Law firm Osler, Hoskin & Harcourt says Fibrek, Resolute Forest Products deal puts target companies on alert where their actions in face of takeover bids may be overturned by securities tribunal, regulators may act differently depending on province
DON MILLS, Ontario
June 16, 2012
– For more than six months the planned takeover of Fibrek Inc. - a Quebec-based company that used to be part of AbitibiBowater Inc. before being spun off as SFK Pulp Fund and before a name change in May 2010 - provided considerable work for lawyers, numerous regulators and at least three levels of courts because of the complexity of the matters at stake.
Ultimately, a hostile bid by Resolute Forest Products (formerly AbitibiBowater) at $1 a share that was backed by a hard lockup from three Fibrek shareholders (Fairfax, Oakmont and Pabrai) won the day despite a friendly higher offer, of $1.40 a share, from Mercer International Inc. (The lockup, combined with support of another shareholder, Steelhead, effectively prevented an auction for Fibrek and was made easier because Fibrek didn't have a shareholder rights plan in place.)
Mercer made its offer after Fibrek issued it with 32.32 million warrants. That planned move gave Mercer a significant toehold, but meant a dilution in the stake held by Fibrek's three major shareholders. As events materialized, that potential $32.32million financing played a very key role in the outcome.
Now Osler, Hoskin & Harcourt LLP has weighed in on the matter. The firm had a minor role in the deal representing Toronto Stock Exchange owner TMX Group Inc. on the listing of the warrants.
Three partners, Ward Sellers, Robert Yalden and Emmanuel Pressman, issued a note saying the hostile bid for Fibrek, combined with the decision of the Quebec Bureau de Decision et Revision on Mercer's white knight bid, "puts target company boards on alert about circumstances in which steps taken by them in the face of unsolicited takeover bids may be overturned by a securities tribunal exercising its public interest jurisdiction."
In Oslers' opinion, the bureau, which overturned an Autorité des marchés financiers decision, concluded that, in the absence of a real need of financing, "it was improper for the board to issue convertible securities which would dilute significant lockedup shareholders even if doing so resulted in a higher offer for all shareholders. The decision also provides support for the utility by bidders of hard lockups and highlights the potential value to a target company of having in place a shareholder rights plan that would prevent the granting of hard lockups."
The three also noted that the decision "highlights the potentially different outcomes in contested transactions, depending upon whether one is before a securities tribunal or a court of law." Specifically, they argue that while courts in Canada "have shown great deference to directors' decision-making on the basis of the business judgement rule," securities regulators have a different view and, at times, "have been prepared to invoke their public interest jurisdiction to override directors' decisions, suggesting that the chances of successfully challenging a board's decision may be higher before the securities tribunals than the courts."
The three also noted the Bureau's decision highlights a continuing feature of the Canadian landscape, "where the presence of multiple provincial securities regulators leaves it open for each securities tribunal to determine how readily to exercise its public interest jurisdiction, yielding potentially different results from one province to another."
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