Balmer Lawrie Workers Union, Bombay v. Balmer Lawrie & Company (1984 SC)

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 The Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act 1971 provides for recognition of a union if it complies with certain conditions specified in the Act. The Act also enumerated the rights of a recognized Union, which included an exclusive right of the recognized union to represent workmen of an undertaking in disputes and make the decision made in such proceedings binding on all the employees.
 The facts are that after a strike, the employer entered into a settlement in respect of a number of pending industrial disputes with its union, which was recognized under the 1971 Act. Clause 17 of the Settlement provided that the company shall deduct an amount equivalent to 15% of the gross arrears payable under the Settlement to each employee towards contribution to the fund of the recognized union.
 The appellant, a non-recognized union challenged before the High Court the constitutional validity of Clause 17 of the Settlement on the grounds, inter alia. (i) that Clause 17 permits a compulsory deduction not warranted by the Payment of Wages Act from workmen who are not the members of the recognized union; (ii) that the 1971 Act is unconstitutional, since (a) it denies to the workman who are not members of a recognized union, the fundamental freedom guaranteed under by compelling the Workmen to join the union which has acquired the status of a recognized union even if it followed a socio-economic or socio-political philosophy contrary to the philosophy of non-members; (b) it denies to the unrecognized union, the right to effectively participate in any proceeding concerning the workmen of an industrial undertaking, some of whom have formed a separate trade union and (c) it does not treat all the unions at par as the members of non-recognized union are compelled to be bound by the action of the recognized union.
 The High Court dismissed the petition and the Supreme Court agreed with the High Court. The SC reviewed the Scheme of the 1971. It observed that upon the advent of industrial revolution which aimed at mass production of commodities, large scale industrial units came to be set up resulting in concentration of workmen at one place under one employer. Trade union movement representing the organized labour developed as an adjunct of political party. The organized Labour as a vote bank was wooed by political parties. Every political party with a view to controlling vote banks set up its labour wings. Combinations and fragmentations of politics] parties had an adverse effect on trade unions. Multiplicity of political parties led to multiplicity of trade unions seeking to represent workmen in an industrial undertaking. The fall out of the multiplicity of unions was inter union and intra-union rivalry which threatened peaceful working of the industrial undertaking.
 Each union, tried to over-reach the rival by occasionally making untenable demands. The emerging situation led to conflict and confrontation disturbing industrial peace and harmony directly affecting production. Therefore, a need was felt that where there are multiple unions seeking to represent workmen in an undertaking or in an industry, a concept of recognized union must be developed. In fact, even amongst trade union leaders there was near unanimity that the concept of recognized union as the sole bargaining agent must be developed in the larger interest of industrial peace and harmony. Then the question arises as to the method of ascertaining which amongst various unions must be accorded the status of a recognized union. Initially it was the view that the union which represents the largest number of workmen working in the undertaking must acquire the status as that would be in tune with the concept of industrial democracy.
 A recognized union has an exclusive right to represent workmen in any proceeding under the IDA. However, an individual workman, who has his individual dispute with the employer arising out of his dismissal, discharge, retrenchment or termination of service will not suffer any disadvantage if any recognized union would not espouse his case and he will be able to pursue his remedy under the IDA. Once this protection is assured, the question is whether the status to represent workmen conferred on a recognized union to the exclusion of any individual workman or one or two workmen and who are not members of the recognized onion would deny to such workmen the fundamental freedom guaranteed under Article 19. The court held that the restriction on the right to appear and participate in a proceeding, of a workman who is not prepared to be represented by the recognized union, in respect of a dispute not personal to him alone does not deny him the freedom of speech and expression or to form an association. Conferring the status of a recognized union on the union satisfying certain pre-requisites which the other union is not in a position to satisfy does not deny the right to form association.
 A recognized union has an exclusive right to represent workmen in any proceeding under the IDA. However, an individual workman, who has his individual dispute with the employer arising out of his dismissal, discharge, retrenchment or termination of service will not suffer any disadvantage if any recognized union would not espouse his case and he will be able to pursue his remedy under the IDA. Once this protection is assured, the question is whether the status to represent workmen conferred on a recognized union to the exclusion of any individual workman or one or two workmen and who are not members of the recognized onion would deny to such workmen the fundamental freedom guaranteed under Article 19. The court held that the restriction on the right to appear and participate in a proceeding, of a workman who is not prepared to be represented by the recognized union, in respect of a dispute not personal to him alone does not deny him the freedom of speech and expression or to form an association. Conferring the status of a recognized union on the union satisfying certain pre-requisites which the other union is not in a position to satisfy does not deny the right to form association.
 When a settlement is reached in a proceeding under the IDA in which a representative union has appeared, the same is to be binding on all the workmen of the undertaking. However, the representative union has the obligation to act in a manner as not to discriminate between its members and other workmen of the undertaking who are not its members. Both the benefits, advantages, disadvantages or liabilities arising out of a settlement by a representative union shall be equally applicable to each workman in the undertaking.
 No deduction could be made from the wages and salary payable to a workmen governed by the Payment of Wages Act unless authorized by that Act. However, a settlement arrived at on consent of parties can permit a deduction as it is the outcome of understanding between the parties even though such deduction may not be authorized under the Payment of Wages Act.
 Through the settlement, all workers are getting rights as well as liabilities. Making the settlement applicable in its totality has to be understood in the context of strengthening the trade union movement There is nothing objectionable in Clause 17 of the Settlement which directs the employer to make a deduction under the settlement as contribution to the trade union funds. Thereby the workman is not subscribing to the philosophy of rival union but he is merely paying the price of the advantage obtained. Therefore deduction clause of the Settlement would not be invalid despite the lack of consent of the workmen who are members of the unrecognized union. The settlement having been made by the representative union, its right to represent all workmen would imply the consent of the members of the rival union.

