In a closely watched decision that follows the introduction
of a new Canadian take-over bid regime earlier this year, Canadian
securities regulators have declined to cease trade a private
placement of equity securities by a target company implemented
following the announcement of an unsolicited take-over bid. As
defensive tactics were notably not addressed as part of the new bid
regime, this decision (and more importantly, the detailed reasons
that will follow) are of considerable interest to market
participants considering the changing Canadian take-over bid
In the first contested transaction under the
new bid regime, Hecla Mining Company announced on June 27, 2016
its intention to acquire all of the shares of Dolly Varden Silver
Corporation not owned by it, and subsequently formally launched a
take-over bid on July 8, 2016. The bid was for C$0.69 per share,
representing a 55% premium to the closing price of the Dolly Varden
common shares immediately prior to the June 27 announcement. Hecla
at that time held about 15.7% of the Dolly Varden common shares on
a fully diluted basis.
On July 5, 2016, Dolly Varden announced its intention to
undertake a private placement financing to raise gross proceeds of
up to C$6 million through a sale of common shares at a price of
C$0.62 per common share and "flow-through" common shares
at a price of C$0.70 per share, with an anticipated closing date of
July 15, 2016, representing potential dilution of up to 43% of the
existing fully diluted share capital of Dolly Varden (not including
an over-allotment option that formed part of the proposed private
placement and that could result in further dilution). The proposed
private placement did not require shareholder approval under the
applicable rules of the TSX-V. Hecla subsequently filed
applications with the British Columbia Securities Commission (BCSC)
and Ontario Securities Commission (OSC) seeking an order
cease-trading the securities to be issued in connection with the
proposed private placement transactions, or in the alternative an
order cease trading the private placement unless and until Dolly
Varden obtained shareholder approval for the private placement at a
duly convened meeting of shareholders.
Rare simultaneous hearings by each of the BCSC and OSC were held
on July 20 and 21, 2016. Both commissions released separate orders
on July 25 dismissing the Hecla application seeking to cease trade
the proposed private placement. The Ontario order also (1)
cease-traded the Hecla take-over bid for Dolly Varden pending the
obtaining and inclusion of a formal valuation in accordance with
section 2.3 of Multilateral Instrument 61-101, a remedy that had
been sought by Dolly Varden as part of the proceedings; and (2)
required Hecla to extend its offer, unless earlier terminated,
until the latter of (x) 35 days from amending its offer to include
a formal valuation of the Dolly Varden common shares, and (y) the
original expiry time of its offer.
The principal reason for the wider interest in what is otherwise
a tiny transaction (the initial value of the Hecla offer was C$12
million) is that it appeared to raise squarely the question of
whether private placements could serve a more prominent tactical
purpose as a defensive tactic under the new Canadian take-over bid
regime, in light of the likely disappearance of shareholders'
rights plans from their historic tactical role.
The reasons for the decision will follow at a later date and
will be of interest to the Canadian deal community, as defensive
tactics were notably not addressed as part of the new bid regime.
For the time being we can add the outcome to those of other
decisions of Canadian securities regulators such as the
ReRed Eagle decision of the BCSC in 2015 and the
ReARC Equity Managementdecision of the Alberta
Securities Commission in 2009 as examples of contested private
placements being allowed to proceed in the context of an M&A
transaction. The decisions in this area tend to be highly dependent
on their facts, and there have been other examples (notably the
ReFibrek decision in Quebec and the Re Inmet Mining
Corporation decision of the BCSC in 2012 where private
placement financings have been cease-traded by regulators). An
important common thread in the decisions where private placements
have been allowed to proceed is that each appeared to feature
persuasive evidence as to the target's legitimate short-term
need for financing – in other words, the regulators appeared
to be more reluctant to intervene to cease-trade private placements
where there appeared to be a legitimate business purpose to the
financing, even where the tactical nature of private placement may
have also been evident.
A further Osler Update will follow upon the release of the
reasons in the Re Dolly Varden decision by the two
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