Securities Law & Instruments

Headnote

Application under Section 104(2)(c) of the Securities Act (Ontario) and Part 9 of Multilateral Instrument 61-101 -- exemption from sections 93.1-99 of Securities Act (Ontario) and Part 2 of MI 61-101 -- take-over bid by Canadian offeror, for a UK target company that is not a reporting issuer in any Canadian jurisdiction -- offeror to acquire all outstanding stock of target that it does not already own -- target has three registered holders in Canada -- one is the offeror, another is a portfolio manager which supports the offer and the third holds less than 0.01% of the outstanding target shares -- offer to be subject to laws of England -- securityholders in Canada to receive same information and participate on same terms as all other holders of target shares.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 93.1 -- 99 and 104(2)(c).

OSC Rule 62-504 Take-over Bids and Issuer Bids.

MI 61-101 Protection of Minority Security Holders in Special Transactions.

July 7, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

FAIRFAX FINANCIAL HOLDINGS LIMITED

(the Filer) and

ADVENT CAPITAL (HOLDINGS) PLC

 

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):

A. for exemptive relief from the requirements of Sections 93 to 99.1 of the Securities Act (Ontario) (the Act) as they would otherwise apply to a cash offer (the Offer) by the Filer (on behalf of itself and certain of its subsidiaries) to acquire all of the issued and to be issued ordinary share capital of Advent Capital (Holdings) PLC (the Target) not already owned by the Filer and its subsidiaries (the Formal Bid Exemption);

B. for exemptive relief from Part 2 of Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions (MI 61-101) as it would otherwise apply to the Offer (the 61-101 Exemption); and

C. that pursuant to section 5.4 of National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions, the application of the Filer and this decision document be held in confidence until the earlier of 90 days from the date of this Decision and such time as the Offer is publicly announced (the Request for Confidentiality).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(i) the Ontario Securities Commission is the principal regulator for this application; and

(ii) the Filer has provided notice that Section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in British Columbia.

Interpretation

The terms defined in National Instrument 14-101 -- Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a corporation incorporated under the Canada Business Corporations Act.

2. The Filer is a reporting issuer or has equivalent status in all provinces and territories of Canada.

3. The subordinate voting shares of the Filer are listed on the Toronto Stock Exchange and the New York Stock Exchange under the symbol "FFH".

4. The Filer is, to the best of its knowledge, not in default of any requirement of Canadian securities laws.

5. The Target is a public limited company governed by the laws of the United Kingdom, having its registered address in London, England.

6. The ordinary shares of 50 pence of the Target (the Advent Shares) are listed on the Alternative Investment Market (AIM) of the London Stock Exchange under the symbol "ADV"

7. As at June 25, 2009, the Target had an outstanding share capital of 40,656,962 Advent Shares.

8. The Target is not a reporting issuer in any province or territory of Canada and the Advent Shares are not listed on any securities exchange in Canada.

9. Under the terms of the Offer, shareholders of the Target will receive 220 pence in cash for each Advent Share that they tender to the Offer. The offer price represents a premium of 69% over the closing price of 130 pence per Advent Share on AIM on June 26, 2009, the last business day before the submission of the Filer's application for the Exemption Sought.

10. The directors of the Target who are independent of the Filer (the Independent Directors) have given careful consideration to the options available for the strategic development of the Target. The Independent Directors have concluded that the Offer is fair and reasonable and intend unanimously to recommend that shareholders of the Target accept the Offer. Each of the Independent Directors and the non-independent director of the Target will irrevocably undertake to accept, or procure the acceptance of, the Offer in respect of all their Advent Shares.

11. The Independent Directors retained Kinmount Limited (Kinmount) as their financial advisor in connection with the Offer. Kinmount has advised the Independent Directors that it considers the terms of the Offer to be fair and reasonable.

12. The Offer will be commenced in the United Kingdom by way of press release. The press release will include a full description of the Offer, including information as to (i) the Filer, (ii) the Target, (iii) the background and reasons for recommendation of the Offer, and (iv) the terms and conditions of the Offer. The Filer will mail an offer document, which will contain all of the information listed above, to all holders of Advent Shares as soon as possible after announcing the Offer, and in any event within 28 days of the announcement (or such longer period as the U.K. Panel on Takeovers and Mergers may agree). The press release and the offer document must contain certain information prescribed by the City Code on Takeovers and Mergers (the City Code) and must be prepared to a "prospectus" standard.

13. The Offer is conditional upon valid acceptances in respect of not less than 90% of the Advent Shares not already owned by the Filer and its subsidiaries. The Offer will be open for acceptance for a period of not less than 21 days following the mailing of the offer document to shareholders of the Target.

14. The Offer will be governed by English law and will be subject to the jurisdiction of the English courts. The Offer will be subject to the requirements of the City Code and other legal and regulatory requirements, including the rules and regulations of the Financial Services Authority, the London Stock Exchange, the Companies Act 1985 and the Companies Act 2006.

