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WestJet Airlines Ltd.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions – exemption from the requirement to obtain separate minority approval for each class of affected common shares in connection with a proposed business combination transaction so that minority approval would be obtained from the affected classes of securities of the issuer voting together as a single class-issuer is subject to the Canada Transportation Act and its dual-class share structure has been established solely to ensure that it is compliant with the foreign voting control restrictions in such legislation – no difference of interest between holders of each class of common shares in connection with a proposed business combination transaction – requiring a class-by-class vote could give a de facto veto right to a non-Canadian group of securityholders.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 8.1(1), 9.1(2), 9.1(3).
Citation: Re WestJet Airlines Ltd., 2019 ABASC 101
June 19, 2019
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
(the Jurisdictions)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
WESTJET AIRLINES LTD.
(the Filer)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption from the requirement that every class of affected securities vote as a separate class for the purpose of obtaining minority approval (the Class Voting Requirement) as set out in Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) in connection with the Proposed Transaction (as defined below) and that instead minority approval of the Proposed Transaction be obtained from all of the outstanding Voting Shares (as defined below) voting together as single class (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission is the principal regulator for the Application;
(b) 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 each of Québec, Manitoba and New Brunswick; and
(c) this decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and MI 61-101 have the same meaning if used in this decision, unless otherwise defined. The following terms have the following meanings:
Canadian has the meaning specified in section 55(1) of the CTA.
CTA means the Canada Transportation Act.
CTA Amendments means the amendments to the CTA which came into force effective June 27, 2018 as a result of the Transportation Modernization Act (Canada).
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation governed by the Business Corporations Act (Alberta) (the ABCA).
2. The Filer's head office is located in Calgary, Alberta.
3. The Filer is a reporting issuer in all of the provinces of Canada and is not in default of any requirement of the securities legislation in the jurisdictions in which it is a reporting issuer.
4. The authorized share capital of the Filer consists of an unlimited number of common voting shares (Common Voting Shares); an unlimited number of variable voting shares (Variable Voting Shares and, together with the Common Voting Shares, the Voting Shares); an unlimited number of non-voting shares; and 56,750,000 preferred shares, issuable in series.
5. As of May 12, 2019, 113,954,380 Voting Shares were outstanding. There are no non-voting shares and no preferred shares outstanding. In addition, as of May 12, 2019, the Filer had 11,125,534 options (Options) outstanding, each entitling a Canadian holder to purchase one Common Voting Share and a non-Canadian holder to purchase one Variable Voting Share.
6. The Filer’s transfer agent obtains a breakdown of the number of Common Voting Shares and Variable Voting Shares outstanding on a quarterly basis. As of March 31, 2019, the date of the most recent breakdown, the Voting Shares were comprised of approximately 69% Common Voting Shares and approximately 31% Variable Voting Shares.
7. As the owner of licensed air carriers, the Filer is subject to the requirements of the CTA. Section 61(1)(a) of the CTA includes a condition that an applicant for a domestic service operating licence be a Canadian. Prior to the CTA Amendments, Canadian was defined to include "a corporation or other entity that is incorporated or formed under the laws of Canada or a province, that is controlled in fact by Canadians and of which at least 75%, or such lesser percentage as the Governor in Council may by regulation specify, of the voting interests are owned or controlled by Canadians".
8. The Common Voting Shares may only be held, beneficially owned and controlled, directly or indirectly, by Canadians. An outstanding Common Voting Share is converted into one Variable Voting Share, automatically and without any further act of the Filer or the holder, if such Common Voting Share becomes held, beneficially owned or controlled, directly or indirectly, otherwise than by way of security only, by a person who is not a Canadian.
9. The Variable Voting Shares may only be held, beneficially owned or controlled, directly or indirectly, by persons who are not Canadians. An outstanding Variable Voting Share is converted into one Common Voting Share, automatically and without any further act of the Filer or the holder, if such Variable Voting Share becomes held, beneficially owned and controlled, directly or indirectly, otherwise than by way of security only, by a Canadian.
10. Each Common Voting Share confers the right to one vote. Each Variable Voting Share confers the right to one vote unless: (i) the number of issued and outstanding Variable Voting Shares exceeds 25% of the total number of all issued and outstanding voting shares (or any higher percentage that the Governor in Council may by regulation specify), or (ii) the total number of votes cast by or on behalf of holders of Variable Voting Shares at any meeting exceeds 25% (or any higher percentage that the Governor in Council may by regulation specify) of the total number of votes that may be cast at such meeting. If either of the above noted thresholds is surpassed at any time, the vote attached to each Variable Voting Share will decrease automatically and without further act or formality to equal the maximum permitted vote per Variable Voting Share such that: (i) the Variable Voting Shares as a class do not carry more than 25% (or any higher percentage that the Governor in Council may by regulation specify) of the aggregate votes attached to all outstanding voting shares of the Filer and (ii) the total number of votes cast by or on behalf of holders of Variable Voting Shares at any meeting do not exceed 25% (or any higher percentage that the Governor in Council may by regulation specify) of the votes that may be cast at such meeting.
11. The sole purpose of the restrictions on the voting power of the Variable Voting Shares is to ensure that the Filer continues to be Canadian for the purposes of the CTA. These restrictions currently reflect the requirements of the CTA as they existed prior to the CTA Amendments. While the CTA Amendments have reduced the minimum level of Canadian control, the Filer has not amended its articles to adjust the voting rights of the Variable Voting Shares because it was not practicable to do so prior to the record date for the Special Meeting (as defined below).
