In its recently released Reasons for Decision in
The decision provides guidance concerning the application of the test articulated in
As none of the parties to the proceeding advocated for a different standard, the Tribunal applied the "clear abuse" standard articulated in Hecla but noted that "it remains to be seen whether, in some future proceeding, a party will submit that the standard ought to change".4 This could be interpreted as an invitation for a future applicant to advocate for the Tribunal's intervention based upon a fairness standard instead of requiring a demonstration of "clear abuse".
It is unclear whether the application of such a lower standard would have changed the outcome of Mithaq's application.
Background
Mithaq was the largest common shareholder of
Prior to the
In September Aimia sought and obtained from the TSX conditional approval for a private placement. Approximately one week after the date of the TSX's conditional approval, Mithaq made an all-cash offer for all outstanding shares of
On
In response to and shortly after
- Cease trade the private placement that
Aimia implemented, primarily on the ground that it was a defensive tactic designed to thwart Mithaq's take-over bid; and - Set aside the TSX's decision to approve the private placement without requiring that
Aimia obtain shareholder approval.5
In response,
No Cease Trade of
The Tribunal applied the two-stage analytical framework set out in Hecla in deciding whether to grant Mithaq's application to cease trade the
- The Tribunal must determine if the private placement is "clearly not" a defensive tactic designed, in whole or in part, to alter the dynamics of the bid process.
- If it cannot be said that the private placement is clearly not a defensive tactic, the Tribunal will apply the principles set out in NP 62-202 to balance the corporate objectives of the private placement against facilitating shareholder choice.6
Stage One: The Private Placement Became a Defensive Tactic
A preliminary step in the application of the first stage of the Hecla test is to determine which party has the onus on the issue of whether or not the private placement was a defensive tactic. Following Hecla, the Tribunal indicated that if Mithaq was able to demonstrate that the private placement's impact on the existing bid environment was material,
The Tribunal found that Mithaq had demonstrated that the impact of the private placement on the existing bid environment was material (due to its effect on Mithaq's ability to meet the minimum tender condition and its effect on other potential bids). Accordingly, the onus shifted to
As such,
Stage Two: The Private Placement was Not "Clearly Abusive"
In determining whether the private placement was "clearly abusive", the Tribunal considered the following factors set out in Hecla10:
- Whether the private placement would benefit
Aimia's shareholders;
The Tribunal decided that on balance it would. - The extent to which the private placement altered the pre-existing bid dynamics;
The Tribunal determined that it did. It materially interfered with Mithaq's ability to achieve the minimum tender condition under its bid and the exercise price could discourage other potential bidders. However, the Tribunal attached little weight to this factor because almost every step involved in the private placement preceded Mithaq's announcement of its intention to make a take-over bid. - Whether the private placement investors are related to
Aimia , or to each other, in such a way as to enableAimia's board to summarily reject Mithaq's bid or a competing bid;
Based upon the evidence, the Tribunal declined to draw an inference that the private placement investors were recruited byAimia due to their "willingness to just say 'no'" to Mithaq's shareholder activism and to any forthcoming bid.11 Further, their intention not to tender to Mithaq's bid was "tenuous".12 Their comfort forAimia may have evaporated had Mithaq modified its bid or another offeror made a bid. This factor was neutral in the Tribunal's analysis. - Whether the views of other
Aimia shareholders should influence the Tribunal's decision;
The Tribunal attached no weight to the unsworn letters and emails fromAimia shareholders filed by the parties. The "limited samples" were not quantitively persuasive.13 This factor was neutral in the Tribunal's analysis. - Whether
Aimia's board appropriately considered the interplay between the private placement and Mithaq's bid.
The Tribunal found that there were some deficiencies in the work conducted byAimia's Special Committee of the board. It was not as comprehensive as it could have been. However, it was not so deficient that it overcameAimia's need for financing and the fact that the private placement was planned before Mithaq announced its bid.14 These conclusions were reached without reference to expert reports onAimia's board's process in responding to the Mithaq bid, which were ruled inadmissible.15
Weighing the factors discussed above, the Tribunal decided that it could not defer to the Special Committee's work. Instead, it reached its own independent conclusion that while the private placement did have an impact on the bid environment, that impact was outweighed by the benefit to
Other Public Interest Considerations
The Tribunal also declined Mithaq's invitation to rely upon the decision of the
The TSX's Decision Is Not Set Aside
The Tribunal also denied Mithaq's request that it set aside the TSX's decision to approve
Denial of Other Requests for Relief
In the alternative, Mithaq sought an order that the private placement shares not be counted in the number of outstanding shares for the purposes of satisfying the 50% minimum tender condition in Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions for a two step business combination ("minimum tender relief") and that it could rely upon the exemption in section 2.2(3) of National Instrument 62-104 Take-Over Bids and Issuer Bids permitting it to buy up to 5% of the outstanding securities subject to the bid through market trades while the offer was outstanding (the "5% exemption"). In turn,
The Tribunal noted, in relation to the request for minimum tender relief, that predictability is important. The Tribunal should be cautious in granting relief that alters the carefully calibrated bid regime. It should only be granted in exceptional circumstances or where there is abusive or improper conduct, which was not the case at hand.19
The Tribunal also declined to make any order confirming Mithaq's ability to rely upon the 5% exemption, finding that it lacked jurisdiction to issue such a declaration.
Finally, the Tribunal was not persuaded that it was in the public interest to make an order denying Mithaq the ability to rely upon the 5% exemption on the basis that Mithaq's offer was "too conditional" to have been made in good faith.[20] Mithaq had removed two of the conditions that
Key Takeaways
The Decision stands for the following propositions:
-
The Tribunal is open to considering arguments that the Hecla "clearly abusive" standard for making an order to cease trade a private placement in the context of a takeover bid is not appropriate.
-
The decision in Eco Oro should not be interpreted as contemplating the exercise of the Tribunal's public interest jurisdiction to cease trade a private placement in the context of every shareholder activist dispute.
-
Whether a private placement is a defensive tactic may change over time.
-
It will be difficult for parties to persuade the Tribunal to admit expert evidence about the adequacy of processes followed by boards of directors and special committees. The Tribunal considers that it is sufficiently expert in these issues and it does not require such evidence.
-
The Tribunal will closely scrutinize the quality of the evidence filed by the parties for and against a request for an order to cease trade a private placement. However, the Tribunal will resist deciding the merits of issues that are the subject of parallel court proceedings unless there is a need for a speedy resolution or because of the Tribunal's expertise.
Footnotes
1.
2.
3. Mithaq at para. 44.
4. Ibid at para. 45.
5. Ibid at para. 2.
6. Ibid at paras. 40, 58-59.
7. Ibid at para. 102.
8. Ibid.
9. Ibid at para. 104.
10. In Hecla, the private placement was found to have been instituted for non-defensive business purposes. As such, the second stage of the test was not considered.
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.
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