CHAPTER 01 10 Regulatory and Judicial Developments That GCs and Boards Need to Know
4 | Not-so-Special Committees: Re ESW Capital, LLC
In February 2021, the Ontario Securities Commission (OSC) weighed in on a battle over the governance, operations and strategic direction and control of TSX-listed Optiva Inc., which raged between its three dominant shareholders for over a year before a peace was ultimately brokered. In July 2020, 28% shareholder ESW Capital, LLC announced its intention to make an offer to acquire all of Optiva’s outstanding subordinate voting shares for C$60 per share in cash, which represented a 122% premium to the then-20-day volume-weighted average market price. The same day, EdgePoint Investment Group Inc., which held 18.1%, announced that it did not intend to tender its shares to the ESW offer and had no interest in pursuing discussions with ESW regarding a potential transaction. Maple Rock Capital Partners Inc., which held 22.4%, made a similar announcement the following day. Optiva also adopted a tactical shareholder rights plan, which was narrowly approved by a 52% vote of Optiva’s shareholders and which prevented ESW’s bid from proceeding absent a waiver by Optiva’s board. Because ESW already held 28% of the outstanding shares, more than half of the remaining shares (approximately 36%) had to be tendered to its offer in order to satisfy the minimum tender requirement in National Instrument 62-104 – Take-Over Bids and Issuer Bids . This was mathematically impossible if both Maple Rock and EdgePoint refused to tender. Accordingly, ESW applied to the OSC for exemptive relief to allow it to exclude the shares held by Maple Rock and EdgePoint from the minimum tender requirement. In refusing to grant relief, the OSC emphasized the importance of a predictable takeover bid regime and
stated that it would not intervene absent exceptional circumstances or clear improper or abusive conduct by the target, bidder or control block holders that undermined minority shareholder choice. In the OSC’s view, no such exceptional circumstances or abusive conduct existed here. The implications of the ESW decision are discussed in our bulletin Between a Block and a Hard Place: ESW Capital Denied Relief in Proposed Bid for Optiva . From a governance perspective, it is important to consider the impact of this decision on independent special committees. For years, Canadian securities regulators have taken a firm stance with respect to the high standards to which special committees are expected to adhere in connection with insider bids and other material conflict of interest transactions. In Re Sears Canada Inc , the OSC highlighted the role of a special committee as “a critical component of the protections afforded to minority shareholders.” In Re Magna International Inc (Magna) , the OSC noted that directors “must ensure that the process followed appropriately manages the conflicts of interest of all parties.” In many ways, the Magna decision inspired the publication of Multilateral CSA Staff Notice 61-302 – Staff Review and Commentary on Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (SN 61-302), which has become an unofficial instruction manual for managing the risks inherent in material conflict of interest transactions, including the importance of a proper special committee process.
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Davies | dwpv.com
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