are about M&A going
forward for the rest of the year. This is a moment where people are
now kind of saying, “Whoa, we need to see how this crisis is
going to play out before we’re going to make big decisions on
acquisition or sale of assets.”

KH (15:03): Well, when the pandemic really hit
full force in North America and we started our social distancing
measures, I’d say if some M&A transactions did get put on
hold, some temporarily, some perhaps permanently, others have
continued, obviously there’s definitely been a slow down just
as companies are focused as they should be on the managing the
effects of the pandemic. But I think coming out of the pandemic
when we start all heading back to work in some form or another, I
do think we are going to see increased M&A. Even we can see
that now, but I think it will be a little bit different. Like I
think we’re going to see some sectors may actually need to
consolidate coming out of the pandemic. Others might really need
capital given what they’ve gone through in the prior few
months. I think we might see target companies having to make
decisions faster and quicker.

KH (16:20): I think interestingly we’ve
seen, and this is not just a Canadian trend, but an international
trend where governments are concerned about the effects of the
pandemic and how it’s affected businesses in their countries
and are concerned about foreign investors coming in and buying up
companies that perhaps are at the bottom end of the cycle and might
be easily snapped up. We first saw this, Australia announced this
in March that they were going to apply much greater scrutiny to
foreign investment as a result of the pandemic.

KH (17:06): And most recently we’ve seen
Canada make a similar announcement, that the Canadian Minister of
Innovation, Science and Industry announced that certain foreign
investments into Canada will be subject to enhance scrutiny under
our Investment Canada Act. And this new policy will apply
to investments in public health, the supply of critical goods and
services or that are undertaken by investors with ties to foreign
government. Six months ago, the deal might’ve received very
little scrutiny if any. Now I think you really need to, very early
on in considering an acquisition if there is going to be foreign
investment, to consider how this might apply to your
transaction.

RG (18:33): Talking about investment, Mike, we
know that the Government of Canada will most likely become a major
investor, possibly in multiple large publicly traded companies as a
result of this crisis. Companies that simply can no longer access
the capital, or no longer have a business model as a result of the
types of social distancing and social control that may have to
continue for months. What type of advice and what are you hearing
from your clients related to that piece of this puzzle? I guess we
all know that if you’re a public company, a private company, if
you take in large amounts of government funds in form of a bailout,
there’s very significant implications for control, for your
capital structures. Again, what’s kind of top of mind for you
when it comes to this potentially large-scale government
involvement in corporations and markets?

MA (19:36): I think you’ve raised some very
good points there. I think the reality is given the impact and the
challenges that are going to be faced by many companies in Canada,
more support and direct support is likely to be needed. And
you’re quite right, there’s lots of considerations that
come with that type of assistance. I think the companies and their
boards are thinking of it in the sense of what are our
alternatives, can we raise the money in the public markets, if we
can raise it in public capital markets worth and private investors
in particular to try and rebalance the debt equity ratios that have
been skewed by the additional borrowings during the crisis.

MA (20:30): They will try to do that first most
likely and if they can’t do that to the scale required, they
may well look to government assistance and that comes with a whole
host of considerations around how those businesses will operate
going forward with a significant government investment. Whether
that is debt, whether that is equity, whether it’s some other
type of support measure and certainly is a political reality. There
will be, for those firms that do take significant government
assistance, there will be questions and heightened considerations
around what’s happening with their workforce, what’s
happening with their dividends, what’s happening with their
executive compensation and that’s certainly what has played out
in government support in more localized and specific situations in
prior years prior to the crisis.

RG (21:34): Krista, do you have some thoughts
on that too, just in the context of how the M&A environment is
potentially affected by government suddenly stepping in as a major
purchaser of equity or debt within public markets and on the part
of specific companies?

