On December 21, 2021, a panel of the Alberta Securities Commission ("ASC" or the "Commission") issued its written decision (the "Decision")1 providing its reasons for the oral ruling it made on July 12, 2021 regarding applications brought by Bison Acquisition Corp. ("Bison") and Brookfield Infrastructure Corporation Exchange Limited Partnership ("BICELP"), as well as Inter Pipeline Ltd. ("IPL") and Pembina Pipeline Corporation ("Pembina"). Bison and BICELP are two of the several entities referred to in the Decision that are connected to Brookfield Asset Management Inc., which are collectively referred to as "Brookfield".

The applications related to competing proposals by Brookfield and Pembina to acquire IPL. With a view to protecting the market and the integrity of IPL shareholders' choice between Brookfield's and Pembina's proposals, the ASC dismissed Brookfield's application and issued a number of orders in favour of IPL.

In this paper, we review three key conclusions reached by the ASC that will clearly have an impact on contested M&A transactions in Canada, namely:

  1. "tactical" shareholder rights plans (those adopted in the face of a hostile bid) may continue to be valid notwithstanding the 2016 amendments to the Canadian take-over bid regime, 2 and the decision of the Ontario Securities Commission (the "OSC") and the Financial and Consumer Affairs Authority of Saskatchewan (the "FCAAS") in Re Aurora; 3
  2. regardless of a bidder's compliance with the early warning reporting ("EWR") obligations under National Instrument 62-104 Take-Over Bids and Issuer Bids ("NI 62-104"), it would be contrary to the public interest if the bidder uses derivatives to gain an economic interest in a target without making any disclosure until it makes its offer, in circumstances where such accumulation limits the alternatives the target could pursue (and thereby may negatively affect the ability of the target to maximize value for shareholders); and
  3. the ASC may, in the public interest, modify the statutory minimum tender condition in NI 62-104 (the "Minimum Tender Condition")4 to neutralize certain possible effects of derivatives on a bid.

Our goal is to consider the analysis undertaken, and conclusions reached, by the ASC in order to better understand the precedential value of the Decision. Our conclusions in that regard are set out in Section 7 below.


In February 2021, Brookfield made an unsolicited take-over bid for IPL (the "February Offer"). At this time, Brookfield announced that it beneficially owned and exercised control and direction over approximately 9.75% of the common shares of IPL ("IPL Shares") and also had economic exposure to an additional 9.9% of the IPL Shares (the "Swap Shares") through certain cash-settled total return swaps ("IPL Swaps") referencing IPL Shares pursuant to certain agreements with a counterparty (the "IPL Swap Letter Agreements"). The February Offer stated that Brookfield had no "right to vote, or direct or influence the voting, acquisition, or disposition of" any Swap Shares, and that "no person acting jointly or in concert with [Bison] beneficially owns or exercises control or direction over any securities of IPL."

Brookfield had not filed any early warning report as it did not have beneficial ownership of, or control or direction over, 10% or more of the IPL Shares.

The swap counterparty was not publicly identified in the February Offer or supporting documents. The counterparty was Bank of Montreal and Brookfield had a series of relationships with Bank of Montreal and its affiliates, including having engaged BMO Nesbitt Burns Inc. ("BMO NB") as its financial advisor for the possible acquisition of IPL, which engagement provided for a $15 million completion fee payable on Brookfield's acquisition of IPL. The term "BMO" is used to refer to various Bank of Montreal entities, including Bank of Montreal, BMO NB and BMO Capital Markets.

The IPL Swap Letter Agreements between BMO and Brookfield stated that BMO could hedge the IPL Swaps by acquiring IPL Shares or otherwise. There was no evidence indicating how many IPL Shares BMO held.Following the February Offer, a special committee of the board of directors of IPL (the "IPL Board") was formed to undertake a strategic review of IPL's options (the "Strategic Review") and to assist in responding to the February Offer.

Following the February Offer, a special committee of the board of directors of IPL (the "IPL Board") was formed to undertake a strategic review of IPL's options (the "Strategic Review") and to assist in responding to the February Offer.

On March 31, 2021, the IPL Board adopted a supplemental shareholder rights plan (the "Supplemental SRP"), which amended certain provisions in IPL's existing shareholder rights plan. The main change was to amend the definition of beneficial ownership to include certain derivative transactions for the purposes of the 20% triggering threshold, which would have the effect of including the Swap Shares in the calculation of Brookfield's beneficial ownership of IPL Shares, and effectively prevent Brookfield from acquiring any additional swaps or IPL Shares except pursuant to a successful conclusion of its take-over bid.

On May 31, 2021, Pembina and IPL entered into an arrangement agreement (the "Pembina Arrangement") pursuant to which Pembina agreed, subject to certain conditions, to acquire all the issued and outstanding IPL Shares in exchange for shares of Pembina.

Brookfield made subsequent offers on each of June 4, 2021 and June 21, 2021 (together with the February Offer, the "Brookfield Offer"). In its June 4, 2021 press release, Brookfield defined its 19.65% economic interest in IPL as the "Brookfield Block", which it noted would create "a substantial and protracted overhang on [the Pembina shares]", 5 should the Pembina Arrangement succeed.

On June 25, 2021, the IPL Board amended the Supplemental SRP so that it expired the day after the IPL shareholder vote on the Pembina Arrangement.



Brookfield applied for orders under sections 179 and 198 of the Securities Act (Alberta) (the "Act") in connection with what it characterized as inappropriate defensive tactics taken by the IPL Board in response to the Brookfield Offer, including the adoption of the Supplemental SRP (the "Brookfield Application").

The relief sought by Brookfield included an order cease trading the Supplemental SRP.

IPL and Pembina

In its June 18, 2021 cross-application (the "IPL Application"), IPL asserted that Brookfield's conduct in connection with the IPL Swaps was abusive of IPL shareholders and the capital markets on the following four grounds: (i) using IPL Swaps to avoid EWR obligations under NI 62-104; (ii) failing to make proper public disclosure regarding the IPL Swaps, including as required under NI 62-104; (iii) using the IPL Swaps "held by a captive and compliant [swap] counterparty ... to try to defeat shareholder approval of the Pembina Arrangement"; and (iv) using the IPL Swaps to try to meet the statutory Minimum Tender Condition of over 50% under the Brookfield Offer.

The relief sought by IPL under sections 179 and 198 of the Act in relation to the IPL Swaps included an order directing that the Swap Shares be considered beneficially owned or controlled by Brookfield or a person acting jointly or in concert with Brookfield (and therefore excluding the Swap Shares from the statutory Minimum Tender Condition amount) (the "Proposed Minimum Tender Order")

Pembina adopted the IPL Application.

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1. Re Bison Acquisition Corp., 2021 ABASC 188 [Re Bison]

2. The key amendments being the imposition of the statutory minimum tender condition (see footnote 4), the mandatory 10-day extension following satisfaction of that condition and (subject to two conditions) the mandatory minimum initial deposit period of 105 days from the date of the take-over bid (increased from the previous 35-day minimum).

3. Re Aurora Cannabis Inc., 2018 ONSEC 10 [Aurora].

4. Take-over bids are subject to a mandatory minimum tender requirement of more than 50% of the outstanding securities of the class that are subject to the bid, excluding those beneficially owned, or over which control or direction is exercised, by the bidder and its joint actors.

5. Re Bison, supra note 1 at paras 422-423, 425.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2021