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Defensive Tactic Rules – NP 62-202 – Securities Regulation

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Rules developed after Unicorp: Needed to have a system that’s conscientious and fair to determine what defensive tactics are ok in the context of a TOB

  1. NP 62-202

(!) Takeover Bids are a Good Thing : Media try to paint good/bad guys, there are just people that want to make $.

  • (a) discipline on management (to make sure they do a good job)
  • (b) reallocation of resources to their most effective uses
  1. But we recognize that there’s a possibility that interests of management/board of target might differ from its SHs. Management and board might take certain steps to defeat that bid, either b/c they think it’s best for the company to do so/want a higher offer (good), or to entrench themselves (bad)
  2. Primary objective of takeover bid legislation is protection of bona fide interests of SHs of target company
  3. Second purpose/objective: create a regulatory framework where bids can happen in an open and evenhanded manner (shouldn’t favour management or offeror should put SHs in a position to make a fully informed decision)
  • Concerned that certain defensive tactics employed by board may frustrate a fair bid and deny SHs the right to make the choice ^ Directors MIND the store, they don’t own it.
  1. We, the regulators, believe is it inappropriate to specify a code of conduct for directors of a target company b/c that code runs risk of being insufficient in some cases and excessive in others
  • Uncertain, they’ll review tactics in hindsight. IF they’re abusive to SHs (denies them rt to make choice), “we’ll kill you”
  1. SH Approval (unrealistic)
  • If you’re worried, get SH approval of your defensive tactic, if they say it’s okay, it’s okay. That sounds okay, but taking meeting of SH takes 60 days min, the game is over, takeover bids are fast – unrealistic in almost every case.
  1. ***most significant point they’re going to make: administrators believe that unrestricted options produce most desirable results in takeover bids, and are reluctant to intervene in contested bids
  • They want an auction! ^ get as many bidders as possible, get price as high as possible for SHs
  • **why it might be okay to engage in these tactics: have time to get other bidders.
  1. although that’s the case and auctions are best results/we don’t want to intervene, we really are going to kill you if results of your action is to deprive SHs of opportunity/right to respond to a bid***
  • Difficult b/c forgetting bad intentions, if you don’t engage in DTs, might get a bad bid. But if you do, bid you don’t want might walk, and no white knight will come in ^ looks like you’ve denied SHs right to make a decision
  • **blabla about not being worried about protecting yourself as a lawyer, do best for your client.

