Canada: Capital Markets Bulletin - March 3-7, 2014

FROM THE REGULATORS

Relief Order of the Month

OSC Decision: Telus Corporation

By: Alexis Bowie, Anita Kim, Jamie Litchen and Joel McElravy

Flexibility for Issuers to Acquire Shares in Issuer Bids at Better Prices from Large Shareholders

Telus Corporation (the "Company") applied to the Ontario Securities Commission (the "Commission") for an order exempting the Company from the issuer bid requirements of Ontario securities law. The relief order permitted the purchase of an aggregate of 5,332,000 common shares of the Company (the "Subject Shares") that the Company intends to purchase in the future, at a discounted price, from three of its shareholders, BMO Nesbitt Burns Inc., Royal Bank of Canada and National Bank of Canada (collectively, the "Selling Shareholders"). The Company intends to acquire the Subject Shares up to September 30, 2014, at a price negotiated with the Selling Shareholders, but that will in all cases be at a discount to the then prevailing price, pursuant to purchase and sale agreements between the Company and each of the Selling Shareholders. Due to the fact that the Subject Shares will be sold at a discounted rate, the sales of the Subject Shares cannot be made through the TSX and, as a result, the Company cannot rely on the normal course issuer bid exemption. The Company is also unable to rely on the block purchase exemption under section 629(l)(7) of the TSX Normal Course Issuer Bid Rules, which would otherwise be available if the Subject Shares were not purchased at a discounted rate. The Company argued that it will be able to purchase the Subject Shares at a lower price than the price at which it would be able to purchase common shares under its existing normal course issuer bid and that this would be an appropriate use of its funds on hand.

In granting the requested relief order, the Commission concluded that allowing the Company to purchase the Subject Shares at the discounted rate and pursuant to the private agreements with the Selling Shareholders would not adversely affect the Company or the rights of any of the Company's other securityholders, or their ability to otherwise sell common shares of the Company in the open market at the prevailing market price, and it would not materially affect the control of the Issuer. Under the terms of the order, among other things, the purchases made from the Selling Shareholders would count towards the limits in the existing normal course issuer bid and could not be made at a price higher than the last "independent trade" under TSX rules.

FROM THE COURTS

Dissidents Reminded to Provide the Rationale for Dissent in Their Circular

By: Greg Hogan

It is not enough for a dissident seeking proxies to simply oppose a resolution being put to shareholders. Dissidents need to provide a rationale for opposing, which may include details as to what they would propose as an alternative to what is being proposed by management, without which the solicitation may be found to be invalid. 

This decision from the Saskatchewan Queen's Bench relates to a fight between Weyburn Inland Terminal Ltd. ("Weyburn") and a group of its shareholders over a proposal by Weyburn to sell itself in a plan of arrangement. A group of shareholders opposed the plan and commenced a solicitation of proxies to vote against the plan. As required, the dissidents conducted that solicitation by way of a information circular, which circular Weyburn complained was deficient. The court noted that the law required that the dissident's circular contain "a description of the substance of the matter in respect of which the proxy solicitation is made in sufficient detail to enable reasonable security holders to form a reasoned judgment concerning the matter." The court found that the dissident's circular did not provide any reasons for the dissident's solicitation, notwithstanding that the circular claimed to do just that. Upon reviewing the circular and evidence about what the dissident's were otherwise stating to Weyburn shareholders, the court stated:

...the circular does not outline any plan or particulars of any plan which the Dissident Shareholders suggest will maintain the profitability and independence of WIT...

No information is provided in the circular which would assist shareholders to "form a reasoned and informed judgment" respecting the resolution to be considered at the special meeting. While the circular clearly communicates the purpose for which the proxy is solicited, namely to vote against the Plan of Arrangement resolution, it does not answer the question or explain "why".

The court then ordered that the dissidents circular be revised in order that it accurately reflects what they are proposing as an option or approach which they would convince WIT or its board to pursue in the event that the resolution is defeated. 

LEGAL BRIEFS AND COMMENTARY

Updates and commentary from Canada and around the world.   

Shareholder Activism and Canadian Companies

By: Jane Murdoch, Afzal Hasan and Melissa Tang

Jane Murdoch, with research assistance from Afzal Hasan and Melissa Tang, wrote an article titled "Shareholder Activism and Canadian Companies", published by Business in Vancouver. This article looks at the rise of shareholder activism in Canada, whether or not proposed changes will make a difference and how to prevent your company from becoming a target.

Writes Jane:

Shareholder activism is on the rise. Recent findings show that Canadian companies were targeted by 6% of public activist campaigns worldwide in the last two years. Don't be fooled by the seemingly low rate: thanks to some high-profile battles waged within our borders, Canada has earned a reputation as an attractive place for shareholder activism.

The question is, why?

Many experts blame Canada's "early warning" rules, considered more lax than in jurisdictions like the U.S., for giving shareholders opportunity to acquire an influential stake in a company without management or other shareholders knowing. The same rules produce a relative lack of obstacles for activist shareholders scheming to "ambush" a company at its annual election of directors by electing their own slate

You can read the full article here.  

PUBLIC COMPANY ACTIVITY

Information and intelligence about what public companies are doing in the market.  

