This is the final article in our mini-tender trilogy. We have previously discussed mini-tender offers from the perspectives of the offeror, and the issuer and shareholders. This article considers how mini-tenders might be strategically used in proxy contests.
As shareholder activism rises, the activists' toolkit keeps evolving. The strategic use of a mini-tender offer in a recent proxy contest suggests that such offers may increasingly be considered as a means of influencing the outcome of proxy contests.
Background
Recall that a mini-tender is an offer to purchase securities below the threshold that triggers regulatory rules for take-over bids. These offers are not specifically regulated and have been used to acquire small but not insignificant positions in public companies, often at a discount to the prevailing market price.
Making a mini-tender offer in a proxy contest
On June 3, 2014, a mini-tender offer was launched in the midst of a proxy contest between Orange Capital, LLC and Partners Real Estate Investment Trust.1 Orange Capital offered to purchase up to 10% of Partners' units at a 7.1% premium to the closing price of the units on the day prior to the offer. Controversially, the offer Orange Capital filed:
- was only made to unitholders who held units on the record date for Partners' upcoming annual meeting;
- was open for a short timeframe — just seven business days; and
- required that all tendering unitholders appoint Orange Capital as their nominee and proxy at the company's annual meeting for all deposited units even though Orange Capital had no obligation to purchase all of the units tendered (or for that matter, all the units it voted).
Partners' Trustees recommended that unitholders not tender to Orange Capital's offer. They also reached out to the Ontario Securities Commission (OSC) because, in their view, the offer was "highly coercive". After "constructive discussions" with the OSC, Orange Capital amended its mini-tender offer by providing greater procedural protections to tendering unitholders.
A place for mini-tenders in the future?
The extent to which mini-tender offers will strategically be used in proxy contests is unclear at this time. However, the OSC's lack of enforcement action in the Partners/Orange Capital saga (notwithstanding its "constructive discussions" with Orange Capital) might provide some comfort to dissidents who wish to use mini-tender offers during proxy contests to try to influence the outcome. In our view, dissidents should proceed cautiously given the current regulatory uncertainty. The OSC's decision to not commence an enforcement proceeding against Orange Capital was made in the circumstances of that case and does not establish a definitive position for the OSC on the use of mini-tenders in proxy contests.
As always, issuers should remain vigilant when following the market for their securities and be prepared to respond in a timely manner with their position on any public offer made for their securities. Directors of issuers should consider applying for appropriate relief to a court or a securities regulator in order to curb any actions they view as abusive to shareholders.
Footnote
[1] McCarthy Tétrault LLP represented Partners Real Estate Investment Trust.
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