o When it turns out properly, SHs get more. If you’re legitimately pursuing higher offer or better deal for SHs and a risk it might turn out badly, but measured risk that makes sense

  1. don’t think you can come to us and get prior approval for defensive tactic
  • Do whatever you think you have to do, we’ll tell you if you’re right or wrong with benefit of hindsight later, won’t bless your transaction

6.8.3.2 Case Law

Teck Corp v Miller (BC SC) – Best Interests Test

Ratio: Best interests test: need to act in best interests of SH^“The directors must act in good faith. Then there must be reasonable grounds for their belief. If they say that they believe there will be substantial damage to the company’s interests, then there must be reasonable grounds for that believe. If there are not, that will justify a finding that the directors were actuated by an improper purpose”.

Producers Pipelines (Sask CA) – Proportionality Test

Ratio: Canadian law does not conflict with the business judgment rule.

In takeover situations, directors will often be in a conflict. In implementing a poison pill, the directors “must be able to establish that (a) in good faith they perceived a threat to the corporation, (b) they acted after proper investigation, and (c) the means adopted to oppose the takeover were reasonable in relationship to the threat posed”

• Defensive tactics that result in shareholders being deprived of the ability to respond to a takeover bid or to a competing bid are unacceptable

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Examples of Defensive Tactics – Securities Regulation

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  • Issue new shares
  • Seek a “white knight”
  • Issuer bid for own shares
  • “Crown Jewel”: sell of asset coveted by bidder. Or, grant option to third party to purchase “jewel” at low price if hostile bid succeeds
  • Bust-up fee with white knight: if white knight’s bid is unsuccessful, target must pay a significant sum to white knight (i.e. substantial debt on hand for successful bidder—less valuable company)
  • Delay the bid: commence litigation seeking an injunction until litigation is resolved, i.e. competition laws, poison pill (see below)

Regulation tends to encourage defensive tactics. It also facilitates white knight defences.

Union Enterprise (Unicorp Tender) (Example)

Example of defensive tactics – bought a pig farm to make company unattractive to bidder (too extreme, but case was before sec law)

Facts: Union enterprises was a massive utility company in Canada. Then a little nobody company, Unicorp makes hostile bid for union enterprises. Directors don’t like that, they get lots of perks, fight goes on for months. Costing Unicorp millions, union enterprises to fight it. Looks like unicorp is going to win. And Union Enterprise comes up with a smart idea. Decide they need a pig farm. Find two people that own one worth $10m, say “we’re going to pay you $80m for your pig farm, but won’t give you cash, will give you new shares of Union Enterprises.” If you do that, will expect you not to tender your shares to the unicorp bid. Makes bid at least $80m more expensive b/c new shares out there they have to buy. Also makes it hard b/c those 80m shares won’t be tendered to the bid, and if you win bid and buy union enterprises, you get a utility AND a pig farm!

They do the deal. Scorched earth – make it so unattractive bidder won’t want the company anymore. Unicorp still buys union enterprises, somehow was allowed to happen. Before they had defensive tactics.

Labatts (just an example)

Example of defensive tactics: used a poison pill (change in ownership would trigger tax liab); after this case brought in law re: defensive tactics (however, board did it’s job to buy time and eventual had a preferable bidder)

Facts: Labatts was controlled by Brascan, owned 40-50% of Labatt. Had big fight with CEO of Labatt. Rumour they’d be taken over (Labatt), so everyone wanted it, they owned beer company, TSN, Toronto blue jays, food, etc.. For months, speculation someone was going to make a takeover bid for Labatts.

