National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – approval for indirect change of control of manager resulting from the acquisition of its parent holding company by Natixis Global Asset Management LP and abridgment of securityholder notice period to 33 days – acquirer has requisite experience and integrity to participate in Canadian capital markets – transaction will not result in any material changes to operations and management of the manager or the funds it manages.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(a.1), 5.7(1)(a), 5.8(1), 19.1.
December 12, 2014
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
NEXGEN FINANCIAL LIMITED PARTNERSHIP
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) for approval with respect to a proposed change of control of the Filer pursuant to section 5.5(1)(a.1) of National Instrument 81-102 – Investment Funds (NI 81-102) (the Approval Sought) and an abridgement to no less than 33 days of the time period prescribed by section 5.8(1)(a) of NI 81-102 for delivering notice to the securityholders of the Funds (as defined below) of the change of control of the Filer resulting from the Proposed Transaction (as defined below) (the Abridgement Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(2) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Alberta, Quebec, Newfoundland and Labrador and Northwest Territories with respect to the relief sought (together with the Jurisdiction, the Jurisdictions).
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
The decision is based on the following facts represented by the Filer:
NexGen Financial Limited Partnership
1. The Filer is a limited partnership established under the laws of the Province of Ontario. The general partner of the Filer is NexGen Limited, a corporation incorporated under the laws of the Province of Ontario. The Filer’s head office is located in Toronto, Ontario.
2. The Filer is registered as an investment fund manager in Ontario, Québec and Newfoundland and Labrador, as a portfolio manager and mutual fund dealer in Ontario and has provided notice of its intention to surrender its registration as a commodity trading manager in Ontario.
3. The Filer is not in default of securities legislation in any of the Jurisdictions.
4. The Filer is a wholly-owned subsidiary of NexGen Financial Corporation (NexGen Holdco).
5. NexGen Holdco is a Toronto-based holding company incorporated under the laws of the Province of Ontario and publicly listed on TSX Venture Exchange (NFX:TSX.V).
6. NexGen Holdco conducts its business through the Filer, which has more than CA$919 million in assets under management as at September 30, 2014.
7. NexGen Holdco is a reporting issuer in each of Ontario, British Columbia and Alberta and is not in default of securities legislation in any of these Jurisdictions.
8. The Filer is the manager of the open-ended public retail mutual funds listed in Schedule “A” (the Funds).
9. Each Fund is organized either as a trust established under the laws of the Province of Ontario or as a combination of classes of NexGen Investment Corporation, a corporation amalgamated under the laws of the Province of Ontario.
10. Each Fund is a reporting issuer in each of the Jurisdictions and is not in default of securities legislation in any of the Jurisdictions.
11. Securities of the Funds are distributed in each of the Jurisdictions under a simplified prospectus, annual information form and Fund Facts documents dated May 28, 2014.
The Proposed Transaction
12. In a press release issued on October 24, 2014 (and filed on SEDAR), NexGen Holdco and Natixis Global Asset Management, S.A. (NGAM SA) announced that NexGen Holdco and 2438801 Ontario Inc. (Natixis Holdco), a wholly-owned subsidiary of Natixis Global Asset Management, L.P. (NGAM LP), have entered into an agreement (the Arrangement Agreement) in which NGAM LP indirectly will acquire all of the outstanding common shares of NexGen Holdco for consideration consisting of CA$7.25 cash per common share, for an enterprise value of approximately CA $35 million (the Proposed Transaction).
13. The Proposed Transaction will be completed by way of a statutory plan of arrangement pursuant to the Business Corporations Act (Ontario) (OBCA). The statutory arrangement by which the Proposed Transaction is to be effected is subject to approval by order of the Ontario Superior Court of Justice (Commercial List) (the Court). An interim order of the Court was obtained on November 10, 2014. It is further anticipated that a final order of the Court will be obtained at a motion scheduled for December 18, 2014.
14. Upon receipt of the unanimous recommendation of the special committee of independent directors, the NexGen Holdco board approved the Proposed Transaction and recommended that NexGen Holdco shareholders vote in favour of the Proposed Transaction at a special meeting of the shareholders to approve the Proposed Transaction.
15. Blair Franklin Capital Partners Inc. provided an opinion to the NexGen Holdco board of directors and special committee that, as of October 24, 2014, the consideration under the Proposed Transaction is fair, from a financial point of view, to NexGen Holdco’s shareholders.
16. In connection with the execution of the Arrangement Agreement, shareholders who collectively own over 50% of NexGen Holdco’s issued and outstanding common shares have entered into agreements with NGAM LP pursuant to which they have agreed, among other things, that they will vote all of their NexGen Holdco common shares in favour of the Proposed Transaction, unless the Arrangement Agreement is terminated in certain circumstances.
