R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
CW SHAREHOLDINGS INC.,
SHAW COMMUNICATIONS INC., SHAW ACQUISITION INC.
AND WIC WESTERN INTERNATIONAL COMMUNICATIONS LTD.
Hearing: April 27, 1998
Panel: J.A. Geller, Q.C. - Vice-Chair
M.P. Carscallen, FCA - Vice-Chair
K.D. Adams - Commissioner
Counsel: Sheila R. Block - For CW Shareholdings Inc.
James Turner -
James Tory -
Stephen Mulhall -
Neil Finkelstein - For Shaw Communications Inc.
Jeremy Freedman - and Shaw Acquisition Inc.
J.P. Bisnaire -
Vincent Mercier -Grant Haynen - For WIC Western International
Robert Staley - Communications Ltd.
Robyn M. Bell -
Jay Naster ) For the Staffs of the
Cathy Singer ) Ontario Securities Commission,
Margo Paul ) the Alberta Securities
Rossana Di Lieto ) Commission and the British Columbia Securities Commission
On April 20, 1998, CW Shareholdings Inc. ("CW") applied to the Ontario Securities Commission (the "Commission"), the Alberta Securities Commission (the"Alberta Commission") and the British Columbia Securities Commission (the "B.C. Commission") for:
(a) cease trade orders pursuant to clause 127(1)2 of the Securities Act (Ontario) (the "Act"), clause 165(1)(b) of the Securities Act (Alberta) (the "Alberta Act")and section 161(1)(b) of the Securities Act (British Columbia)(the "BC Act") with respect to the Shaw Bid (defined below) and, in particular the tendering to orthe taking up and payment for any Class B Non-Voting Shares ("Class B Shares") of WIC Western International Communications Ltd. ("WIC") pursuant to theShaw Bid, pending the removal of the option and break-up fee provisions of the Pre-Acquisition Agreement (defined below);
(b) an order pursuant to subsection 144(1) of the Act revoking the Commission's order (the "Exemption Order") exempting Shaw Communications Inc.("Shaw") and Shaw Acquisition Inc. ("SAI") (collectively, the "Shaw Companies") from complying with the pre-bid integration requirements contained insubsection 94(5) of the Act in connection with the Shaw Bid, and similar orders under the Alberta Act and the B.C. Act revoking exemption orders of theAlberta Commission and the B.C. Commission.
The grounds asserted by CW for the relief requested were:
(a) that WIC has conducted an unfair auction process which has excluded CW and has prematurely ended that process;
(b) that the break-up provisions of the Pre-Acquisition Agreement:
(i) constitute an inappropriate defensive tactic in response to the CW Bid (defined below);
(ii) are unreasonable in the circumstances and substantially and unfairly impede CW in its competing bid for the Class B Shares; and
(iii) constitute a related party transaction which should be subject to the related party provisions of Commission Policy Statement 9.1 ("9.1");
(c) that the granting of the Exemption Order causes substantial prejudice to CW as a holder of Class B Shares as well as to other shareholders of WIC and theExemption Order should not have been granted without notice to affected parties.
On April 27, 1998, a panel of the Commission, together with panels of the B. C. Commission and the Alberta Commission, held a hearing on CW's application.
The three Commissions (collectively, the "Commissions") stayed the proceedings in respect of the cease trade orders requested, and denied CW's request forrevocation orders, stating that the Reasons for these Decisions would be delivered in due course.
WIC is a publicly-held corporation, incorporated under the laws of Canada, involved in television and radio broadcasting, pay television, satellite network andwireless communications services. It is one of the largest private television and radio broadcasters in Canada, with television broadcasting facilities in BritishColumbia, Alberta, Ontario and Quebec and radio broadcasting facilities across Western Canada and in Ontario. The Class B Shares are listed and posted fortrading on The Toronto Stock Exchange.
The authorized capital of WIC consists of an unlimited number of Preferred Shares, an unlimited number of Class A Voting Shares ("Class A Shares") and anunlimited number of Class B Shares, of which, as at December 8, 1997, there were outstanding 903,995 Class A Shares and 24,616, 803 Class B Shares. Eachof the outstanding Class A Shares carries the right to one vote. The holders of Class B Shares are entitled to receive notice of and to attend and be heard at allmeetings of shareholders of WIC and are entitled to receive notices of meetings, information circulars and other written information from WIC that the holdersof Class A Shares are entitled to receive, but are not entitled to vote at any meeting of the shareholders of WIC except as specifically provided pursuant to WIC'sarticles and the Canada Business Corporations Act. In addition, WIC has outstanding Convertible Debentures which are convertible at any time before maturityinto Class B Shares at the rate of 31.41 Class B Shares per $1,000 principal amount at maturity of Convertible Debentures. As at August 31, 1997, ConvertibleDebentures in the aggregate principal amount at maturity of $6,238,000 were outstanding. The Convertible Debentures are currently redeemable by WIC.
Immediately prior to March 14, 1998, Western Broadcasting Company Ltd. ("WBC"), a British Columbia corporation, owned directly or beneficially 553, 641Class A Shares, approximately 61.25% of the Class A Shares. WBC was owned or controlled by the Griffiths family.
On March 14, 1998, Shaw, an Alberta corporation, announced that it had acquired 372,902.5 Class A Shares and 1,277,728 Class B Shares from WBC andother Griffiths family holding companies and 78,775 Class A Shares and 46,688 Class B Shares from Daphne Holdings Ltd., in each case at a price of $61 perClass A Share and $39 per Class B Share. Shaw announced that as a result of these transactions it owned 451,677.5 Class A Shares, or approximately 49.96%of the Class A Shares, and 3,435,876 Class B Shares, approximately 13.96% of the Class B Shares, and that a portion of the shares it acquired were being held intrust on behalf of Shaw pending regulatory approval.
Also on March 14, 1998, Cathton Holdings Ltd. ("Cathton"), an Alberta corporation owned or controlled by the Allard family, announced that it had acquiredfrom WBC, pursuant to a right of first refusal granted to it by WBC, an additional 180,638.5 Class A Shares, to bring Cathton's holdings to 451,897.5 Class AShares, or 49.99% of the Class A Shares. It also announced that it had an option to buy, subject to approval of the Canadian Radio-television andTelecommunications Commission, an additional 100 Class A Shares from WBC. If this option were exercised, Cathton's holding would be 451,997.5 Class AShares, or exactly 50% of the Class A Shares.
CW, which is a wholly-owned subsidiary of CanWest Global Communications Corp. ("CanWest"), holds .04% of the Class A Shares.
Holders of Class B Shares have the right to convert their shares into Class A Shares under certain change of control circumstances.
CW owned beneficially, directly or indirectly, on March 24, 1998, in addition to its small holding of Class A Shares, 8,837,408 Class B Shares, approximately35.9% of the outstanding Class B Shares.
