Canada - Law Firms The Integration Of U.S. And Canadian Securities Rules: At The Center Of The Evolving North-South Economy

Friday, April 1, 2005 - 00:00

Editor: Mr. Smith, would you tell our readers something about your background and professional experience.

Smith: I am Canadian by birth and a U.S. securities lawyer by profession. Debt and equity offerings, including high yield offerings and mergers and acquisitions, are among my specializations, and I have about 15 years of experience in this area. For the last 10 years or so I have been focussed on helping foreign companies, and particularly Canadian enterprises, access the U.S. capital markets and comply with the U.S. tender offer rules.

Editor: You are admitted in both New York and Ontario - no surprise - but also in England. How did that come about?

Smith: I started practicing law in Toronto, hence the Ontario license. However, in the early 1990s it was clear that the dominant trend in my practice area, with the globalization of the world's economy, was the related integration of the world's capital markets. I wanted to be part of that trend. I was fortunate in being able to join Clifford Chance in London, which led to my admission in England. At the time it was very difficult for U.S. educated attorneys to qualify themselves with the Law Society of England and Wales,but qualification for Canadians - Commonwealth citizens and already qualified by the Law Society of Upper Canada - was relatively easy. Having practiced for at least five years in Canada, I was entitled to sit for some examinations without having to go back to school or article as a UK solicitor.

After a few years in London, though, I came to the conclusion that the globalization of the world's capital markets really meant the Americanization of those markets. In pursuit of U.S. experience, I moved to New York and joined Skadden Arps, another excellent firm. My Canadian legal education was recognized by the New York admissions people, and all that was required of me was to pass the New York bar exam. My experience with Skadden, combined with what I had done in London, has given me the advantage of being one of the very few lawyers licensed to sign off on a UK underwriting agreement and a Rule 10(b)-5 offering in the U.S.I am in a unique position to handle both sides of a transatlantic deal. Of even greater importance, however, is the fact that, while at Skadden, I began to work increasingly with Canadian companies attempting to access the U.S. capital markets, which entailed developing a real understanding of the U.S. foreign private issuer rules and how they apply to foreign companies. In recent years the largest number of such companies seeking access to the U.S. capital markets have been Canadian.

Editor: How did you come to Winston & Strawn?

Smith: Winston & Strawn has a great national platform, which is growing. New York is a very important office for the firm in the construction of that platform. They liked me for my Canadian experience and for the New York capital markets experience that I brought to the table. I was also a good fit with the firm's growth prospects for London.

Editor: May I take it that your having joined Winston & Strawn is an indication of the firm's interest in Canada?

Smith: Very much so. Winston & Strawn has always done a significant amount of work for Canadian companies. What I bring to this initiative is an ability, I believe, to help in the expansion of this business. At the same time, I am in a position to help in setting up working relationships with Canadian counsel. Canadian law firms are not willing to simply turn over longstanding clients to their American counterparts. They wish to maintain the relationships they have worked to build over many years, and while they need American lawyers to help on compliance issues and in executing the transaction, they definitely do not need the services of those who seek to undermine their client relationships. Winston & Strawn is the kind of firm that respects such relationships and knows how to act as effective co-counsel.

Editor: Please tell us about your practice. How has it evolved over the years?

Smith: In recent years I have been busy with cross-border mergers and acquisitions. I am probably one of the few U.S. attorneys who has done a significant number of Canadian transactions that were public on both sides of the border - deals that were subject to both the Canadian takeover rules and the U.S. tender offer rules. Over the last five years there was a flood of Canadian companies that listed themselves on U.S. stock exchanges or otherwise became reporting issuers. As a result, now, whenever a Canadiancompany is put into play, even by another Canadian company, one of the most important issues is how to deal with the U.S. shareholders. For me, that usually entails finding exemptions from the U.S. tender offer rules for Canadian companies. But sometimes there are no exemptions available.

Editor: You also have experience with respect to the application of U.S corporate governance reforms - Sarbanes-Oxley, in particular - to Canadian companies. This American statute reaches out beyond the publicly-held American companies at which it was directed?

Smith: Sarbanes-Oxley is applicable, generally, to any issuer that has reporting obligations with the SEC, and that includes foreign private issuers. If a Canadian enterprise is subject to SEC reporting requirements - whether because it is listed in the U.S. or has a significant number of American shareholders - it is going to have to be concerned about compliance with Sarbanes-Oxley. That said, not all of the Sarbanes-Oxley provisions, nor all of the new corporate governance rules of the various U.S. securities exchanges that derive from Sarbanes, are going to apply to a Canadian private issuer to the same extent that they do to an American issuer. I have spent the better part of the past two years trying to determine what actuallyapplies, what may not apply but still constitutes international best practices, and what is not applicable.

Editor: You have also been involved in representing Canadian investment banks in connection with the development of income trusts. Please tell us about this product.

Smith: The income trust structure has been used with a great deal of success in Canada. It allows some companies that might not be able to go public to do so, and, at the same time, it provides investors with a high yielding security. At a time when few, if any, decent investments are returning 5 percent per year, these income trusts are yielding returns in excess of 10 percent. The Canadian investment banks have brought this product into the U.S., and it is beginning to gain some traction with companies that are stable generators of revenue. Essentially, these companies go public, either in Canada, the U.S. or both countries, through what is called a "stapled unit." They issue common stock that is stapled to a high yield debt instrument. This gives the investor a yield that is absent in today's capital markets. The company is able to go public, and for many of the private equity funds that have an ownership interest in these enterprises the new security provides an opportunity to finally exit fromsome of their investments.I had the good fortune to work on one of the very first cross-border offerings of an income trust, known as an Income Depositary Security or IDS in Canada, and it was my responsibility to integrate the U.S. and Canadian securities laws to take the transaction public in Canada and the U.S.

Editor: With your background, you have the ability to look at Canada as an investment destination and place to do business from the standpoint of the incoming investor; but you are also in a position to advise Canadian investors looking for opportunities outside the country's borders. Are you changing gears on a regular basis?

Smith: I am changing gears all the time. Typically, I will get a call from one of my partners at Winston & Strawn with a client needing on-the-ground help in Canada. In these circumstances, it is my job to make a great referral. These clients are trusting us to introduce them to the right Canadian lawyers, people who will address their issues and work with us effectively as co-counsel. Cutting the other way, I am here to act as effective co-counsel for Canadian firms whose clients are in need of representation on this side of the border.

Editor: While you have not been with Winston for very long, can you tell us about the resources of the firm - both in terms of expertise and personnel - that you can bring to bear in your practice?

Smith: Winston & Strawn has an extraordinary reach, not only between New York and Toronto but also between Chicago, Washington, DC and the U.S. West Coast and cities north of the border. Because the firm has such a wealth of experience in dealing with Canadian companies already, it will be easy to ensure that Winston & Strawn remains at the center of the ever deepening North-South economy. For example, Winston & Strawn is one of the few firms with tax attorneys who understand the interplay between Canadian and U.S. tax law, as well as the expertise to integrate cross-border class action law suits.

I am hopeful that, with this extremely strong foundation, we will be able to develop an entire business line dedicated to Canada over the next few years. We have some great friends in Canada, and I believe we can continue building a Canadian-oriented practice - consisting of lawyers who can act as effective co-counsel for Canadian lawyers - that cuts across a wide range of disciplines and practice areas.

Please email the interviewee at michaelsmith@winston.com with questions about this interview.