  • So they decided poison pill ^ turned down by SHs, so evidence it would absolutely be in play. Had some time (unusual) to prep for takeover bid (it’s usually by surprise). Saw stupid provision in income tax act – if we turn TSN from a corporation into a partnership, then we can trigger $150m tax liability on a change of control of Labatts. If someone acquires control of Labatts, will pay $150m of tax for nothing, if we change from corp to partnership, but only triggered if someone gains control. So changed it, didn’t tell anyone.
  • Then Onex makes hostile t/o bid at huge premium to market. Everyone thought it was over, Labatts done. Time is $ for takeover bids, Labatts wants white knight, Onyx wants it to go quickly. Onyx sees change, goes nuts ^suing board, suing directors, everyone. (after defensive tactics introduced)

Onex Argument: “these guys are crooks b/c they entrenched themselves, denied SHs right to decide if they want to take our bid or not by creating an artificial $150m tax liability for no reason” ^ This actually levelled the playing field, and allowed Onex and Labatt to talk about it (Onex realized it would be long and drawn out if they didn’t talk to the board). But then someone else came and bought it from Belgium (COMPANY DID THEIR JOB, THEY BOUGHT TIME)

Max Milk and Beckers

Example of attempt by Max Milk to find a white knight

Facts: fierce rivals for years. Couche-Tard made an offer to buy Max Milk, then made a deal with Beckers (paid a lot). Sold shares on condition that they wouldn’t tender them to Couche-Tard. 2 years later Couche-Tard bought both!

  1. Due Diligence – can restrict access
  • Want to find white knight. Example of making info available to all bidders except you.
  • Every time bid is made on hostile basis, everyone gets access except original bidder. And when OG bidder sues all directors, never heard of success

Sun Media and TorStar

Example where info was not made available to bidder. Also in this case, complained to competition bureau. Worked out since delay led to higher bid.

Facts: Sun Media went to competition bureau to buy itself time to think about TorStar bid.

  • If in the same industry, might complain to anti-competition bureau and maybe a better bid comes along. But keep in mind you can’t fix this one!!
  • SH of Sun Media and TorStar angry – took decision out of their hands! However, directors insulated b/c they bought time – then Quebecor made a higher bid! So it worked out.

Second Cup

Example of poison pill- not actually used, just threatened to give opp to talk

Facts: Owned partially by Cara. Made bid to own rest of company. Existing directors put in a poison pill (once x% acquired then every SH, gets ability to buy shares)

  • NO ONE has ever actually triggered a poison pill – just threatened often to give an opp to talk
  1. Golden Parachutes – all legal.
  • Temptation to offer everyone a huge severance in case they get taken over b/c it’s the acquiror’s money. This is LEGAL.
  • Policy argument is: important to behave in best interests of SHs, so if they give you that golden parachute, relieving you of any personal concerns of losing your job, so you can just act BIC
  1. Poison Pills
  • “Rights Plan” – Put provision in articles of corp saying “if someone acquires more than 20% of shares of this company, every SH of this company automatically [except person owning 20%] gets the right to buy 10 more shares at a penny”
  • Makes the company impossible to buy b/c there are 10X as many shares that everyone acquires for a penny, so astronomical price.
  • Almost every company subj to poison pill threatens to sue, every single company says don’t push us or we’ll exercise our rights plan, every company fighting takeover bid is afraid of implementing it, no company in history of world has ever executed a rights plan.