15. If the Filer acquires, directly or indirectly, 75% or more of the outstanding Advent Shares, the Filer intends to apply to delist the Advent Shares from AIM. If the Filer acquires 90% or more of the outstanding Advent Shares which it and its subsidiaries do not already own, the Filer intends to complete a compulsory acquisition of the remaining Advent Shares that it and its subsidiaries do not already own under a statutory "squeeze out" procedure in the Companies Act 2006. Receiving an acceptance of the Offer from a Canadian shareholder, Mackenzie Cundill Investment Management Limited (Mackenzie Cundill), is an essential element to the availability of the statutory "squeeze out" procedure.

16. The Offer constitutes a "take-over bid" according to the definition of such term in the Legislation as certain holders of Advent Shares are resident in Canada. The Offer is therefore subject to the formal bid requirements set out in Sections 93 to 99.1 of the Act (the Take-Over Bid Requirements) unless otherwise exempted.

17. An offeror may use the exemption prescribed by section 100.3 of the Act (the Foreign Take-Over Bid Exemption) to be relieved from the Take-Over Bid Requirements upon satisfaction of certain conditions, including that security holders whose last address as shown on the books of the offeree issuer is in Canada hold less than 10% of the outstanding securities of the class subject to the bid at the commencement of the bid.

18. A take-over bid that is subject to the Take-Over Bid Requirements and that is made by a person that has beneficial ownership of, or control or direction over, directly or indirectly, securities of the offeree issuer carrying more than 10% of the voting rights attached to all of the offeree issuer's outstanding voting securities is also subject to the requirements applicable to an "insider bid" pursuant to Part 2 of MI 61-101 (the 61-101 Requirements), including the requirement to obtain a formal valuation.

19. The Filer holds, directly and indirectly, 27,166,255 Advent Shares, representing approximately 66.8% of the outstanding Advent Shares (the Fairfax Shares).

20. In response to a request made by the Filer in June, 2009, the Target provided the Filer with a complete list of the holders of Advent Shares.

21. The list of holders of Advent Shares disclosed two other Canadian holders of Advent Shares in addition to the Filer:

(i) Mackenzie Cundill with an address in British Columbia, which controls 5,168,090 Advent Shares in its capacity as the portfolio manager of certain accounts (including mutual funds) which beneficially own such Advent Shares, representing approximately 12.71% of the outstanding Advent Shares; and

(ii) an individual with an address in Ontario, who holds 1,061 Advent Shares, representing approximately 0.0026% of the outstanding Advent Shares.

22. To the best of the Filer's knowledge, there are no other beneficial holders of Advent Shares resident in Canada.

23. Based on this information, excluding the Fairfax Shares, Canadian holders of Advent Shares hold, in the aggregate, approximately 12.71% of the outstanding Advent Shares.

24. The only published market on which the Advent Shares have traded during the last 12 months is AIM in London, England. The Advent Shares have not traded on a published market in Canada.

25. Mackenzie Cundill will be entering into an agreement with the Filer under which Mackenzie Cundill will irrevocably agree to accept the Offer in respect of the 5,168,090 Advent Shares which it controls. Mackenzie Cundill supported the making of the Filer's application for the Formal Bid Exemption and 61-101 Exemption.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Formal Bid Exemption is granted provided that:

(i) the Offer and any amendments to the Offer are made in compliance with the laws of the United Kingdom, including the rules and regulations of the Financial Services Authority, the London Stock Exchange, the City Code, the Companies Act 1985 and the Companies Act 2006; and

(ii) the offer document and all other documentation made available to holders of Advent Shares resident in the United Kingdom are concurrently sent by the Filer to all holders of Advent Shares in Canada; and

(iii) Canadian holders of Advent Shares are entitled to participate in the Offer at the same price and on the same terms and conditions as all other holders of Advent Shares.

The further decision of the principal regulator under the Legislation is that the Request for Confidentiality is granted.

"Carol S. Perry"
Commissioner
Ontario Securities Commission
 
"Kevin J. Kelly"
Commissioner
Ontario Securities Commission

The decision of the principal regulator under the Legislation is that the 61-101 Exemption is granted provided that:

(i) the Offer and any amendments to the Offer are made in compliance with the laws of the United Kingdom, including the rules and regulations of the Financial Services Authority, the London Stock Exchange, the City Code, the Companies Act 1985 and the Companies Act 2006; and

(ii) the offer document and all other documentation made available to holders of Advent Shares resident in the United Kingdom are concurrently sent by the Filer to all holders of Advent Shares in Canada; and

(iii) Canadian holders of Advent Shares are entitled to participate in the Offer at the same price and on the same terms and conditions as all other holders of Advent Shares.

"Michael Brown"
Assistant Manager, Corporate Finance
Ontario Securities Commission