Private Placements and M&A Transactions: Moving Beyond Hudbay
December 4, 2009
Roger J. Chouinard
Peter C. Goode
Sven O. Milelli
Following the Ontario Securities Commission’s (OSC) controversial January 2009 decision in Re Hudbay Minerals Inc., two decisions made by the Alberta Securities Commission (ASC) and the OSC in August 2009 provide additional perspective on the use of private placements in the context of significant corporate transactions, and on the appropriate standard for review of Toronto Stock Exchange (TSX) decisions. Together, these decisions make important distinctions and refinements to the reasoning in Hudbay, and will be of interest to public companies and their advisors.
For a discussion of the facts and ruling in the Hudbay decision, please see ourLegal Update published May 6, 2009 and the article in our May 2009 issue.
In Profound Energy Inc. and Paramount Energy Trust, the ASC refused to exercise its public interest jurisdiction to prevent privately placed shares issued to the offeror in the context of a friendly take-over bid from being voted in connection with the subsequent going-private transaction. In doing so, the ASC explicitly rejected comments made by the OSC in the Hudbay decision that shares acquired in a private placement that is connected to a transaction should not be permitted to be voted in connection with that transaction.
Interestingly, the ASC concluded by remarking that, in view of the issues raised in the Profound transaction, a policy review of the appropriate role of private placements of voting securities in the context of M&A transactions may be warranted.
In InterRent Real Estate Investment Trust, the OSC determined not to intervene in the decision of the TSX to permit a company to carry out a private placement of units representing 49 per cent of its issued and outstanding units without obtaining unitholder approval. In doing so, the OSC confirmed that a high standard applies for reviewing a TSX decision, suggesting that the more interventionist stance taken by the OSC in its Hudbay decision was rooted more in the facts and circumstances of that case than in a broader policy shift.
McCarthy Tétrault Notes:
While the Profound and InterRent decisions appear to suggest a more permissive trend with respect to private placements made in conjunction with corporate transactions, the focus in each decision on the relevant facts and circumstances suggests that, in the absence of rulemaking in this area, outcomes will continue to be highly contextual.
The Profound and InterRent decisions clearly indicate that, consistent with well-established standards of review, securities commissions will defer to decisions of the TSX except in limited circumstances. Interestingly, however, the OSC went on to remark in its InterRent decision that it may not have come to the same conclusion as the TSX on the facts of that case. This reinforces the importance of a robust decision-making process by the TSX in assuring that its decisions withstand scrutiny by regulators and provide greater deal certainty for affected parties.
On September 25, 2009, the TSX announced that effective November 24, 2009, listed issuers will be required to obtain security holder approval for public company acquisitions that result in the issuance of 25 per cent or more of their issued and outstanding shares on a non-diluted basis. See thearticle discussing this TSX rule change in this issue of the Business Law Quarterly. Although this new rule will introduce greater certainty in structuring deals, it does not directly address private placements undertaken in connection with M&A transactions and would not, on its face, have applied to the Profound or InterRent transactions.
For a more detailed discussion of the background and the decisions in these matters, please see thefull article on our website.