KH (21:52): Yeah, I mean, I think we saw this a
bit in obviously the 2008 financial crisis where we saw government
step in to save or bail out what we’re seeing as critical
industries. In particular, the auto sector. We saw this both in the
U.S. and Canada, but you’ll have seen obviously with the auto
sector that eventually the governments sold their stakes and you
withdrew from being an investor. So, I don’t think there’s
likely a long-term desire of the government to own stakes or entire
businesses. So, I imagine it would be viewed as a short to medium
term, stop gap to assist businesses to come out of this, the
effects of this pandemic and be successful viable operations on the
other side.

MA (22:55): There’s one point I’d like
to jump in here on and that is that sort of segue as well from what
Krista was saying is that I think one thing that we’ve learned
through this crisis and certainly that many of our provincial and
the federal governments have recognized and are talking about is
the importance of supporting domestic Canadian supply chains,
especially for critical products. Whether it’s personal
protective equipment, whether it’s food supplies, whether
it’s other basic manufacturing, and that really has been a bit
of a shift, quite a bit of a shift. And what will be very
interesting to see is the extent to which both government
assistance and government encouragement and support and the sort of
regulatory framework may shift a little bit towards supporting
these critical domestic supply chains and how that will impact our
clients in the opportunities that that will create for them
domestically that may not have been there before.

RG (24:11): Thanks Mike. That’s a good
segue to where I want to take our conversation in our remaining
minutes together and that’s to the longer-term positioning of
Canadian businesses in the context of let’s hope will be a
sustained recovery. Could you give some thoughts too about what you
think in terms of some of these longer term challenges possibly
around trade, around just the nature of a world that has been
severely disrupted and that world that went into this crisis with
some pretty big geopolitical tensions between Canada’s probably
most important markets in terms of future current growth, the
United States and China.

MA (24:57): I think coming out of this crisis,
the one thing that our population has seen and reacted to is some
of the shortfalls of globalization. Certainly, the response around
the world has not always been coordinated. The issues around some
countries taking steps to get preferential access to PPE and other
critical supplies has created, I think a bit of a skepticism of
globalization and its impact, which will change the way that our
population and to some extent our government will look at this
going forward.

MA (25:46): Clearly international trade is
critical to Canada. As a middle power, we really do depend on large
and successful export markets. I think we’re likely to see
those markets resume their pace more slowly than we expected and
it’s likely that we’ll see at a global level trade that is
perhaps less free and open than it was before. And in particular it
brings into focus some challenges that we’ve seen with two of
our largest trading partners, China and the United States. And
it’s going to be really important for us to manage those
relationships and to broaden our trade focus so that we do have the
export markets available to us and all of this is going to impact
the strategy of our companies that are based on exports and our
views on foreign investment and trade issues. And we’re going
to have to navigate those carefully both in the business community
and through governments to position ourselves for success going
forward.

KH (27:08): Just building on what Mike said, I
do think that we have seen over the last 20 years significant
growth in pools of Canadian capital that are doing international
acquisitions, international investments. There’ll always be
that tension of … To the extent that Canada becomes more closed
off or more protectionist, it doesn’t just affect potentially
Canadian businesses that are manufacturing goods and exporting
them. It can have knock on effects and affect views on foreign
investment. I imagine any decisions made in this regard will
obviously have multiple considerations, but either we’ll want
to tread carefully to make sure that we’re not unintentionally
also causing other knock on effects in other industries.

RG (28:14): Well, Mike, Krista, I want to thank
you for a really thoughtful and far-ranging discussion. You’ve
provided us with I think some practical actionable insights that
can guide our future decisions together. So, on behalf of Torys
Business Brief
, appreciate both of you taking the time to come
on the program today.

KH (28:33): Thanks Rudyard.

RG (28:35): Well, that wraps up this episode of
Torys Business Brief. You can find more of Mike and Krista’s
analysis on this issue in their article “Emerging from the
first wave of COVID-19: key recovery considerations for
Canadian businesses”. You’ll find this piece by visiting
torys.com/covid19.

On our next podcast, we’ll meet with Torys partner Cornell
Wright, and prominent Canadian corporate director and Torys chair,
Robert Prichard, to discuss important governance issues for boards
and directors as they help companies stay the course through the
pandemic.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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