On November 19, 2010 the Ontario Securities Commission cease
traded the shareholder rights plan of Baffinland Iron Mines
Corporation ("Baffinland"), three days ahead of the
scheduled expiry of the unsolicited bid for Baffinland that had
been made by Nunavut Iron Ore Acquisition Inc.
("Nunavut"). While the Commission's reasons have not
been released, its decision to cease trade the Baffinland rights
plan would appear to reaffirm that the Commission will be inclined
to find that the "time has come for a plan to go" if a
target has agreed to support a transaction - thereby ending an
"auction" and a search for alternative transactions - and
will not, in the absence of "coercion", allow a rights
plan to be used to "level the playing field" between
The relevant facts in Baffinland were relatively
On September 22, 2010, Nunavut made an unsolicited offer to
purchase all of the outstanding common shares of Baffinland for
$0.80 per share. A condition of the offer was that the Baffinland
rights plan, which had been adopted by the Board and approved by
shareholders in 2009, be terminated or cease traded. The offer was
initially set to expire on October 28, 2010 but was subsequently
extended to 7:00 p.m. on November 8, 2010.
On November 1, 2010, Nunavut applied to the Commission to cease
trade Baffinland's rights plan.
On November 8, 2010, the day on which Nunavut's offer was
to expire but prior to the hearing to consider Nunavut's
application, Baffinland entered into an agreement to support
ArcelorMittal S.A. making a bid to acquire all of Baffinland's
common shares for $1.10 cash per share.
Following the announcement of ArcelorMittal's offer,
Nunavut further extended its offer to November 22, 2010, and the
Commission scheduled a hearing for November 18, 2010 to consider
Nunavut's application for an order cease trading the rights
In this context, it appears that:
Baffinland had concluded its search for alternative
transactions when it agreed to support the ArcelorMittal
the principal argument for the continued operation of the
rights plan was that the impending expiry of the Nunavit bid might
coerce shareholders to accept the $0.80 per share that it offered
rather than waiting for the ArcelorMittal bid which would offer
them $1.10 for each of their shares.
The rejection by the Commission of this argument is consistent
with its decision in the context of the bid in 2001 by Trilogy
Retail Enterprises L.P. for Chapters Inc., where the Commission
indicated that it is not acceptable to use a rights plan to ensure
that competing bids are open to shareholders simultaneously.
More recent decisions had suggested that a more flexible
approach might be adopted. For example, in the unique circumstances
of the contest for control of Falconbridge Inc. in 2005, the
Falconbridge shareholder rights plan was permitted to survive to
prevent one of its suitors, Xstrata plc, from acquiring an
auctionending blocking position. In the summer of 2010, the
Commission had declined to cease trade a rights plan adopted by
Spider Resources Inc. - the Commission saying that it was premature
"considering all the circumstances, and in particular, the
ongoing auction" between two competing bidders to cease trade
a rights plan – which appeared to indicate indicate that
rights plans could be used for purposes other than to
permit the development of alternatives (in that case, apparent ly
contrary to the Chapters decision, to align the timing of
transaction proposals). Please see our July 12, 2010 client update
entitled "OSC Spider Decision Muddies the Waters for Rights
More generally, the Commission's decision concerning the
shareholder rights plan in Neo Material Technologies Inc. had
suggested that, in unusual circumstances, rights plans might be
sustainable for broader purposes.
The OSC's Baffinland decision appears to confirm
that the "traditional" test for the appropriate time for
a rights plans "to go" continues to be relevant - plans
will generally be permitted to stay in place only where they could
reasonably be considered to be facilitating the possibility of a
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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