17. NexGen Holdco will seek shareholder approval for the Proposed Transaction at a special meeting to be held on December 17, 2014 (the Meeting). In connection with the Meeting, NexGen Holdco has mailed an information circular to its shareholders providing further details of the Proposed Transaction (the Information Circular).
18. Completion of the Proposed Transaction is subject to customary closing conditions, including receipt of Court approval, a favourable vote of at least two-thirds of the votes cast by NexGen Holdco shareholders and receipt of applicable regulatory approvals. Assuming timely receipt of all necessary approvals and the satisfaction of all other conditions, closing is expected to occur on or about December 22, 2014 or on such other later date when all of the conditions precedent have been satisfied or waived, and all approvals have been obtained, and in any event no later than March 1, 2015, subject to extension by the parties (the Closing).
19. A material change report and an amendment to the Funds’ current simplified prospectus and annual information form and related Fund Facts documents were filed on SEDAR on November 3, 2014.
Natixis Global Asset Management
20. NGAM SA is a multi-affiliate organization with more than 20 specialized investment firms in the U.S., Europe and Asia. NGAM SA is one of the world’s largest asset managers. NGAM SA is headquartered in Paris and Boston with offices around the world.
21. NGAM SA is a wholly-owned subsidiary of Natixis S.A. (Natixis), which is a public company listed on Euronext (the Paris stock exchange).
22. Natixis is directly owned as to 72% by Groupe BPCE (a co-operative which is the second largest banking group in France) and as to 28% by other shareholders (none of whom own more than 10% of Natixis S.A.).
23. NGAM LP is indirectly wholly-owned by Natixis and is the principal U.S. holding entity for NGAM SA. It is indirectly owned 85% by NGAM SA and indirectly owned 15% by Natixis.
24. NGAM LP has created Natixis Holdco, a corporation incorporated under the laws of the Province of Ontario, for the purpose of entering into the Arrangement Agreement with NexGen Holdco. NGAM LP has guaranteed the obligations of Natixis Holdco in connection with the Arrangement Agreement.
25. Pursuant to the Arrangement Agreement, Natixis Holdco will acquire all of the issued and outstanding shares of NexGen Holdco (other than in respect of dissenting shareholders who will be paid fair value for such shares) and then NexGen Holdco and Natixis Holdco will be amalgamated and continued as one corporation (Amalco) under the OBCA.
Change of Control of Manager
26. As the share ownership of the Filer will change such that on Closing, Amalco will own 100% of the common shares of the Filer and NGAM SA will indirectly own 100% of the Filer, the Proposed Transaction will result in a change of control of the Filer and accordingly regulatory approval is required pursuant to section 5.5(1)(a.1) of NI 81-102.
Impact on the Manager and the Funds
27. In keeping with the NGAM SA multi-affiliate business model, the Filer will operate autonomously with the existing senior management team. There are no immediate plans to make staffing changes or changes to the Filer’s business model.
28. As NGAM SA does not manage any investment funds in Canada, the Filer anticipates that there will be no duplication of Canadian personnel, systems, products or services resulting from the Proposed Transaction which will require rationalization. Accordingly, completion of the Proposed Transaction is not expected to result in any material changes to, or impact on, the business, operations or affairs of the Funds, the securityholders of the Funds or the Filer. In particular:
(a) There are no plans to change the role of the Filer as manager of the Funds or the structure of the Funds, as the Funds are fundamental to the business of the Filer.
(b) There is no current intention to change the name of the Filer or the names of the Funds as a result of the Proposed Transaction.
(c) The Filer will continue to act as the investment fund manager of the Funds as a discrete, separate and distinct legal entity in materially the same manner as it has conducted such activities immediately prior to the Closing.
(d) There is no current intention:
(i) to make any substantive changes as to how the Filer operates or manages the Funds;
(ii) to merge the Filer with any other investment fund manager; or
(iii) to, immediately following the Proposed Transaction, or within a foreseeable period of time, change the Filer to another investment fund manager.
(e) There is no current intention to change the officers, directors or registered individuals of the Filer or of NexGen Investment Corporation, the mutual fund corporation.
(f) No current directors, officers or employees of NGAM SA or its affiliates are expected to become involved in the day-to-day management of the Funds following completion of the Proposed Transaction.
