On October 11, 2016, TSX released guidance with respect to pricing a prospectus offering or private placement where there is undisclosed material information. This guidance will be of particular interest to TSX-listed companies contemplating a prospectus offering or private placement of securities, where the proceeds of such financing are to be used to fund an acquisition.

On October 11, 2016, Toronto Stock Exchange (TSX) issued Staff Notice 2016-0006 (the Notice), providing guidance with respect to pricing a prospectus offering or private placement where there is undisclosed material information. This guidance will be of particular interest to TSX-listed companies contemplating a prospectus offering or private placement of securities, where the proceeds of such financing are to be used to fund an acquisition.

The Notice provides the following general guidance with respect to the relationship between the dissemination of information about the company and the pricing of a prospectus offering or a private placement:

  • Companies proposing a prospectus offering or a private placement should price their offerings in the context of the market with reference to the “market price” (as determined in accordance with the TSX Company Manual);
  • Generally, when pricing a financing, the market price should reflect all material events, changes or announcements (collectively, Material Information); and
  • Where there is undisclosed Material Information, it is not appropriate to price a financing prior to dissemination of Material Information, as the market price of the securities may not accurately reflect the business and affairs of the company. This means that in the case of a prospectus offering or private placement of securities, where the proceeds of such financing are to be used to fund a material acquisition, TSX will typically require that the material acquisition be announced prior to the pricing of the financing.

Despite this general guidance, TSX has historically allowed an exception to pricing a financing where there is undisclosed Material Information if the event would not otherwise occur without a financing arrangement (the Pricing Exception).

The Pricing Exception is most often relevant where there is a prospectus offering or private placement of securities and the proceeds of such financing are used to fund an acquisition. For these transactions, the principal terms of the financing (including the price) are typically announced concurrently with the acquisition; therefore, financing is priced prior to the acquisition being disclosed to the public.

The Notice confirms that TSX will generally: (i) accept pricing of such financings in this manner, provided that TSX is satisfied that the acquisition would not otherwise have been approved by the board of directors of the company, but for the financing arrangement, and (ii) require an officer’s certificate confirming that the board of directors of the company would not have entered into the acquisition agreement without also having entered into the financing arrangement.

Importantly, the Notice flags two scenarios where TSX may have concerns about allowing the Pricing Exception for financings:

  1. Where the net proceeds of the financing significantly exceed the cash consideration of the acquisition, in which case TSX may require the company: (i) to reduce the gross proceeds of the offering (so that the acquisition and financing are more clearly aligned); (ii) set the price of the financing after the acquisition has been disclosed; or (iii) obtain security holder approval as a condition of the financing. Note that TSX will generally consider a financing to significantly exceed the cash consideration where the financing raises 30% or more in excess of the cash consideration.
  2. Where the financing provides for significant insider participation. Significant insider participation by officers, directors and major shareholders may provide or appear to provide insiders with an economic advantage not generally available to the investing public.

Although the Notice provides some helpful guidance, pricing and disclosure issues often require careful consideration, and in some cases, may necessitate prior consultation with the company’s legal advisors and/or TSX. If you have questions about the Notice feel free to reach out to us.