CanWest is one of Canada's largest independent private broadcasters as measured by potential audience size and syndicates programming in Canada to its owntelevision stations and other non-competing stations, including stations owned by WIC, and provides advertising sales services in Canada to its own televisionstations and to certain other non-competing stations. It owns significant or controlling interests in television broadcasting companies in Canada, Australia andNew Zealand and a commercial radio network in New Zealand. It also owns 45% of the equity shares of and controls a corporation which has been awarded alicence to launch the Republic of Ireland's first private sector national television network and 29.9% of the shares of a corporation which operates the ITVfranchise in Northern Ireland. In Canada, it owns and operates the Global Television Network.
Shaw, an Alberta corporation is a diversified Canadian entertainment, information and communications company. It provides a wide range of integrated media,video and data services. In addition to its cable television operations, Shaw has a number of businesses and services including 11 radio stations, televisionprogramming, high-speed Internet access, digital audio services and paging services. It owns, on a fully-diluted basis, a 47.2% equity interest and a 59.02%voting interest in Star Choice Communications Inc., a provider of digital direct-to-home satellite television services. It also holds an investment in The At-HomeCorporation, a provider of Internet services over the cable television infrastructure in the United States. SAI is an indirect wholly-owned subsidiary of Shaw,incorporated under the laws of Canada.
The CW Bid
On March 24, 1998, CW made an offer (the "CW Bid") to acquire any and all Class A Shares and Class B Shares not then owned by CW at $39 per share. Inthe take-over bid circular for the CW Bid, CW stated that it and CanWest believed that the transactions described above announced on March 14, 1998 hadresulted in a change of control of WIC without allowing the holders of Class B Shares to exercise their right to convert those shares into Class A Shares and thatthe holders of the Class B Shares had been denied the right, and were entitled to the opportunity, to convert their Class B Shares into Class A Shares. In thetake-over bid circular, CW also stated that CanWest intended to make applications to the appropriate authorities to seek that result. However, the CW Bid wasnot conditional upon the Class B Shares being held to be convertible into Class A Shares.
In their Directors' Circular (the "First Circular"), dated April 3, 1998, the board of directors of WIC (the "Board") unanimously recommended that WICshareholders not accept the CW Bid "at this time". The First Circular described the setting up by the Board of a special committee of directors (the "SpecialCommittee") comprised of Robert Brodie, Peter Classon, Rhys Eyton, John Lacey and Wendy Leaney, stated that the Special Committee had been authorized toreview the CW Bid and make recommendations to the Board in light of the CW Bid, stated that Robert Manning, a director of WIC, was authorized to attendmeetings of the Special Committee but did not have a vote in its proceedings, and stated that CIBC Wood Gundy Securities Inc. and Bennett Jones Verchere hadbeen retained to advise the Board and the Special Committee on financial and legal matters, respectively. (Mr. Lacey is the president and chief executive officerof WIC, and Mr. Manning is a representative of Cathton on the Board.)
The First Circular also described a shareholder rights protection plan (the "Rights Plan") implemented by WIC on March 28, 1998.
On April 8, 1998, panels of the Commissions dealt with an application by CW to cease trade the rights issued by WIC under the Rights Plan, and on April 9,1998, issued the Decisions of the Commissions that, unless the Rights Plan had ceased to be in effect with respect to the CW Bid by 4:00 p.m., Toronto time, onApril 20, 1998, orders would issue on April 21, 1998 cease trading the rights, the distribution and the exercise thereof and the issuance of any Class B Shares orother securities on the exercise thereof.
On April 23, 1998, the Commission issued its Reasons for that Decision.
On April 16, 1998, the Shaw Companies applied to the Commission for an order pursuant to clause 104(2)(c) of the Act that, in connection with the purchase byShaw of Class B Shares on March 13, 1998, Shaw was exempt from the requirement contained in clause 94(5)(a) of the Act in connection with a proposed offerby the Shaw Companies to purchase any and all Class B Shares not currently owned by them for a consideration, at the option of the holders of the Class BShares, of either (a) $43.50 cash or (b) a combination of Class B Non-Voting Shares of Shaw and a nominal amount of cash, having a combined value of $43.50,for each Class B Share, subject to proration in accordance with certain stated cash and share limits. In the application, the Shaw Companies stated that theyexpected to receive an opinion from their financial advisor, RBC Dominion Securities Inc., that the consideration to be received by holders of Class B Sharespursuant to the Shaw Bid, including those holders who will receive all or a substantial portion of their consideration in Class B Shares, will represent a significantpremium over the consideration paid by Shaw to those shareholders who sold Class B Shares at $39 cash per share in the prior transaction. They also stated thatthe $43.50 price offered under the Shaw Bid represented an 11.5% premium to the $39 price offered under the CW Bid. Similar exemption applications weremade to the Alberta Commission and the B.C. Commission. On April 16, 1998, the Commission granted the Exemption Order. The Alberta Commission andthe B.C. Commission granted similar orders.
On April 17, 1998, Shaw and WIC entered into an agreement (the "Pre-Acquisition Agreement").
The take-over bid circular for the Shaw Bid contains the following disclosures with respect to the Pre-Acquisition Agreement.
"The material terms and provisions of the Pre-Acquisition Agreement entered into by Shaw and WIC on April 17, 1998 are summarized below. This summary isa summary only. A copy of the agreement is attached to Shaw's material change report dated April 20, 1998 and may be obtained through SEDAR athttp://www.sedar.com.
WIC has represented to Shaw in the Pre-Acquisition Agreement that the Board of Directors of WIC, upon consultation with its advisors, has determinedunanimously that the Offer is fair to the Shareholders and has recommended that Shareholders accept the Offer. The Board of Directors of WIC has alsounanimously determined that the Offer and the Pre-Acquisition Agreement are in the best interests of WIC and the Shareholders. See the accompanying WICDirectors' Circular. WIC has also represented to Shaw that the Board of Directors of WIC has received a verbal opinion from WIC's financial advisor that theOffer is fair from a financial point of view to the Shareholders. The written form of such opinion is to be appended to the WIC Directors' Circular. In addition,WIC has covenanted to cooperate with Shaw and to take all reasonable action to support the Offer.
