Making a Takeover Bid Compliant with Canadian and UK Rules
May 29, 2009
Robert J. Brant
Danielle S. Grover
The takeover of Arawak Energy Limited, a company listed on the Toronto Stock Exchange (TSX) and the London Stock Exchange (LSE), was completed in April 2009 and was the first public takeover bid to be fully compliant with the takeover provisions of both Canadian securities law and London’s City Code on Takeovers and Mergers (UK Code). Most takeovers involving inter-listed companies are able to proceed onthe basis that one jurisdiction’s rules will take precedence, but Arawak’s Canadian shareholder base was too large for it to be exempted from Canadian rules.
At the time of the bid, Rosco and its affiliates (part of the Vitol group of companies) held approximately 41 percent of the common shares of Arawak, and as such, the bid was an insider bid under Canadian securities laws. Accordingly, a formal valuation of Arawak was required to be obtained by Arawak for inclusion in Rosco’s bid circular. To request this valuation, Rosco went public with its intentions in October 2008 on an unsolicited basis. Under the UK Code, once an announcement of a firm intention is made, the bid circular must be mailed within 28 days and a bidder cannot withdraw unless its bid conditions are not satisfied.
However, under Canadian rules, Rosco was unable to formally launch the bid until it had obtained the valuation from Arawak. And Arawak, upon Rosco’s announcement of the bid, had announced that the bid did not have its support and that the bid price undervalued Arawak. Under Canadian rules, Arawak was required to obtain the valuation for Rosco in a timely manner, using its best efforts ― but there are no precise rules about timing. Because the valuation process is within the control of a target, it is possible that targets could use the requirement as a ‘poison pill’ to delay bidders.
After some efforts to move the valuation process along, Rosco applied to the Ontario Securities Commission. On January 29, 2009 (by which time Rosco had agreed to increase its offer price, and Arawak had agreed to support the bid), the OSC issued an order exempting Rosco from the requirement to include the formal valuation in the bid circular ― provided that Rosco and Arawak agreed, among other things, to:
- dispatch a supplemental bid circular and supplemental directors’ circular, in eachcase setting out details of the formal valuation within seven days of the date that the formal valuation was received; and
- in relation to Rosco, not to take up sharesof Arawak pursuant to the bid until 14 days after the later of the dispatch of the supplemental offer document and the dispatch of the supplemental directors’ circular.
The bid circular was mailed to Arawak’s shareholders on January 30, 2009, over three months after the date of the initial announcement of the bid. The valuation waslater mailed to Arawak’s shareholders on March 10, 2009.
The Toronto and London offices of McCarthy Tétrault acted as counsel to Rosco.