Under Canadian securities legislation, if an activist has an agreement, commitment or understanding with another shareholder that they intend to exercise voting rights in concert, they will be presumed to be joint actors. If the agreement, commitment or understanding is with respect to the acquisition of shares of the target company, they will be deemed to be joint actors. As a consequence, their holdings will be aggregated for purposes of determining whether the 10% early warning disclosure obligation has been triggered, and the joint actor will have to be named in the activist shareholder’s early warning report. The mere formation of a group holding more than 10% will not trigger a filing obligation unless it is a change in a material fact stated in a previously filed report. Perhaps more significantly, their holdings will also be aggregated for purposes of determining whether the mandatory takeover bid rules have been triggered. Canadian securities legislation requires that the acquisition of more than 20% of the outstanding voting or equity securities of an issuer be made through a formal takeover bid to all shareholders, subject to limited exceptions. The mere formation of a group holding more than 20% will not trigger the rule, but the first purchase of even a single share by a member of the group will require compliance with the bid regime unless the purchase can be made under one of the limited statutory exemptions. Accordingly, the activist and the institutional shareholder will need to ensure that their purchases and sales are coordinated in a manner to ensure compliance with the takeover bid rules and with Canada’s early warning disclosure rules. As a result, the activist and the shareholder will be unable to trade without each other’s knowledge and, presumably, agreement. Canadian case law confirms that the issue is not merely a theoretical one. In the August 2013 Alberta Queen’s Bench decision in Genesis Land Development Corp. v Smoothwater Capital Corporation , 12 the Court found that the activist shareholder, Smoothwater Capital Corporation, was acting jointly and in concert with other shareholders of the targeted company from the date on which the parties participated in a conference call together with a proxy solicitation firm, reasoning that it could be inferred from such conduct that the parties had reached an understanding that they would support the proposed new slate of directors by voting in favour of the slate. 06. Selective Disclosure In Canada, the extent to which an activist can communicate information to other shareholders is not entirely resolved and therefore requires caution. Disclosure of material non-public information (MNPI) by a special relationship person (for example, a 10%-plus shareholder or a tippee who receives MNPI from the company) to another person constitutes “tipping” under Canadian securities law. Moreover, unlike in the United States, tipping is prohibited regardless of how the recipient acquired the MNPI and regardless of whether the recipient enters into an agreement to maintain the confidentiality of the MNPI.
12 2013 ABQB 509.
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