Again, levels the playing field:

  • tells acquirer just relax. Talk to us. Because we need to talk. If you think you’ll dictate terms, we have a weapon. It buys time, it levels the playing field, and it creates a bit of leverage for there to be a negotiation

Main Principles:!) takeover bids are a good thing; 2) primary objective of t/o bid legislation is protection of bona fide interests of SHs of target company; 3) second purpose/ objective: create a reg framework where bids can happen in an open and even-handed manner; 4) Regulators believe it is inappropriate to specify a code of conduct for directors b/c that code runs risk of being insuff in some cases and excessive in others; 5) SH approval desirable (BUT this is unrealistic); 6) administrators believe that unrestricted options produce most desirable results in t/o bids and are reluctant to intervene in contested bids; 9) although auctions are best and don’t want to intervene, administrator will punish you if your action is to deprive SHs of opp/ rt to respond to a bid; 10) cannot come to administrator to get prior approval for defensive tactic

o SEC COMM CAN LIFT IT!!, but rarely would. (e.g. Cara for Second Cup) o Don’t lift it usually b/c think it creates opportunity for someone to come in at a higher price b/c that’s what they want.

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Fiduciary Duty in the Context of Takeover Bid – Securities Regulation

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Policy for defensive: you can do w/e you want to fight bid, but if you deprive SH of choice, you’re dead (prob b/c conflict of interest between directors interests and SH’s interests). It’s good to have them, because you maximize value of the enterprise.

  1. Fiduciary Duty in the Context of Takeover Bid
  • Traditionally, directors’ actions evaluated under the “business judgment rule” (Smith v. Van Gorkom) and have fiduciary duties of care/loyalty under CBCA

However, in the context of defensive measures, a more stringent view emerges. Directors must show:

  • (a) They have reasonable grounds, based upon good faith and reasonable investigation, to believe that the takeover threat is harmful to the enterprise; and
  • (b) Actions taken in response to the threat are reasonable or “proportionate” in relation to the threat posed.

o This is Intended to address the potential conflict of interest between management and SHs (that directors will just act in their own best interests in a TOB situation to entrench themselves)

  1. NP 62-202: Tactics that will come under scrutiny Tactics that will come under scrutiny include:
  2. Issuance of grant on, option, or purchase of outstanding securities of target
  3. Sale or acquisition of asset of a material amount
  4. Entering into a contract other than in the normal course of business.
  5. Duty to Maximize SH Value

Competing goals of the directors: immediate maximization of SH value and pursuing the long-term best interests of the corporation.

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Voting & Non-Voting Shares – Securities Regulation

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I need to raise money, but I don’t want to lose control; thus, issue shares in classes, some voting, some not. I can issue equity without losing control. Investors are satisfied because they just want your expertise, don’t want to own the company.

Problem: investor does not have a problem with founder controlling the company, but there would be a huge

issue if controlling SH can sell shares at a PREMIUM that investors have no right to participate in.

Solution – Canada Decides…

  • IF you want to create restricted voting shares, have to get a majority of the minority vote
  • Have to call them restricted voting shares and
  • COATTAIL Provision: if someone makes a takeover bid for my shares, then my shares become exactly like yours and we all get one vote, i.e. a bidder cannot attain control without making the same offer to all SHs.

Canadian Tire (1986, OSC)

Ratio: Coattail provision, despite not countering statute or case law, was not allowed to go through as it would prejudice minority shareholders (ex of OSC making any decision it sees fit in the public interest). Found that collateral agreement rule only applies in the context of a t/o bid (since this was not a takeover bid, collateral agreements did not apply)

Facts: Dealers of Canadian Tire formed a company, made an offer to purchase 49% of voting shares of Canadian Tire from Controlling SH (at a price of 160.24/share, when the stock was at $16/share= a massive premium for the voting shares of Canadian Tire!) As evidence of good faith, 30 million dollar irrevocable deposit. Dealers already owned 17.4% of the voting shares. If they were successful in their offer, they would own 66.66% of the voting shares.

