Friday News Finds – January 25, 2019

By Danica Bennewies

Welcome back to the CBLB! The weekend is right around the corner, which means its time for a new installment of Friday Finds. This is the weekly series where we round-up of five of the major corporate and securities law news stories that have grabbed our attention and dominated our conversations this week.

First, lets get caught up on the latest developments in a couple of takeover bid stories that we’ve been following here on the blog.

If you’ve been keeping up with our posts recently, you’ll know that we’ve been following the Hydro One/Avista Corp takeover drama closely. A quick reminder: last summer, Premier Doug Ford pressured Hydro One’s CEO to retire, which was followed by the resignation of the entire board of directors. In the past few months, Hydro One’s proposed $4.4-billion takeover of the US-based Avista Corp was rejected by both the Washington Utilities and Transportation Commission and the Idaho Public Utilities Commission, for perceived political interference. On Wednesday, Hydro One announced that it is officially calling off its bid for Avista. As a result of the failed deal, Hydro One must now pay Avista US$103-million. This is a predetermined termination fee to cover legal and investment banking expenses, as well as the opportunity costs that accompany a failed transaction. In a statement issued on Wednesday following the announcement, Ontario Energy Minister Greg Rickford said that this cost will not be paid by Ontario electricity customers and that the government is still aiming to bring down hydro rates by 12%. Premier Ford has continued to defend his government’s interference in Hydro One’s affairs, stating that the deal with Avista was put together by the former CEO and board of Hydro One and that it “did nothing to lower hydro rates for Ontario residents.” However, its questionable whether the government itself can bring hydro rates down, considering that these rates aren’t set by the government. As Professor Anita Anand said recently, “[the government] must not abuse the facts and misguide the electorate by explicitly stating that its interventions in corporate governance will bring hydro rates down.”

Another takeover bid that we’ve been keeping an eye on is the Green Growth Brands/Aphria deal. When we last checked in, Green Growth Brand’s stock price had risen to $5.89 following the announcement of a partnership with DSW Inc. On Tuesday, Green Growth Brands officially filed its unsolicited bid for Aphria, offering Aphria shareholders 1.5714 Green Growth shares per Aphria share. Green Growth’s stock price at market close on Tuesday was $5.98, making the deal worth $2.3-billion. In comparison Aphria’s market capitalization is $2.35-billion. Just last month, Aphria claimed that Green Growth’s bid was risky and significantly undervalued Aphria. Furthermore, there have been a number of questions raised recently regarding the connections between Aphria, Green Growth, and Green Growth’s operating company, Xanthic Biopharma Inc. With all of these concerns in mind, it’s unclear how Green Growth’s offer will play out. Aphria has put together an independent committee to review the bid, which will stay open until May 9th.

Moving now to regulator news, Ontario’s new insurance regulator, the Financial Services Regulatory Authority (FSRA), released a consultation paper on its priorities and initial budget on Monday. In the paper, the FSRA states that in its first year it will focus on reducing regulatory burden and improving regulatory effectiveness across the sectors it oversees, including insurance, credit unions, and pensions. As part of these efforts, the FSRA will review existing guidance, data, filing requirements and service standards to ensure that they’re applicable and beneficial. The consultation paper also outlines more sector-specific objectives, for example, the adoption of new conduct standards in the insurance sector to address gaps in oversight. The consultation runs until February 8th, after which point the FSRA’s priorities and budget will go to Ontario’s finance minister for approval. The transition from the Financial Services Commission of Ontario (FSCO) and the Deposit Insurance Corporation of Ontario (DICO) to the FSRA is scheduled to begin this Spring, with the FSRA’s official “launch” in June.

In Alberta, the Alberta Securities Commission (ASC) is warning investors about an ongoing “recovery room scheme”. An organization going by the name of Global Advocacy Association/Global Advocates has been targeting investors who lost money in high-profile failed investments and offering to help recover these lost funds for an upfront fee. However, Global Advocacy Association has reportedly been pocketing the victim’s enrolment fees without actually performing the promised service. The organization appears to be targeting investors in the Walton Group of Companies, CBI Group and Canyon Acquisition. In a news release published on Thursday, the ASC said that a number of Global Advocacy Associations’ promotions and sales techniques have raised red flags, such as requesting upfront fees and sending the money to offshore offices. The contact information for Global Advocacy Association is also suspicious, with inaccurate and mismatched phone numbers listed on the organization’s website. Given these concerns, the ASC is urging investors to be cautious when forwarding funds prior to receiving service and to familiarize themselves with some of the common red flags of investing.

Finally, lets check in with the US, which has reached day 35 of the partial government shutdown. The shutdown has had a major impact on the Securities and Exchange Commission (SEC), both in terms of enforcement and IPOs. With the lack of funding, the SEC’s Division of Enforcement has stopped all investigative work and stayed all pending administrative proceedings. As the shutdown continues, this poses an increasing risk to market participants. On top of this, concerns have been raised about the impact the shutdown will have on IPOs. With a number of companies waiting to go public but unable to get explicit approval from the SEC, some have begun looking for alternative paths to issue IPOs. On Thursday, the biopharmaceutical firm Gossamer Bio found such a workaround. Gossamer Bio is relying on a rarely used rule in the Securities Act that allows a company to file its IPO registration with a fixed price and have it become automatically effective in 20 calendar days, with no input from the SEC required. However, there are risks in taking this route, such as the length of time between the share price announcement and the day it actually trades. Furthermore, the fact that the registration has not been assessed and approved by the SEC opens the possibility of future legal issues for the firm.

That’s all we have for this week, thanks for getting caught up with us. We’ll be back next week with more Friday Finds.