WIC has agreed in the Pre-Acquisition Agreement that it will not, directly or indirectly, through any officer, director, employee, representative or agent of WICor any of its subsidiaries, solicit or encourage (including by way of furnishing information or entering into any form of agreement, arrangement or understanding)the initiation of any inquiries or proposal regarding any merger, amalgamation, take-over bid, variation of a take-over bid, sale of substantial assets, sale oftreasury shares or gifts or interests therein or thereto or similar transactions involving WIC or any subsidiaries of WIC (any of the foregoing inquiries orproposals being referred to herein as an "Acquisition Proposal"); provided that nothing contained in the Pre-Acquisition Agreement prevents the Board ofDirectors of WIC from (i) considering, negotiating, approving and recommending to the Shareholders an unsolicited bona fide written Acquisition Proposal,which the Board of Directors of WIC determines in good faith (after consultation with its financial advisor, and after receiving a written opinion of outsidecounsel, or advice of outside counsel that is reflected in the minutes of the Board of Directors of WIC, to the effect that the Board of Directors of WIC isrequired to do so in order to discharge properly its fiduciary duties) would, if consummated in accordance with its terms, result in a transaction more favourableto the Shareholders than the transaction contemplated by the Pre-Acquisition Agreement (any such Acquisition Proposal being referred to as a "SuperiorProposal"), or (ii) taking any actions in support of a Superior Proposal as the Board of Directors of WIC, acting reasonably and in good faith, considersappropriate.
WIC has covenanted in the Pre-Acquisition Agreement that it will immediately cease and cause to be terminated any existing discussions or negotiations with anyparties (other than the Offerors) with respect to any potential Acquisition Proposal. WIC has agreed not to release any third party from any confidentialityagreement to which WIC and such third party is a party. WIC has further agreed not to release any third party from any standstill agreement to which WIC andsuch third party is a party, unless such third party is making a Superior Proposal. WIC has agreed to immediately request the return or destruction of allinformation provided to any third parties who have entered into a confidentiality agreement with WIC relating to a potential Acquisition Proposal and has agreedto use all reasonable efforts to ensure that such requests are honoured.
If at any time after the execution of the Pre-Acquisition Agreement:
(a) the Board of Directors of WIC has withdrawn or changed any of its recommendations or determinations referred to in the first paragraph under the heading"Pre-Acquisition Agreement" in a manner adverse to Shaw or shall have resolved to do so prior to the expiry of the Offer or the Board of Directors of WICrecommends acceptance by Shareholders of, or that Shareholders vote their WIC Class B Non-Voting Shares in favour of, an Acquisition Proposal; or
(b) any person, including such person's associates, affiliates and other persons acting jointly or in concern with such person, makes an Acquisition Proposal thatresults in such person, including such persons' associates, affiliates and other persons acting jointly or in concert with such person, owning, directly or indirectly,more than 50% of the outstanding WIC Class B Non-Voting Shares; or
(c) any person, including such person's associates, affiliates and other persons acting jointly or in concert with such person, other than Shaw, CanWest orCathton and their respective associates, affiliates and other persons acting jointly or in concert with any of them, makes an Acquisition Proposal that results insuch person, including such person's associates, affiliates and other persons acting jointly or in concert with such person, owning, directly or indirectly, (I) morethan 25% of the outstanding WIC Class B Non-Voting Shares and (ii) more than the number of WIC Class B Non-Voting Shares owned by Shaw, directly orindirectly, following completion or termination of the Offer,
any of the above being a "Fee Event", then WIC will pay to Shaw $30 million (the "Break Fee") in immediately available funds within one business day after theoccurrence of a Fee Event and the option on the WIC radio broadcasting business discussed below will become immediately exercisable; provided that the BreakFee will not be payable if: (i) the Fee Event that occurred was the event specified in (a) above and at the time of the occurrence of such Fee Event, the value ofthe Offer was less than $39.00 per WIC Class B Non-Voting Share, calculated on the basis of 35% cash consideration and 65% Shaw Class B Non-Voting Shareconsideration; or (ii) the Fee Event that occurred was the event specified in (b) above and the person who owns more than 50% of the outstanding WIC Class BNon-Voting Shares is CanWest, or its associates, affiliates or other persons acting jointly or in concert with CanWest, as a result of purchases of WIC Class BNon-Voting Shares under the CanWest Offer at a price of $39.00 per WIC Class B Non-Voting Share.
The option on the WIC radio broadcasting business has the following principal terms: (a) it is exercisable by Shaw on written notice to WIC at any timefollowing a Fee Event and on or prior to the date that is 45 days following the date of the Fee Event; (b) it is exercisable at a price of $160 million payable atclosing; and (c) the closing of the conveyance will occur no later than 15 days following the delivery of the written notice pursuant to (a) above.
The Pre-Acquisition Agreement may be terminated any time prior to the Expiry Time:
(a) by mutual consent of Shaw and WIC;
(b) by either Shaw or WIC 45 days after the Offer is mailed (being June 5, 1998) if Shaw has not acquired WIC Class B Non-Voting Shares pursuant to theOffer, otherwise than as a result of the breach of WIC of any material covenant or obligation under the Pre-Acquisition Agreement or as a result of anyrepresentation or warranty of WIC in the Pre-Acquisition Agreement being untrue or incorrect in any material respect;
(c) by either Shaw or WIC if any condition of the Offer has not been satisfied or waived on the Expiry Date, as it may be extended from time to time pursuant tothe terms of the Offer;
(d) by Shaw upon the occurrence of a Fee Event;
(e) by Shaw if WIC is in default of any material covenant or obligation under the Pre-Acquisition Agreement or if any representation or warranty of WIC underthe Pre-Acquisition Agreement is untrue or incorrect in any material respect; or
(f) by WIC if Shaw is in default of any material covenant or obligation under the Pre-Acquisition Agreement or if any representation or warranty of Shaw underthe Pre-Acquisition Agreement is untrue or incorrect in any material respect,
(i) any obligations to make the payments and the enforceability of the WIC Radio Division Option will survive termination of the Pre-Acquisition Agreement tothe extent that the event giving rise to such obligation to make such payments or the ability to exercise such option occurred prior to the termination of thePre-Acquisition Agreement, other than in respect of a termination pursuant to (b) or (f) above; and
(ii) the representations and warranties set forth in the Pre-Acquisition Agreement will survive the termination of the Pre-Acquisition Agreement for a period ofthree years."
On April 21, 1998, the Shaw Companies made an offer (the "Shaw Bid") to purchase any and all of the issued and outstanding Class B Shares for, at the optionof the holder:
(a) $43.50 cash; or
(b) 1.8085 Class B Non-Voting Shares of Shaw and $0.25 cash;
for each Class B Share, subject to proration. The Shaw Bid is open for acceptance until 12:01 a.m. (local time) on May 13, 1998, subject to extension, unlesswithdrawn.
The Board issued a Directors' Circular, dated April 21, 1998, (the "Second Circular") with respect to the Shaw Bid. In the Second Circular, the Board statedthat it had concluded that the Shaw Bid was fair to holders of Class B Shares, and recommended that the holders accept the Shaw Bid.
The Second Circular stated that the Board had waived the application of the Rights Plan through the acquisition of WIC shares under the Shaw Bid, the CW Bid,and any other offer made by way of take-over bid circular to all holders of Class B Shares.