  • Coattail says in the event an offer is made and a majority of the voting shares have been tendered, each non-voting share shall be entitled to 1 vote. (Thus, we won’t get a premium you won’t get – protected in event of TOB). On that promise to SHs, they agreed to take back non-voting shares and give the family voting shares.
  • Coattail was triggered by an offer. Dealers read the coattail, and said look at this. If we make an offer for 49% of the voting shares, it doesn’t trigger the coattail, we only have to buy from Controlling Family, and we get control of Canadian Tire (we already own 17%), and we can shut out the rest of the public. So they do it. The non-voting SHs go apoplectic.

Decision: OSC says nothing in this coattail stops this transaction. There is nothing in the case law that would stop the dealers. Nothing in the statute stops this transaction. No law, not precedent, no contract stopping this. I have no way of stopping the transaction. But they stopped it anyway – cease trade.

  • Counter Argument: Can we not rely on the commercial world for certainty? The law is the law, there is a valid contract! (arbitrary!)

Collateral Agreement Rule Only Applies in the Context of a Takeover Bid

This is not a takeover bid, therefore collateral benefits do not apply; everyone would get the same price; 30 million was merely a deposit. It was not a premium. Collateral benefits only apply to takeover bids; this isn’t a takeover bid because the OSC said it isn’t a takeover bid. Once the OSC said no takeover bid, no takeover bid and collateral agreements don’t apply.

Now, if there is a takeover bid, (a legit one), the DEPOSIT will be deducted from the same price, and everyone gets the same price. It is simply a contract between dealers and Billes family, irrevocable.

  • Now diff classes of shares and coattail provisions are much rarer

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Section – 100 Normal Course Exemption – Don’t Exceed 5% in 12Months

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  • 100 – Normal Course Exemption – Don’t Exceed 5% in 12 Months
  • Even though what you own together with what you buy will come out to more than 20, we’ll exempt you from takeover bid requirements if you buy no more than 5% of shares in any 12 month period and price you pay does not exceed market price
  • If market is dumb enough to let you keep doing it, then fine we don’t care, not at a premium

Ex. Exam Q: A(2%); B(4%)^H(3%)

  • Always get to 19.9% with fewest purchasers poss (enter with 5/fewer sellers) – therefore, own most amount without triggering T/o bid

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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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Post-Bid Integration – Securities Regulation

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Pre-Bid Integration: Only applies to private agreements, you can do this on the open market if you want b/c it’s random

• E.g. If I know I’ll make a takeover bid tomorrow, I own no shares of a public company. B owns 19% of shares. Ill buy all your shares at $50 a share, stock trading at $10, you buy them. Nothing to stop that, 019, early warning, insider reporting, but nothing stopping it. Tomorrow, I make bid for the rest of the company at $20 a share = … no.

o OSA 93.2(1): when you make a formal t/o bid, going to look BACK 90 days from the date of your takeover bid. If in that 90 day period, you bought shares by way of private agreement from anybody, your t/o bid has to be for the highest price and highest percentage of shares you bought in that 90 day period. (if 91 days?)

o 90 days is a stupid bright line test, no significance. Can do it at 91 and you’re a-okay.

■ E.g. 40 days before, I buy 100% of A’s shares at $10, B I buy 50% of their shares at $12 at day 30. My bid has to be for 100% of shares of company at $12

  1. Section 93.2(1): Restrictions on Acquisitions Before Formal Take-Over Bid

s.93.2(1): Restrictions on Acquisitions before Formal Take-Over Bid: If, within the period of 90 days immediately preceding a formal take-over bid, an offeror acquired beneficial ownership of securities of the class subject to the bid in a transaction not generally available on identical terms to holders of that class of securities, (private agmt ONLY)

  • (a) the offeror shall offer,

o (i) consideration for securities deposited under the bid at least equal to and in the same form as the highest consideration that was paid on a per security basis under any such prior transaction, or

o (ii) at least the cash equivalent of that consideration; and

  • (b) the offeror shall offer to acquire under the bid that percentage of the securities of the class subject to the bid that is at least equal to the highest percentage that the number of securities acquired from a seller in any such prior transaction was of the total number of securities of that class beneficially owned by that seller at the time of that prior transaction.

