Private Agreement Exemption – Securities Regulation

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Private Agreement Exemption (s.100.1(1) of OSA, most important)

  • S.100.1(1): Takeover bid exempt from rules (requirement to do t/o bid circular to all SHs) if you’re going to buy from 5 or fewer people and the price you’re going to pay, including commissions, does not exceed 115% of the market price at the date of the takeover bid (or if no public listing, then what they think would be 115%)

o market price: defined as 20 day avg closing price (20 days preceding your bid) ^ your purchase from your 5 people can’t be for more than 115% above that market price o Can OFFER to more than 5, but can only buy from 5

o * Remember, you cannot act jointly. You cannot prepare your seller to fit within the 5 or fewer exemption

POLICY: why have this exemption?

  • TOB: we don’t care who owns it or controls it, we care if you’re selling it at a premium, that doesn’ t belong to you, belongs to all shareholders. But if premium is small enough and they define 15% as de minimis, then all it is is whether you control company it or I control it, and who cares? So 15% is insignificant. They only care if there’s a big enough premium that it should be shared b/w everyone, all SHs (if it’s small, it doesn’t matter). If control person wants to sell it for under 15% premium, not really a control premium (theory)
  • Overall: efficiency of capital markets, want big SHs to be able to extract themselves from companies, if they want to extract from without a big premium, then cool

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