Public Offerings [lead underwriters noted/agents noted]

Equity Offerings   

Upcoming Shareholder Meetings:

• On March 28, 2014, the shareholders of Americas Bullion Royalty Corp. ("AMB") will be asked to vote to approve a plan of arrangement with Resource Holdings Ltd. ("RH") whereby RH will acquire all of the issued and outstanding securities of AMB. 
• On April 4, 2014, the shareholders of Antrim Energy Inc. ("Antrim") will be asked to vote to approve the sale of all of Antrim's interest in its Causeway, Kerloch and Cormorant East assets, to be structured as a sale of all of the issued and outstanding shares in the capital of Antrim's UK subsidiary, Antrim Resources (N.I.) Limited to First Oil Expro Limited for a purchase price of $53,000,000 (subject to certain adjustments).
• On March 25, 2014, the shareholders of Cordoba Minerals Corp. ("Cordoba") will be asked to vote to approve a plan of arrangement pursuant to which Cordoba will (i) increase its interest in Cordoba Holdings Corp., a private company which indirectly holds title to the Cordoba Property in Colombia from 11% to 100%; and (ii) acquire a 100% interest in Sabre Metals Inc., a private company which owns the San Matias Property in Colombia.
• On March 31, 2014, the shareholders of MacMillan Minerals Inc. (the "MacMillan") will be asked to vote to approve the completion of one or more financings in which up to 20% of the issued and outstanding shares of MacMillan may be issued to any one party, which may result in a "change of control" as such term is defined by the TSX Venture Exchange.
• On March 31, 2014, the shareholders of Renegade Petroleum Ltd. ("Renegade") will be asked to vote to approve a plan of arrangement pursuant to which Spartan Energy Corp. ("Spartan") will acquire all the outstanding Renegade Shares in exchange for 0.5625 of a common share of Spartan for each Renegade Share.

WHAT WE'RE READING

M&A

Do Mandatory Auctions Increase Prices?

By: Greg Hogan

This paper by Fernance Restrepo of Stanford Law School examines whether "Revlon" duties – being the requirement that when a sale of a company becomes inevitable, the board must seek to maximize price, generally through an auction - actually lead to better prices for target shareholders. The study focussed on the time following the decision in Paramount Communications, Inc. v. Time, Inc., which provided a "safe harbour" from Revlon auction duties for share exchange transactions, on the basis after that time share exchange transactions "should experience a statistically significant decrease ... if Revlon actually exerts an upward pressure on prices."

The study concluded that returns did not in fact decrease in all-stock deals relative to all-cash deals, nor did Paramount Communications, Inc. v. Time, Inc. lead to an increase in the relative proportion of stock deals. One of the author's conclusions was that target boards "will generally seek to maximize shareholder value when the company confronts a 'sale' or 'breakup' scenario." That conclusion supports arguments for flexibility for boards in such situations, rather than prescriptive requirements to conduct an auction.

Diversions

Securities and Exchange Commission ("SEC") Trading Scandal?

By: Greg Hogan

An academic study was released last week alleging that SEC staff were achieving abnormal returns on their stock trading. It concluded that abnormal returns were being achieved based on sales made (i) in the period immediately before SEC enforcement actions; and (ii) in the period between an insider's paper filing with respect to the sale of restricted stock and the appearance of the electronic record of such sale on EDGAR. Most of the "controversy" has centred on trading related to enforcement actions. The SEC has defended itself, stating that before SEC staff can work on a matter related to a reporting company, they have to sell stock in that firm. Selling before an enforcement action is therefore not only not surprising, but mandated. Matt Levine of Bloomberg, for one, was not convinced that this was a satisfactory policy or answer, noting that SEC staff could simply not own shares of companies that they might need to investigate or the SEC could announce the investigation before sales were permitted (i.e., not allow trades while SEC staff are in possession of the material undisclosed information). Broc Romanek of TheCorporateCounsel.net went further in defending the SEC than the SEC did, providing a number of other reasons for the study's finding, including sales on joining the SEC, lack of access to information about potential enforcement proceedings and the level of surveillance of trades that the SEC conducts. Whether this blows over quickly or changes are made by the SEC remains to be seen.

WHAT WE'VE BEEN UP TO

We're Growing

In the last week we've grown significantly in both our Toronto and Vancouver offices.

In Toronto, we welcomed five new highly-regarded lawyers to our Restructuring and Insolvency Group, including partners Shayne Kukulowicz , Michael Wunder, Ryan Jacobs, Jane Dietrich and associate Natalie E. Levine.

In Vancouver, our Securities and Mining Groups are pleased to welcome Darrell W. Podowski as a partner.

"The addition of these nationally-recognized lawyers accelerates the execution on our long-term plans," says Mark Young, our Managing Partner. "With their addition, we have increased our capabilities in cornerstone areas of our practice and, even more importantly, further enhanced the exceptional level of expertise and service we can provide to our clients."

Recent Transactions

We acted for The Kami Mine Limited Partnership ("Kami LP") in the completion of a $22 million convertible loan from Liberty Metals & Mining Holdings, LLC, in the form of a senior secured note. The note was purchased in order to provide cash security to Newfoundland and Labrador Hydro pursuant to an agreement between Kami LP and Newfoundland and Labrador Hydro in support of the construction of a new transmission line in connection with the Kami Iron Ore Project.

We acted for Troy Resources Limited, an Australia-based gold producing company, in connection with a private placement of common shares. The proceeds of the offering will be used to advance development activities at Troy's West Omai Project in Guyana, recommence brownfields exploration at West Omai and Troy's Casposo Project in Argentina and as additional working capital.

We acted for Mantis Mineral Corp. in connection with a business combination with Gondwana Energy Corp. The combined company will be named Gondwana Oil Corp. and will focus its operations on advancing petroleum assets located in Ghana.

We acted for Cormark Securities Inc. and a syndicate of underwriters in connection with an offering of common shares of Cortex Business Solutions Inc., a provider of e-services to businesses. The proceeds of the offering will be used by Cortex for sales and market expansion and for general corporate and working capital purposes.

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.