CW Arguments on the Cease Trade Issue
At the hearing, CW made the following arguments in support of its application for cease trade orders.
1. The Pre-Acquisition Agreement is abusive and engages the public interest jurisdiction of the Commissions because:
(a) of its effect on competitive bidding and shareholder choice (referring to National Policy 62-202 of the Canadian Securities Administrators ("N.P.62-202"));and
(b) it is a related party transaction done without the protections for minority shareholders expected by the Commissions (referring to 9.1).
2. The Pre-Acquisition Agreement is unprecedented in the inducements it offered to Shaw because:
(a) it involves the target inducing one of its principal shareholders to make a bid; and
(b) of the scale of its generosity in respect of;
(i) the substantial breakup fee;
(ii) the option granted on core assets;
(iii) the option being at a bargain price; and
(iv) the option being exercisable even if the CW Bid is judged superior.
3. The Pre-Acquisition Agreement kills competitive bidding because a successful counter-bid triggers an immediate and substantial per share loss of value.
4. The Pre-Acquisition Agreement denies shareholders access to the CW Bid.
5. The Pre-Acquisition Agreement was entered into without giving CanWest an opportunity to improve its offer or to bid on the radio assets which are thesubject matter of the option.
6. The Pre-Acquisition Agreement has not induced an offer that is "clearly superior" for all shareholders, the Shaw Bid being discriminatory.
7. The Pre-Acquisition Agreement was entered into without protection for minority shareholder interests in that:
(a) it is a related party transaction;
(b) it was entered into in extreme haste;
(c) it was negotiated between the chief executive officer of WIC and a principal shareholder of WIC;
(d) there was no valuation or market testing of the option price; and
(e) there was no majority of minority approval.
CW has applied to the Ontario Court (General Division) - Commercial List (the "Court") for:
(a) an order pursuant to section 241 of the Canada Business Corporations Act setting aside the Pre-Acquisition Agreement; and
(b) an interlocutory and final order restraining WIC and Shaw and their respective directors, officers, employees and agents from taking any action pursuant to orin furtherance of the Pre-Acquisition Agreement.
The grounds for the application are substantially similar to those asserted by CW in the proceedings before the Commissions.
At a hearing before Blair, J. of the Court on April 22, 1998, the court application was adjourned for a week to allow the Commissions to deal with WIC'sapplication for cease trade orders in these proceedings.
At the commencement of the hearing before us, Mr. Finkelstein, on behalf of Shaw and supported by Mr. Staley, on behalf of WIC, argued that, although theCommissions clearly have the jurisdiction to cease trade a take-over bid where it would be in the public interest to do so, because the principal issues raised byCW's application to the Commissions relate to the legality of the Pre-Acquisition Agreement and whether or not the Board properly exercised its fiduciary dutiesin entering into that agreement, specifically with respect to the granting of the break-up fee and the option on the WIC radio broadcasting business, the matterwas one which more properly could be dealt with by the courts. Mr. Finkelstein pointed out that there was no jurisdiction in the Commissions to do away withthe Pre-Acquisition Agreement or directly render it inoperative, but only to cease trade the Shaw Bid if they concluded that it was in the public interest to do so.He argued that it was not in the public interest for the Commissions to cease trade the Shaw Bid because it continues to be clearly superior to the $39 per shareoffer made in the CW Bid, and WIC's shareholders should have the right to choose to which offer they wish to tender. In his submission, CW was seeking toprotect its own interest as a bidder at the expense of WIC's public shareholders by seeking to remove the Shaw Bid so that CW could acquire the Class B Sharesfrom those shareholders at a $39 price. Accordingly, in his submission, it would be against and prejudicial to the public interest for the Commissions to grant therelief requested by CW.
In WIC's submission, CW's complaint was not with respect to the Shaw Bid, which WIC considered to be financially superior to the CW Bid, but rather CW'sattack was directed at the Pre-Acquisition Agreement.
WIC argued that the substance of CW's complaint, both before the Commissions and before the Court, was that the Board acted improperly and in breach of itsfiduciary duties in negotiating and entering into the Pre-Acquisition Agreement. WIC also pointed out that the Commissions have no authority to set aside acontract like the Pre-Acquisition Agreement, that jurisdiction resting solely with the courts, and that the Commissions were able, at most, to cease trade theShaw Bid. Accordingly, WIC argued that even if the Shaw Bid was cease traded, Shaw's rights under the Pre-Acquisition Agreement would continue to existand be exercisable unless and until a court determined otherwise. WIC pointed out that this could lead to the perverse result that WIC's shareholders weredeprived of a $43.50 bid in favour of a $39.00 bid, while Shaw's rights remained unaffected, and that this could not be in the public interest. WIC went on toargue that CW's complaints to the Commission were, in substance if not in name, allegations of breach of fiduciary duty, that CW had already commenced acourt application for the determination of that issue, and that, in these circumstances, the Court was the more appropriate forum to address the matters raised byCW's application to the Commissions as the Court is better positioned to determine the issue and fashion appropriate and measured remedies if breaches areestablished.
Mr. Naster, on behalf of the staffs of the Commissions, also supported Shaw's position. He submitted as follows.
(1) The Commissions would be well within their rights to decline to exercise their jurisdiction in the circumstances.
(2) A remedy is not only available in another forum, namely the Court, but that remedy has already been applied for by CW.
(3) There is a striking similarity in the issues to be litigated in the Court application when compared to the issues before the Commissions.
(4) There is a significant complexity to the factual issues raised and, although the Commissions are well capable of addressing complex factual issues, one has toconsider, in the context of the summary process which the applications before the Commissions contemplate, whether this is the appropriate forum, in thesecircumstances, to address those factually complex issues.
(5) There is no pressing and substantial public interest concern which would warrant the Commissions proceeding, and no complex legal or policy issues whichrequire the expertise of the Commissions.
(6) The Commissions have repeatedly expressed caution insofar as wading into the areas of fiduciary duties. While the Commissions are not barred fromaddressing those issues, they are clearly reluctant to do so except when absolutely necessary in the public interest.
(7) Ultimately, the constituency which the Commissions must place at the height of their concern, namely the shareholders, could be deprived of an offer of$43.50 per Class B Share, and it would be difficult to see how the shareholder interest is served if the Commissions proceed with the cease trade applications ontheir merits and conclude to cease trade the Shaw Bid.
Mr. Naster argued that CW was required to demonstrate a clear and compelling reason which would justify, in the public interest, the Commissions choosing toexercise their jurisdiction, and that, while there maybe cases in which, notwithstanding the commencement of proceedings in another forum, the abuse allegedwas so flagrant and so egregious that the public interest compelled the Commissions to act, this was not such a case.
