The TSX announced on September 25, 2009 that it will amend its rules to eliminate an important exemption from its securityholder approval requirements generally applicable to acquisitions involving the issuance by a listed issuer of securities from treasury. The TSX requires that listed issuers obtain securityholder approval for the issuance of securities as full or partial consideration for an acquisition where the number of securities to be issued exceeds 25% of the issued and outstanding securities of the listed issuer. An exemption has been available to date, however, where the listed issuer is acquiring the securities of a public company having at least 50 shareholders (excluding insiders).
As a result of the rule amendment, the TSX will require securityholder approval in connection with all acquisitions by a listed issuer where part or all of the consideration consists of securities of the listed issuer that exceeds 25% of the issued and outstanding securities of the listed issuer, regardless of whether the acquired entity is a public company.
The rule amendment follows requests for comment by the TSX in October 2007 and April 2009 in respect of a proposed rule amendment. In the April 2009 request for comment, the TSX proposed requiring securityholder approval for public company acquisitions where the dilution level exceeded 50%. However, following its review of the comments received, the TSX indicated that:
“TSX believes that securityholders should be provided with an opportunity to vote on acquisitions which may significantly alter their investment through dilution and has determined to align the threshold dilution level for securityholder approval for public company acquisitions with the threshold dilution level applicable to private company acquisitions.”
As a result of the rule amendment, the TSX is adopting a uniform threshold of dilution (25%) above which securityholder approval is required for all acquisitions involving the issuance of securities and private placements of securities completed at a discount to market.
The rule amendment follows a decision of the Ontario Securities Commission earlier this year in the matter of Hudbay Minerals Inc.1 where the OSC, in response to an application by a group of investors of Hudbay, required approval of Hudbay’s shareholders in respect of Hudbay’s then proposed takeover of Lundin Mining Corporation. The transaction was cancelled following the OSC’s decision. The OSC based its decision on the obligation of the TSX to consider the impact on “quality of the marketplace” in exercising its discretion to require securityholder approval in connection with the listing of securities to be issued on an acquisition. The importance of the TSX jurisdiction in requiring securityholder approvals in certain circumstances was highlighted in a 2006 decision of the Ontario Superior Court in the matter of Goldcorp Inc. where the Court acknowledged that the Business Corporations Act (Ontario) does not mandate approval of shareholders in connection with the issuance of shares from treasury by a purchaser. In that case, the Court also declined to order shareholder approval on the basis of an oppression claim.
As a result of the rule amendment, the TSX will require that acquisition transactions, such as those proposed in the Hudbay Minerals and Goldcorp matters, be subject to approval of the shareholders (and possibly of holders of other classes of listed securities) of the purchaser.
The rule amendment will be effective November 24, 2009.