The Ontario Securities Commission released the full set of
reasons for its decision earlier this year in connection with the
proposed acquisition by HudBay Minerals Inc. of Lundin Mining
Corporation. (The Commission's decision is discussed in our
January 26, 2009 update - "The HudBay Minerals Proceedings
and the Return of Acquiror-Side Shareholder Approval
Rights".) In addition to setting out the analysis that
led to its orders setting aside a decision of the Toronto Stock
Exchange and prohibiting HudBay from issuing securities in
connection with the proposed Lundin acquisition without first
obtaining HudBay shareholder approval, the Commission's reasons
include commentary that may be relevant to boards and their
advisors in a broader context about a "concern" of the
Commission in the context of financial advice received by the
HudBay Special Committee.
In connection with the proposed Lundin acquisition, the HudBay
Special Committee had obtained a fairness opinion from its
transactional financial advisor stating that the transaction was
fair, from a financial point of view, to the shareholders of
HudBay. The financial advisor was to receive a "signing
fee" when the transaction agreement was entered into and a
"much larger success fee" that was payable if the
acquisition was completed.
In the context of its opposition to the proposed Lundin
acquisition, a shareholder of HudBay had made submissions
suggesting that there were flaws in the processes followed by the
HudBay Board and Special Committee. While the Commission's
reasons are clear that these alleged flaws were not part of the
application that was being considered and had not been addressed by
the parties (other than the one shareholder) in their submissions,
the Commission went out of its way to discuss its concern about the
financial advice received by the Special Committee from its
The Commission panel stated that, in its view, where a financial
advisor is entitled to a "signing fee" and a
Such fees create a financial incentive for an advisor to
facilitate the successful completion of a transaction when the
principal focus should be on the financial evaluation of the
transaction from the perspective of shareholders. While the
Commission does not regulate the preparation or use of fairness
opinions, in our view, a fairness opinion prepared by a financial
adviser who is being paid a signing fee or a success fee
does not assist directors comprising a special
committee of independent directors in demonstrating the due care
they have taken in complying with their fiduciary duties in
approving a transaction. [emphasis added]
As a matter of good practice, boards and committees understand
and assess the context in which their advisors are expressing their
views and give appropriate weight to those views in that context.
The Commission's statement appears to suggest that directors
should not be able to exercise their business judgment and should
not give any weight to opinions - the position of the Commission on
other advice is unclear - given by advisors who are to receive fees
only if a transaction moves forward. While the Commission's
views are clearly obiter and are not law, they may result
in additional advisors being engaged and opinions being sought from
firms other than the principal transactional advisors, regardless
of whether a board's fiduciary duties as a matter of corporate
law would require such action.
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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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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