With respect to CW's 9.1 argument, Mr. Naster submitted that, while the issues involved in CW's allegations in this respect might not be as transparentlyduplicative, when they were reduced to their essence they also were also subsumed by the Court application. As regards the related party question, the argumentturned on the value of the radio assets covered by the option. In Mr. Naster's submission this was an issue which was clearly front and centre in the proceedingspending before the Court. Mr. Naster argued that whether a valuation was required by 9.1 would involve a finding by the Commissions that, effectively, theBoard had substantially undervalued those assets for the purposes of the option agreement, which was simply another aspect of the argument that the Board hadacted in breach of its fiduciary duties, a matter which was squarely before the Court. Insofar as the insider bid issue is concerned, Mr. Naster submitted that theconclusion had to be predicated on the finding that Shaw was privy, because of its status as an insider, to material non-public information, which provided it withan informational advantage, which would require CW to demonstrate that Shaw had access to information beyond that which was afforded to Shaw by WICunder a confidentiality agreement entered into between them. This also was an issue which was front and centre in the application to the Court. Accordingly,Mr. Naster argued that the 9.1 arguments were not really 9.1 issues, but rather were an allegation by CW that the Shaw Bid was a morally bankrupt deal, andthat this was an issue that the Court process was ideally suited to resolve.
In response to questions by Chairman Hess of the Alberta Commission, Mr. Naster acknowledged, however, that if, without dealing with the fiduciary duty issueat all, the Commissions were in a position to determine that the mere existence of the break-up fee and the option to Shaw on WIC's radio assets constitutedimproper defensive tactics, it would be appropriate for the Commissions to deal with the matter at the hearing, and that the question of what constitutedimproper defensive tactics for securities law purposes was not one which the Court could determine.
Mr. Tory, on behalf of CW, argued that the Commissions were the appropriate venue for consideration of the issues raised in CW's cease trade application. Hisprincipal arguments were as follows.
(1) The relief sought was under the Act, the Alberta Act and the B.C. Act, based on the public interest jurisdictions of the Commissions.
(2) The Commissions should not decline to hear the case simply because the facts that engaged the public interest jurisdiction could also found a claim for breachof fiduciary duties. Corporate law and securities law were not water-tight compartments and, although there was an overlap, corporate and securities lawrequirements were not duplicative.
(3) Pragmatic factors all favoured the Commissions over the courts as the best forum to police live take-over bids.
(a) Procedural and evidentiary flexibility enabled the Commissions to cope with compressed time-frames of bids.
(b) Only the Commissions have the necessary understanding of the capital markets backdrop.
(c) Courts have erected jurisprudential impediments to their dealing with take-over bid issues. The bidder is the natural applicant, but courts have said thatbidders have no standing to make oppression or fiduciary duty claims arising from defensive tactics. Courts have said target shareholders must be represented ona hearing challenging defensive tactics, but there was no practical mechanism for accomplishing this.
(d) On the facts of the case, the Court did not offer an advantage as a venue to compensate for the disadvantages.
(e) Although the Court was not CW's first choice as a venue, CW initiated the Court proceedings at a time when it was unclear whether the Commissions wouldhear the application, and there were concerns as to whether an internal re-organization of WIC was being proceeded with at the instance of Shaw.
In the course of argument, Mr. Tory made the point that there was an alternative to cease trading the Shaw Bid. He said that WIC's radio assets were held in aWIC subsidiary, so that the Commissions could, in effect, get rid of the option by cease trading the transfer of the shares of the subsidiary to Shaw. In responseto a question by Vice-Chair Geller as to whether the option could not be effected by a transfer of the radio assets themselves, Mr. Tory said that the taximplications of doing this might make it a very questionable exercise of management's responsibilities. He did not, however, go on to explain how managementcould avoid making the transfer if required to do so by the Pre-Acquisition Agreement, or how WIC being forced by us to incur additional tax costs could be inthe interests of the holders of the Class B Shares.
Mr. Tory argued that the Pre-Acquisition Agreement had effectively terminated the auction. He stated that CW would not be able to increase its bid as long asthe Pre-Acquisition Agreement was on the table with the option on WIC's radio assets, and that no one else would be able to put in a competing bid either. Inanswer to a question by Chairman Hess, Mr. Tory confirmed that CanWest was not going to increase its bid while the option was still in existence. In answer toa further question by Chairman Hess as to whether the result of a cease trade order would be that the shareholders would only have available to them CW's $39bid, Mr. Tory stated that this would depend on whether Shaw was going to insist on the option. Mr. Tory stated that what CW really wants is a level playingfield.
Chairman Hess asked Mr. Tory whether he was able to advise as to whether CanWest had made a determination as to whether, under the conditions attached tothe CW Bid, CW had the right to decide not to complete the CW Bid as a result of the entering into of the Pre-Acquisition Agreement. In response, Mr. Toryadvised that in CanWest's view a condition had been triggered as a result of the Pre-Acquisition Agreement, so that CW would be entitled to decline to take-upshares. In answer to a question by Chairman Hess as to whether CanWest had made a decision as to whether it would exercise that out or not, Mr. Tory statedthat he didn't believe that a final determination had been made on this point, but that CanWest was certainly leaning in the direction of not taking up sharesdeposited to the CW Bid. In answer to a further question by Chairman Hess, Mr. Tory acknowledged that it was accordingly possible that, if CanWest'sapplication was granted, the Commissions would be cease trading the only bid available to the holders of Class B Shares.
NP62-202 sets out the views of the Canadian Securities Administrators on take-over bid defensive tactics. It states that the primary objective of the take-overbid provisions of Canadian securities legislation is the protection of the bona fide interests of the shareholders of the target company, with a secondary objectivebeing to provide a regulatory framework within which take-over bids may proceed in an open and even handed environment and that the take-over bid provisionsshould favour neither the offeror nor the management of the target company, and should leave the shareholders of the target company free to make a fullyinformed decision. It states that the Canadian Securities Administrators are prepared to examine target company tactics in specific cases to determine whetherthey are abusive of shareholder rights, and that defensive tactics may come under scrutiny if undertaken during the course of a bid, or immediately before a bid, ifthe board of directors of the target company has reason to believe that a bid may be imminent, if these involve, inter alia, the sale or acquisition of, or granting ofan option on, or agreeing to sell or acquire, assets of a material amount. NP 62-202 goes on to state that the Canadian Securities Administrators consider thatunrestricted auctions produce the most desirable results in take-over bids, and are reluctant to intervene in contested bids, but that they will take appropriateaction if they become aware of defensive tactics that will likely result in shareholders being deprived of the ability to respond to a take-over bid or to a competingbid. It also states that the Canadian Securities Administrators appreciate that defensive tactics, including those that may consist of some of the actions listed asbeing of concern, may be taken by a board of directors of a target company in a genuine attempt to obtain a better bid, but that tactics that are likely to deny orlimit severely the ability of the shareholders to respond to a take-over bid or a competing bid may result in action by the Canadian Securities Administrators.