(2) Exception **once again, the rule in (1) ONLY APPLIES TO PRIVATE AGMTS!!: Subsection (1) does not apply to trades effected in the normal course on a published market if the trades satisfy such conditions as may be specified by regulation.

  1. Legislative Goal Met

Equality: Ensures that certain shareholders are not being paid a premium that other SHs are not getting the advantage of, just b/c it was done in a roundabout way prior to the formal bid

  1. Post-Bid Integration

Same as above in that this only applies to private agmts, not trades on market

  • E.g. If you have takeover bid outstanding, you’re a big SH. You don’t want to tender at $20 a share and I need your shares. I say don’t worry, let me buy everyone else’s at $20, then buy yours a day after I close by bid by priv agreement at $25 a share (or do a new bid)

o Obviously can’t do this

o Section 93.3(1): if you have t/o bid outstanding, you cannot enter into any agmt with anyone else to buy their shares at a different price, or make a takeover bid at a higher price for at least 20 trading days after the expiry of the bid

6.5.3.1 Section 93.3

  • s.93.3(1) Restrictions on acquisitions after formal bid: During the period beginning with the expiry of a formal bid and ending at the end of the 20th business day after that, whether or not any securities are taken up under the bid, an offeror shall not acquire or offer to acquire beneficial ownership of securities of the class that was subject to the bid except by way of a transaction that is generally available to holders of that class of securities on identical terms. **MUST BE ON IDENTICAL TERMS TO THE BID AND OPEN TO EVERYONE!!
  • (2) Exception **again only applies to PRIVATE agmts: Subsection (1) does not apply to trades effected in the normal course on a published market if the trades satisfy such conditions as may be specified by regulation.

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Pre-Bid Integration – Securities Regulation

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Pre-Bid Integration: Only applies to private agreements, you can do this on the open market if you want b/c it’s random

• E.g. If I know I’ll make a takeover bid tomorrow, I own no shares of a public company. B owns 19% of shares. Ill buy all your shares at $50 a share, stock trading at $10, you buy them. Nothing to stop that, 019, early warning, insider reporting, but nothing stopping it. Tomorrow, I make bid for the rest of the company at $20 a share = … no.

o OSA 93.2(1): when you make a formal t/o bid, going to look BACK 90 days from the date of your takeover bid. If in that 90 day period, you bought shares by way of private agreement from anybody, your t/o bid has to be for the highest price and highest percentage of shares you bought in that 90 day period. (if 91 days?)

o 90 days is a stupid bright line test, no significance. Can do it at 91 and you’re a-okay.

■ E.g. 40 days before, I buy 100% of A’s shares at $10, B I buy 50% of their shares at $12 at day 30. My bid has to be for 100% of shares of company at $12

  1. Section 93.2(1): Restrictions on Acquisitions Before Formal Take-Over Bid

s.93.2(1): Restrictions on Acquisitions before Formal Take-Over Bid: If, within the period of 90 days immediately preceding a formal take-over bid, an offeror acquired beneficial ownership of securities of the class subject to the bid in a transaction not generally available on identical terms to holders of that class of securities, (private agmt ONLY)

  • (a) the offeror shall offer,

o (i) consideration for securities deposited under the bid at least equal to and in the same form as the highest consideration that was paid on a per security basis under any such prior transaction, or

o (ii) at least the cash equivalent of that consideration; and

  • (b) the offeror shall offer to acquire under the bid that percentage of the securities of the class subject to the bid that is at least equal to the highest percentage that the number of securities acquired from a seller in any such prior transaction was of the total number of securities of that class beneficially owned by that seller at the time of that prior transaction.

(2) Exception **once again, the rule in (1) ONLY APPLIES TO PRIVATE AGMTS!!: Subsection (1) does not apply to trades effected in the normal course on a published market if the trades satisfy such conditions as may be specified by regulation.