(g) It is not expected that there will be any change to the investment objectives, strategies and portfolio managers (including any sub-advisers) of the Funds. In the future, affiliates of NGAM LP may be appointed as sub-advisers of new funds and, in keeping with the discharge of its standard of care, the Filer will consider whether changes in sub-advisers (which may include affiliates of NGAM LP) are appropriate.
(h) It is not expected that there will be any change to the fund accounting and other administrative functions undertaken by the current providers to the Filer, both internal and external.
(i) It is not expected that there will be any change to the custodian or trustee, as applicable, of the Funds.
(j) Wholesale and client service support for the Funds will continue to be performed by the Filer.
(k) It is not expected that there will be any change in how the Funds are managed or the expenses that are charged to the Funds as a result of the Proposed Transaction therefore, the management fees and operating expenses of the Funds will remain unchanged.
(l) The members of the Independent Review Committee (IRC) of the Funds will cease to be IRC members by operation of section 3.10(1)(c) of National Instrument 81-107 – Independent Review Committee for Investment Funds (NI 81-107). Immediately following the completion of the Proposed Transaction, the same members of the IRC will be re-appointed by the Filer.
29. To the extent that any related party issues arise following the Proposed Transaction, in particular if, in the future, the Filer wishes to appoint a portfolio manager or sub-adviser for the Funds that is an affiliate, the Filer will establish written policies and procedures to address the conflict of interest matter and will refer such policies and procedures to the IRC for its review and input, in accordance with its obligations under NI 81-107.
30. The Proposed Transaction is expected to benefit the Filer and the Funds as it will result in the Filer becoming part of one of the largest international, multi-affiliate asset managers in the world, which should be advantageous to its financial position and its ability to fulfill its regulatory obligations and obligations to the Funds.
31. Written notice (the Notice) regarding the Proposed Transaction was sent to each securityholder of the Funds on November 19, 2014, which, if the Closing occurs on December 22, 2014, means that securityholders of the Funds will have received the Notice approximately 33 days before the Closing of the Proposed Transaction.
32. It is the Filer’s view that it would not be prejudicial to the securityholders of the Funds to abridge the notice period required under s. 5.8(1)(a) of NI 81-102 from 60 days to not less than 33 days for the following reasons:
(a) the Proposed Transaction is not expected to result in any change in how the Filer administers or manages the Funds;
(b) the Proposed Transaction will not have any impact on the securityholders’ interest in the Funds and securityholders are not required to take any action; securityholders need only consider whether they wish to exit the Funds. The change of control of the Filer, by itself, will not trigger any other material change to the Funds;
(c) the securityholders of the Funds will still be able to redeem their securities of the Funds prior to the Closing; and
(d) the Proposed Transaction has been well publicized since it was first announced on October 24, 2014, such that securityholders of the Funds will be sufficiently aware of the Proposed Transaction by the combination of the Notice and the media coverage of the Proposed Transaction.
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:
(a) the Approval Sought is granted; and
(b) the Abridgement Relief is granted provided that
(i) the Notice is given to securityholders of the Funds at least 33 days before the Closing, and
(ii) no material changes will be made to the management, operations or portfolio management of the Funds for at least 60 days following the date the Notice was delivered.
Manager, Investment Funds and
Structured Products Branch
Ontario Securities Commission
NexGen Canadian Cash Fund
NexGen Canadian Bond Fund
NexGen Corporate Bond Fund
NexGen Canadian Diversified Income Registered Fund
NexGen Turtle Canadian Balanced Registered Fund
NexGen Intrinsic Balanced Registered Fund
NexGen Canadian Dividend Registered Fund
NexGen Turtle Canadian Equity Registered Fund
NexGen North American Large Cap Registered Fund
NexGen Intrinsic Growth Registered Fund
NexGen U.S. Dividend Plus Registered Fund
NexGen U.S. Growth Registered Fund
NexGen Global Equity Registered Fund
NexGen Canadian Preferred Share Registered Fund
NexGen Canadian Cash Tax Managed Fund
NexGen Canadian Bond Tax Managed Fund
NexGen Corporate Bond Tax Managed Fund
NexGen Turtle Canadian Balanced Tax Managed Fund
NexGen Turtle Canadian Equity Tax Managed Fund
NexGen Intrinsic Growth Tax Managed Fund
NexGen U.S. Dividend Plus Tax Managed Fund
NexGen U.S. Growth Tax Managed Fund
NexGen Global Equity Tax Managed Fund
NexGen Canadian Diversified Income Tax Managed Fund
NexGen Intrinsic Balanced Tax Managed Fund
NexGen Canadian Dividend Tax Managed Fund
NexGen North American Large Cap Tax Managed Fund
NexGen Canadian Preferred Share Tax Managed Fund