It is CW's position that the Pre-Acquisition Agreement, and specifically the break-up fee and option on WIC's radio assets, constitute improper defensive tacticswhich were intended to, and have the effect of, stopping the auction process.
Shaw and WIC argue that, to the contrary, the Pre-Acquisition Agreement was necessary to obtain from Shaw a higher bid than that of CW under the CW Bid,and that without the Pre-Acquisition Agreement there would not have been an auction process at all.
Staff of the Commissions submitted that, unless the Commissions were prepared to say that break-up fees or asset options would always constitute improperdefensive tactics, the Commissions would not be in a position to deal with the question without first dealing with the question of breach of fiduciary duty.
Commission Jurisprudence on Choice of Forum
It was acknowledged by all of the parties that the Commissions clearly have the jurisdiction to cease trade a take-over bid where it would be in the public interestto do so, and that the existence of improper defensive tactics on the part of the target company could constitute an appropriate basis on which the Commissionscould exercise their cease trade powers.
It is clear that something which, for corporate law purposes, may constitute a breach of fiduciary duties may also, for securities law purposes, properly result in adecision by a securities commission to exercise its discretionary powers, including its cease trade power. The question is not whether a securities commissioncan look into the question of whether there has been a breach of fiduciary duties, but rather whether it is in the public interest for it to do so in the particular case.
However, there appears to be little in the way of Commission decisions dealing directly with the question of when the Commission should investigate allegedbreaches of fiduciary duties.
In In the Matter of Cablecasting Limited (1978), O.S.C.B. 37 at page 41, the Commission had the following to say:
"After hearing counsel, the Commission concluded that section 144 would enable the Commission, if it felt that the action was in the public interest, to issue acease trading order on either of the bases argued by Mr. Cameron. Specifically, the section 144 authority could be used where the Commission concludes that aproposed transaction
- would contravene the OBCA (or some other statute reflecting public policy considerations); or
- while consistent with the language of prior policy rulings and statements of the Commission, would contravene the intent of these rulings and statements anddetract from the credibility of the capital markets or be otherwise inconsistent with the best interests of investors.
Each of these points is potentially controversial. They require separate analysis.
As to the first, it seems clear to the Commission that availability of some other remedy does not preclude it from granting an application such as this. Mr.Cameron readily acknowledged that, if his allegations are correct, the Davisons could have elected to initiate litigation to delay the shareholders' meeting. Healso pointed out, rightly in our view, that an application before the Commission can be processed more quickly and cheaply than could a formal court proceedingon the same facts. To conclude that availability to the applicant of a remedy in the courts ousts the jurisdiction of the Commission would, in our view, beinconsistent with the principles of The Securities Act. If a clear abuse of investors is demonstrated, the Commission should not be forced to rely on a singleminority shareholder to initiate legal proceedings on behalf of all.
But there is another side to the case. The very expedition with which applications to the Commission of this type are processed precludes the level of refinementof fact-finding that is attained by the exchange of pleadings, the examinations for discovery, the formal trials and the adversary relationship that characterizejudicial proceedings. The Commission's staff includes a number of highly qualified investigators, but it is not appropriate to call upon them to become involved ina situation of this type unless there is reason to believe that fraud has occurred or that the transaction constitutes a flagrant abuse in some other respect. Also,when a dispute of this type is litigated, the usual procedure is for the complaining shareholder to apply for and obtain an injunction preventing consummation ofthe transaction pending judicial resolution of the matters in issue. Presumably, the Commission could exercise its authority under section 144 to have the sameeffect as an injunction, but this novel use of that authority should be essayed only in rare circumstances. For these reasons, and because it would bepresumptuous for the Commission to make a practice of enforcing statutes not assigned to it, this basis for a cease trading order ought to be applied only where asignificant contravention of another statute can be expeditiously demonstrated."
In In the Matter of Canadian Tire Corporation et al. (1987), 10 O.S.C.B. 857 at page 950, the Commission said the following:
"Counsel for the Billeses and the Dealers also argued that the Commission is not the proper forum for this case. The contention was that this is a private matterbetween the Class A shareholders and the controlling shareholders. Accordingly, the Class A shareholders should pursue their remedies in the Courts where theissues can more properly be sorted out through the trial process. This contention is supported by the fact that the notice of hearing in para. 14 alleges breachesof fiduciary duty, and such breaches are properly matters to be tried in the Courts, either under the oppression remedy or in a derivative action.
The contention that the issue here is a private one between two classes of shareholders is far wide of the mark. A purported sale of control in the circumstancesset out above, where the rights of the holders of some 83 million Class A shares are concerned, is not a private matter, although individual rights in terms of aparticular shareholding are involved. This is demonstrably a public matter involving a major public company and one that concerns and impacts on the publicmarketplace. In the sense in which counsel were using the idea of a private list, any takeover bid would, according to their analysis, be a private matter betweenshareholders. Yet it is well known that take-over bids, the rules applying to them and how they are conducted, are very much a public matter in the sense of theirconcern to, and impact on the marketplace and its perceived integrity. The Commission, accordingly, has always played a major role in overseeing suchtransactions.
Moreover, the argument that this matter more properly belongs before the Courts, mistakes the respective roles of the Courts and the Commission in overseeingthe management and actions of public companies and protecting shareholders' interests. The Commission is vested with the power to regulate the capital marketsin the public interest and is given broad powers to do so. The power to intervene includes the power to cease trade and to do so, at least initially, without apublic hearing if satisfied of the necessity. In carrying out its regulatory function, the Commission necessarily impacts on the rights and obligations of companies,directors and shareholders. But it does so from the perspective of the regulation of the public markets and their fair and efficient operation. The subjecting oftake-over bids to an elaborate code of rules and regulations, backed by the power to issue a cease-trade order, if conduct during the course of a bid calls for it, isperhaps the best known example of this regulatory function.
The Courts, on the other hand, adjudicate rights between shareholders and their companies. In so doing, the judicial process has the advantage of the refinementof issues provided by pleadings, examinations for discovery and the trial process. Moreover, the Courts are able to provide remedies appropriate to theindividual case. What the Courts are not structured to do, is to move quickly to regulate public markets through regulating shareholder and/or corporateconduct. To be sure, the injunction remedy is available in the proper case, but it is not a remedy designed to be used as a regulatory tool.
The line between when Commission action or judicial process is appropriate in shareholder and corporate matters is, of course, not so clearly marked as theforegoing comments would indicate. There is bound to be overlap as there is no clear line between securities and corporate matters and many issues before theCommission involve the conduct of fiduciaries. But the role of the Commission is not to determine breaches of fiduciary duty, or to deal with a breach of acorporate statute, in order to provide a private remedy. Rather, it is to regulate shareholder and corporate conduct in the context of, and for the purpose of,regulating the public securities markets. Again, the line will not always be clear as intervention in matters that from one aspect are of a private nature will, fromanother aspect, be seen to have public market implications. If the Commission should mistake its role in a particular case, or act beyond the jurisdiction granted,the Courts can rectify the matter and set out a new balance through the appeal procedure granted under s. 9 of the Act."