  1. Legislative Goal Met

Equality: Ensures that certain shareholders are not being paid a premium that other SHs are not getting the advantage of, just b/c it was done in a roundabout way prior to the formal bid

You can grab notes on other topic from here.

Lock-up Agreements/ Tendering Agreements – Securities Regulation

You can grab notes on other topic from here.

  1. Lock-up Agreements/ Tendering Agreements (Allowed)

93.1(1) of the OSA says you can’t enter into any agreement to enter shares while bid is outstanding (in a private agreement)

  1. Section 2.1(2) of Rule 62-504

However, Section 2.1(2) of Rule 62-504 (Take Over Bids and Issuer Bids) says I can enter into a lock-up agreement with you ^ whereby the shareholder and offeror making bid will contract to effect that shareholder will tender his shares to a formal TOB made by the offeror made in accordance with proper terms/conditions of her bid

  • You can negotiate this, it’s a contract
  • For instance, in the clause it may state that the SH is not obligated to tender to the original bidder at a certain price if a higher bidder comes along BUT then the SH must give the original bidder a % of the profits. If there is NO such clause in the LU agreement, then the SH is stuck.

o E.g. you’re a big SH and I say I’m thinking of making bid at $20 a share, but I will only make that bid if you agree that you’ll tender to it. Then negotiate (you can add whatever conditions you want, have it irrevocable where they cannot withdraw the tender and tender to a higher competing bid, or not, probably would though)

Why would a big SH do that?

  • The large shareholder would encumber themselves like this in order to ensure the bid happens and their shares get bought
  • If they said no, not doing it for $20 a share… two choices, sit with share at $10 or agree to lockup agreement, and make sure they get the $20 bid (the premium)

NOTE!!! – and see below chart for legislative goals

  • still have to comply with the terms and conditions of a takeover bid (e.g. taking up shares pro rata), nothing untoward going on, there is no extra consideration or premium going to the SH who is a part of the lock up agmt

o Pre-bid integration only protects little guys (doesn’t matter that previous purchases were for less)

Ex. Say 60 D before offer to buy all shares of A (at $9/share); 45 D before offer to buy all of B’s shares (at $12/share). Then take-over bid (might be prejudicial to other parties). Therefore, take-over bid must be for highest price and highest % you purchased in the previous 90 day period.

• Thus to legitimize these transaction would have to buy for $12 and 100% (higher payment and higher % than before – note: therefore, should not buy up 100% of A first)

  1. Section 93.1: Restrictions on acquisitions during formal take-over bid

An offeror shall not offer to acquire, or make or enter into an agreement, commitment or understanding to acquire beneficial ownership of any securities of the class that are subject to a formal take-over bid or securities convertible into securities of that class otherwise than under the bid on and from the day of the announcement of the offeror’s intention to make the bid until the expiry of the bid.

  1. OSC RULE 62-504: TAKE OVER BIDS AND ISSUER BIDS

Per s.2.1(2): Subsection 93.1(1) of the Act does not apply to an agreement between a security holder and the offeror to the effect that the security holder will, in accordance with the terms and conditions of a formal take-over bid, deposit the security holder’s securities under the bid.

• Interpretation: So this means they will deposit their securities in accordance with the usual bidding rules!

  1. Legislative goal is STILL met

Promote TOB, Equality and Information – policy as to why this is allowed

  1. Equality: all SHs are being treated equally: b/c all SHs being treated equally, big SH not getting more money than little SH
  2. Information: This is not secret (it will be disclosed in the takeover circular)
  3. Promotes TOB: Is not a collateral agmt b/c SHs still treated equally, however lock-ups help to allay the expense of TOBs to offerors b/c it lowers the risk of the bid failing and are thus in accordance with the intention of the Act to promote TOBs

You can grab notes on other topic from here.