In ESW , the OSC had some reservations concerning the conduct of Optiva’s special committee charged with evaluating ESW’s bid. Notably, the only two members of the special committee were both nominees of Maple Rock; the special committee adopted a tactical shareholder rights plan with a 30% trigger as opposed to a customary 20% trigger, effectively enabling Maple Rock and EdgePoint, but not ESW, to continue accumulating shares; and there was no evidence that the special committee explored strategic alternatives or commenced an auction process (even though rights plans are typically instituted for these purposes). The OSC went so far as to state that Optiva’s special committee’s initial efforts “could fairly be described as being tactical,” and acknowledged that Optiva had taken steps to reduce ESW’s control and influence.
KEY TAKEAWAYS
– Expectations for special committees remain high. The OSC appeared unimpressed with the conduct of Optiva’s special committee. However, it concluded that the need for predictability in Canada’s new takeover bid regime and the importance of avoiding potential coercion of minority shareholders outweighed the special committee’s less-than-optimal approach. Special committees that comport themselves as Optiva’s special committee did in ESW should brace for harsher criticism and, potentially, a different outcome.
– Guidance for special committees may become law in due course. The Capital Markets Modernization Taskforce (Taskforce) has recommended codifying the best practices for special committees set out in SN 61- 302 and mandating special committees for all material conflict of interest transactions, a recommendation on which Ontario’s Ministry of Finance (Ministry) consulted further in connection with the publication of the draft Capital Markets Act (CMA). If the recommendation is adopted, it would transform guidance for material conflict of interest transactions into a prescribed set of rules to which issuers involved in these transactions would have to adhere.
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Governance Insights 2022
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