Conclusions on Forum Motion
We agree with the submissions made by Shaw, WIC and the staffs of the Commissions that essentially the relief requested by CW in its application for ceasetrade-orders and that requested in its application to the Court are the same thing, and are bottomed on an attack against the Pre-Acquisition Agreement and thequestion of whether the Board properly performed its fiduciary duties in entering into that agreement. We also agree that the Court can more appropriately dealwith questions of this sort, at least in the circumstances of this case, than the Commissions, especially since there is no jurisdiction in the Commissions to setaside the Pre-Acquisition Agreement, while the Court can do so.
We do not accept Mr. Tory's argument to the effect that the Court will not be able to deal appropriately with these issues, or to do so on a timely basis.
This is not to say, however, that, if the Commissions were able to conclude, for instance, that a break-up fee or an asset option was always an improper defensivetactic, it would not be appropriate for them, if they considered that the public interest so required, to cease trade the Shaw Bid without forming a conclusion onthe fiduciary arguments.
Although break-up fees have become a more or less usual feature of the take-over bid landscape, the quantum of a specific fee could, in our view, result in theagreement to pay such a fee being an improper defensive tactic. However a break-up fee in an appropriate amount could, in our view, be properly agreed to by atarget company if it were necessary to agree to it in order to induce a competing bid to come forward. As a result, we are unable to conclude, without enteringinto an examination of the factual background, that the mere existence of the break-up fee constitutes an improper defensive tactic. This examination would haveto include consideration of the unusual pre-existing relationship between WIC and Shaw.
As regards the option on WIC's radio assets, we have a greater concern. It has certain aspects which seem to us to be unusual, in particular the fact that theoption will be exercisable even if the CW Bid, made before the entering into of the Pre-Acquisition Agreement, is successful, thus having what amounts to aretroactive effect. However, we are unable to conclude, without entering into an examination of the factual background, that the mere existence of these featuresresults in the option constituting an improper defensive tactic. A particular asset option may or may not be offensive, depending on whether it is necessary toobtain a competing bid and whether it has the effect of depriving shareholders of the ability to respond to a take-over bid or to a competing bid or is likely todeny or limit severely the ability of the shareholders of the target company to respond to a take-over bid or a competing bid. (See NP 62-202.)
Mr. Tory argued that the effect of the Pre-Acquisition Agreement was to kill competitive bidding because a successful counter-bid would trigger an immediateand substantial per share loss of value, and that the agreement denied shareholders access to the CW Bid. In our Decision with respect to the Rights Plan weconcluded that the only realistic potential counter-bidders against the CW Bid were Shaw and, less likely, Cathton. We think it unlikely that Cathton will comeforward with a bid at this stage in the bidding process. Accordingly, at the moment, the auction appears to us to be between CW and the Shaw Companies.
Mr. Tory assured us that CW will neither make a higher bid nor take-up and pay under the CW Bid unless the option disappears. Given the prior history inconnection with CanWest's interest in WIC, we think it quite possible that this position will change if the Court does not strike down the Pre-AcquisitionAgreement. In our view, the effect of the Pre-Acquisition Agreement will not be to "kill competitive bidding".
But what if the position does not change?
What constitutes the primary concern of the Commission in contested take-over bids was expressed by the Commission in In the Matter of Canadian JorexLimited and Manville Oil & Gas Ltd. (1992), 15 O.S.C.B. 257 at page 266 as follows:
"Underlying our conclusion was our view of the public interest in matters such as this. As is amply reflected in National Policy 38 [the predecessor toNP62-202], the primary concern of the Commission in contested take-over bids is not whether it is appropriate for a target board to adopt defensive tactics, butwhether those tactics "are likely to deny or severely limit the ability of the shareholders to respond to a take-over bid or a competing bid" (paragraph 6) or "mayhave the effect of denying to shareholders the ability to make a [fully informed] decision and of frustrating an open take-over bid process" (paragraph 2). If so,then as National Policy 38 clearly indicates, the Commission will be quite prepared to intervene to protect the public interest as we see it. For us, the publicinterest lies in allowing shareholders of a target company to exercise one of the fundamental rights of share ownership -- the ability to dispose of shares as onewishes -- without undue hindrance from, among other things, defensive tactics that may have been adopted by the target board with the best of intentions, butthat are either misguided from the outset or, as here, have outlived their usefulness."
In our view, the rationale underlying Jorex, as well as that underlying NP 62-202, is that the Commission's primary concern in the take-over bid context is theprotection of the interests of the shareholders of the target company. NP 62-202 does express a secondary objective, to provide a regulatory framework withinwhich take-over bids may proceed in an open and even-handed environment (often expressed as the requirement for a "level playing field"), but this is clearly asubsidiary consideration.
It is difficult to understand how it could be in the interests of the shareholders of WIC, other than CW, for the Commissions to cease trade the Shaw Bid, thusleaving a lower bid by CW in place as the only bid, with no third party bid likely to come forward, especially in circumstances where we are told that it isprobable that CW will not be taking up and paying under that bid because, even if we cease trade the Shaw Bid, it will leave the option to Shaw on WIC's radioassets in place.
Accordingly, we concluded that it would not be in the public interest for the Commission to cease trade the Shaw Bid at this time. However, instead ofdismissing the CW cease trade application, we decided to stay it for now. It may be that, as a result of findings by the Court, it would become appropriate forthe Commission to consider further the 9.1 or other arguments advanced by CW in support of the application.
Sub-section 144(1) Application
In support of its sub-section 144(1) application, CW, in effect, attempted in part to advance the same arguments as it had advanced in respect of the cease tradeapplication and, in addition, put forward two basic arguments. Firstly, that there was material non-disclosure by Shaw in obtaining the Exemption Order, and thesimilar orders of the Alberta Commission and the B.C. Commission, and, secondly, that revocation of the Exemption Order, and the similar orders of the AlbertaCommission and the B.C. Commission, would promote the public interest by restoring a level playing field and ensuring all WIC shareholders get access to equaleffective consideration.
Mr. Tory argued that CW had been entitled to assume that, if Shaw made a counter-offer to the CW Bid, it would have to be an all-cash offer because of Shaw'sprior purchase of Class B Shares for $39 in cash. Vice-Chair Geller indicated to him that the Exemption Order was not unprecedented. Mr. Tory then statedthat CW expected that it would have an opportunity to raise the concerns that it had to the Commission before the Exemption Order was made. Ms. Block, inher submissions, repeated the latter argument.