12. The Variable Voting Shares and the Common Voting Shares trade under a common ticker symbol on the Toronto Stock Exchange (TSX).
The Proposed Transaction
13. On May 12, 2019, the Filer entered into an arrangement agreement (the Arrangement Agreement) with Kestrel Bidco Inc. (the Purchaser), an affiliate of Onex Corporation, pursuant to which the Purchaser will, subject to satisfaction or waiver of all of the conditions to such agreement, acquire all of the outstanding Voting Shares of the Filer (other than Voting Shares held by Management Participants (as defined below) and Voting Shares in respect of which dissent rights are validly exercised) in exchange for cash consideration equal to $31.00 per share (the Proposed Transaction).
14. The Proposed Transaction is structured as an arrangement to be carried out in accordance with section 193 of the ABCA. The Arrangement Agreement requires that the Proposed Transaction be subject to the approval of 66 2/3% of votes cast by the holders of the outstanding Common Voting Shares, Variable Voting Shares and Options (collectively, the Securityholders) voting together as a single class in person or by proxy at a special meeting (the Special Meeting) to be held to consider the Proposed Transaction.
15. As part of the Proposed Transaction, certain senior officers of the Filer (collectively, the Management Participants) will, prior to the effective date of the Proposed Transaction, enter into agreements pursuant to which such individuals will, among other things, exchange all or a portion of their Voting Shares and/or Options for shares or options, as applicable, of Kestrel Midco Inc., the parent company of the Purchaser.
16. The Proposed Transaction will be a "business combination" as such term is defined in MI 61-101 and is therefore subject to the applicable requirements of MI 61-101. Such requirements include, among other things, approval of the Proposed Transaction by a majority of votes cast by the holders of Common Voting Shares and Variable Voting Shares (collectively, the Shareholders), in each case voting separately as a class, excluding the votes attached to applicable Voting Shares beneficially owned, or over which control or direction is exercised, by any party specified in subsection 8.1(2) of MI 61-101 (the Disinterested Shareholders) at the Special Meeting. The Disinterested Shareholders in respect of the Proposed Transaction include all of the holders of Voting Shares with the exception of the Management Participants.
17. MI 61-101 was adopted to ensure the fair treatment of all security holders and the perception of such in the context of a business combination.
18. The following procedural steps have been or will be taken to ensure that the collective interests of the Shareholders are protected in light of the Proposed Transaction:
(a) Negotiation of the Proposed Transaction was conducted by a special committee of the Filer's board of directors, which was comprised solely of directors who are independent of the Purchaser and its affiliates and the Management Participants.
(b) The board of directors of the Filer received opinions from CIBC Capital Markets and BofA Merrill Lynch (collectively, the Financial Advisor Opinions) to the effect that, as of May 12, 2019, the consideration to be received by Shareholders in the Proposed Transaction was fair, from a financial point of view, to such holders (in each case subject to the respective limitations, qualifications, assumptions and other matters set forth in such opinions).
(c) The Filer will prepare and deliver to the Securityholders an information circular (the Information Circular) prepared in accordance with applicable securities legislation and the interim order of the Alberta Court of Queen’s Bench (the Court) in order to provide sufficient information to allow the Securityholders to make an informed decision in respect of the Proposed Transaction. The Financial Advisor Opinions will be included in the Information Circular.
(d) If the Proposed Transaction is approved by Securityholders at the Special Meeting, it will be subject to the final approval of the Court. All affected Securityholders will receive notice of and be entitled to appear at the hearing for the final Court order.
(e) The Filer will grant dissent rights to the registered Shareholders.
(collectively, the Safeguard Measures).
19. The Filer's articles provide that holders of Voting Shares are entitled to vote at all meetings of shareholders of the Filer, except where the holders of a specified class of Voting Shares are entitled to vote separately as a class as provided in the ABCA.
20. The ABCA does not require a separate class vote in respect of the Proposed Transaction, as holders of Common Voting Shares and Variable Voting Shares are entitled to receive the same consideration per share upon completion of the Proposed Transaction.
21. Under the Filer's articles, the Variable Voting Shares and the Common Voting Shares are formally identified as separate classes in order to facilitate compliance with the Canadian ownership and control requirements of the CTA, however such shares have identical economic attributes and are listed and trade on the TSX as a single class of shares.
22. With regards to the accounting treatment of the Variable Voting Shares and the Common Voting Shares, there is no distinction between the two classes of shares. All Voting Shares are treated as common share capital and presented in the aggregate in shareholders' equity as share capital on the Filer's consolidated statement of financial position. For earnings per share purposes, the Voting Shares are presented together as outstanding shares and earnings per share is calculated based on the aggregate amount of outstanding Voting Shares.
23. To the knowledge of the Filer, there is no reason to believe that the holders of either class of Voting Shares would not approve the Proposed Transaction.
24. Granting the holders of the Variable Voting Shares a separate class vote on the Proposed Transaction would be inconsistent with the policy objectives of the CTA, which seek to ensure that Canadians retain control over licensed air carriers at all times. Absent the Exemption Sought, the Class Voting Requirement would provide the non-Canadian holders of Variable Voting Shares with the ability to prevent the Proposed Transaction. Such an outcome would deprive Canadians of de facto control over the Filer.
Decision
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that the Safeguard Measures are implemented and remain in place as described herein.
“Timothy Robson”
Manager, Legal Corporate Finance
Alberta Securities Commission