Ms. Block also argued on behalf of CW that the Commissions were not told how the Shaw deal worked, that they were given a very brief, and, in hersubmission, misleading, description of the nature of the Shaw Bid, that they were not told that it was an offer that shut down bidding and that, in fact, probablyremoved the ability of CW to take-up and pay under the CW Bid, and that it was going to put CW in the position of not being able, as a 35% shareholder ofWIC, to get $43.50 a share.
Ms. Block argued that, because CW would not be able to dispose of its Shaw shares for anything like $43.50 a share, whereas other holders of Class B Sharesmight be able to do so, CW was being dealt with discriminatorily in regard to the Shaw Bid. She also argued that the obligation on an applicant applying to theCommission for an exemption order to make full disclosure of all material facts was extremely high, and referred us to what she stated was the practice in theOntario Court (General Division) on ex parte applications.
Mr. Finkelstein, on behalf of Shaw, argued that it was in the public interest that the public holders of Class B Shares have the benefit of the $43.50 offer and thatthe revocation of the Exemption Order, and of the comparable orders of the Alberta Commission and the B.C. Commission, would have the effect of taking thataway. He further argued that the only matter which was material and germane to the decision of the Commission to make the Exemption Order, namely that thepublic shareholders of WIC were going to get a better offer at a significant premium to the market purchase made by Shaw at $39 cash, was fully disclosed.
Mr. Haynen, on behalf of WIC, argued that CW was really complaining that Shaw didn't tell the Commissions, and should have told the Commissions that theprice for the option on WIC's radio assets was inadequate, and that the Pre-Acquisition Agreement features that CW was complaining about would have endedthe auction, and that, from WIC's perspective, the option price was in fact adequate and the Pre-Acquisition Agreement will not end the auction. He argued thatWIC entered into the Pre-Acquisition Agreement because it provided for an offer of substantially greater value than $39 per Class B Share, and that the holdersof Class B Shares were going to benefit from the Shaw Bid. Accordingly, he argued, the Exemption Order, and the corresponding orders of the AlbertaCommission and the B.C. Commission, were, at the time they were made, and remain, in the public interest and in the interest of the holders of Class B Shares.He submitted that the auction would have been over on April 20, 1998 at $39 a share if the Commissions had not made the orders they made.
Mr. Naster, on behalf of the staffs of the Commissions, pointed out that the application to each of the Commissions was made with an express request forconfidentiality, and that the Act, the Alberta Act and the B.C. Act each expressly contemplates the authority to make orders on a confidential basis. He said, thatgiven the potential harm that could result to the markets from premature disclosure of this kind of information, it was an appropriate exercise of the discretion ofeach of the Commissions to have treated the application on a confidential basis.
Ms. Singer, also on behalf of the staffs of the Commissions, pointed out that CW, and its counsel, should have been well aware of the fact that a similar order tothe Exemption Order had previously been granted by the Commission. She referred us to a report of a panel discussion at the most recent "Dialogue with theOSC", published in (1997), 20 O.S.C.B.5875, and specifically to the following, which appeared at page 5881.
"The Commission appears to have accepted Staff's interpretation In the Matter of Mallette Inc. and Tembec Inc. (June 13, 1995) where it granted exemptiverelief from the pre-bid integration requirements. In that case, the pre-bid transaction was for cash consideration and the formal bid was for cash, shares or acombination of both with a cash limit. The Commission granted relief in reliance on an opinion of an investment dealer that the consideration under the bidrepresented a significant premium over that paid in the prior transaction. The granting of relief recognizes that, without the order, the offeror could not haveproceeded with the transaction."
We should point out that, in our view, this excerpt appropriately describes what was material to the Commission in granting the Mallette and Tembec order, aswell as the Exemption Order.
The Mallette and Tembec order was published at (1995), 18 O.S.C.B. 2652.
As regards what is required to be established by the applicant before the Commission makes a subsection 144(1) order, Ms. Singer referred us to theCommission's decision in In the Matter of Ultramar PLC and In the Matter of LASMO PLC (1991), 14 O.S.C.B. 5221 at page 5222, where the Commission saidthe following:
"After hearing the submissions of all counsel, we concluded that when an application is brought under the provisions of section 140 [now section 144] of the act,for an Order revoking or varying a decision made by the Commission, and that application is disputed by the part [sic] that applied for and received the Order orRuling, we should, except in the most unusual circumstances, before we consider rescinding or varying the Order or Ruling, find that the original applicant hadeither misrepresented a fact to the Commission or omitted to state a material fact, or alternatively that there was, unknown to that applicant, a material factwhich was not therefore brought to the attention of the original panel. We should also consider whether or not the knowledge of such a material fact by theoriginal panel would in our opinion have been likely to have affected the Order or Ruling made.
In this case, none of these circumstances were in our opinion present. We do not believe that any of the facts raised by counsel for Ultramar could be consideredto be material in the circumstances of the Order and Ruling that were made on October 18, 1991. Accordingly we denied the request of Ultramar."
We agree that this excerpt sets out the considerations germane to a decision by the Commission to grant a subsection 144(1) application.
We find that the application for the Exemption Order did not misrepresent a fact to the Commission, or omit to state a fact material to its decision and that thereis no evidence that there was a material fact, unknown to the applicant, which was not therefore brought to the attention of the panel which granted theExemption Order. We also find that knowledge of the matters alleged by Ms. Block to be omitted material facts would not have been likely to affect the grantingof the Exemption Order, and that there are no unusual circumstances which we must take into account.
The existence and publication of the Mallette and Tembec order effectively disposes of Mr. Tory's argument that CW was entitled to assume that, if Shaw madea bid for the Class B Share, it would have to be an all-cash bid.
As regards Mr. Tory and Ms. Block's argument that CW expected that it would have an opportunity to be heard before the Exemption Order was made, we canonly say that, in our view, such an expectation, if it existed, was an utterly unreasonable one. Absent a statutory requirement for a hearing, it is not usual for theCommission, before granting an exemption order or ruling, to advise persons who might be affected by it, or to grant them a hearing, and this is especially true intake-over bid situations.
Similarly, in our view, Ms. Block's argument that the Shaw Bid discriminated against CW is without merit. CW would be treated, under the Shaw Bid, inprecisely the same manner as other holders of Class B Shares. No doubt it would be more difficult for a holder of a large number of Class B Shares to dispose ofthe Shaw shares which would be received under the bid than for the holder of a small number of Class B Shares, but this is the case whenever there is a shareexchange take-over bid, and should not, in our view, be considered to be discrimination, but rather the inevitable result of holding a large number of shares whenthere is such a bid.
Accordingly, we dismissed the subsection 144(1) application of CW.
May 5, 1998.
"J. A. Geller" "Morley P. Carscallen"
"K. D. Adams"