By Danica Bennewies
Welcome back to Friday Finds on the CBLB. We’re returning this week with another round-up of the top five corporate and securities law news stories that have dominated the headlines, as well as our conversations. This week, we’re talking about the latest news on the Transat/Air Canada deal, Hudson’s Bay Co.’s privatization bid, and what regulators around the world have been up to lately. Keep reading to find out what grabbed our attention this week.
The past week has seen some big developments in the bidding for Transat AT Inc. Transat and Air Canada have been in exclusive talks regarding Air Canada’s $520-million (or $13 per share) offer for the Quebec travel company. However, these negotiations were shaken up a few weeks ago when Montreal real estate developer, Group Mach Inc., made a higher offer at $14 per share. On Wednesday, though, Group Mach announced that it is withdrawing its bid for Transat. In an interview following the announcement, Group Mach’s executive vice president of mergers and acquisitions, Alfred Buggé, discussed his displeasure with the sales process, stating that Transat “completely ignored” their offer and failed to disclose that it had signed a confidentiality and standstill agreement with Air Canada. Group Mach’s withdrawal clears the way for Air Canada’s takeover offer, which Transat shareholders will vote on by August 26th. However, not all of Transat’s shareholders are on board with the Air Canada proposal. In fact, two of Transat’s largest shareholders, together holding over 20 per cent of the outstanding shares, oppose the deal. The Air Canada bid is also subject to regulatory review and, if its rejected by regulators, will see Air Canada paying Transat $40-million. Clearly there is a lot that needs to be ironed out before Air Canada can complete its acquisition of Transat. In his interview, Buggé had a less-than-optimistic view of the deal, calling it “doomed to failure”.
In other industry news, the Hudson’s Bay Co. (HBC) has also been making headlines. HBC executive chairman Richard Baker recently made a bid of $9.45 per share to take HBC private, and has since been facing growing opposition from shareholders. This week, the private equity company Sandpiper Group joined the growing list of unhappy shareholders. While the Vancouver-based firm only expressed its opposition and declined to provide further comment, its founder has previously said that HBC could be worth much more if it redeveloped some of its valuable real estate into properties. HBC’s real estate is something that most of the opposing shareholders have focused in on. Many are saying that the $9.45 per share offer is significantly less than the value of the retailer’s real estate alone, with one US hedge fund saying that the offer should be raised to $18 per share. HBC has not yet commented on this growing opposition. In order for the go-private deal to be successful it must be approved by a majority of HBC’s shareholders, and the shareholders who originally proposed the deal (including Baker, Rhone Capital LLC, and WeWork) hold 57 per cent of the retailer’s stock. So, despite shareholders’ displeasure, it’s looking like the bid may still go through.
In regulatory news, the Ontario Securities Commission (OSC) has continued with its burden reduction efforts over the past few weeks. Last Friday, the OSC announced that investment fund managers of pooled funds will no longer be required to apply for OSC approval to act as trustees. In its news release, the OSC stated that, as registrants, these fund managers are already subject to a securities regulatory framework and are capable of acting as trustees. This requirement was previously identified by the OSC’s Burden Reduction Task Force as an unnecessary and outdated process that could be eliminated. Under this rule, investment fund managers of pooled funds that wanted to act as trustees had to file an application, pay a $1,500 fee, and then wait for the application to be reviewed and approved by the OSC. This is a process that dates back to 1997 and, according to the OSC, is no longer necessary given how the regulatory regime for investment funds has evolved. The changes will come into effect immediately.
On the other side of the country, the British Columbia Securities Commission (BCSC) was divided over a disciplinary hearing this week. On Thursday, a BCSC panel heard a case brought against William Liu and two companies that he controlled, NuWealth Financial Group Inc. and CPFS Professional Financial Services Inc. Back in 2018, the BCSC panel found that Liu, NuWealth and CPFS violated securities laws by referring investors to an exempt market dealer and issuer. The referrals involved investors from both British Columbia and Hong Kong, and resulted in around $6.5-million in securities purchases. This week, the panel followed up on its original ruling by ordering Liu and NuWealth to be banned from the markets for two years, CPFS to be banned for one, and ordering a total of $100,000 in penalties against all three. However, the panel was divided over whether disgorgement should be ordered against Liu and NuWealth for the commissions they earned on the referrals. While the majority of the BCSC panel was in favour of a disgorgement order, BCSC vice chair, Nigel Cave, dissented. In his opinion, Cave stated that disgorgement was not in the public interest in this instance, that the commissions were not directly resulting from the misconduct and that they were disclosed to investors. Rather, Cave was in favour of the misconduct being handled through market bans and alternative sanctions. However, the majority of the panel found that the commissions received were an incentive for Liu and NuWealth’s non-compliance and that “[i]t would be contrary to the investor protection objectives … to permit Liu and NuWealth to retain the benefit of their misconduct.”
Finally, we also have regulatory news from the UK. On Wednesday, the Financial Conduct Authority (FCA) proposed a ban on certain cryptocurrency products. This comes amidst discussion around the world regarding how cryptocurrencies should be regulated, particularly following the announcement of Facebook’s new cryptocurrency. In explaining the proposed ban, the FCA pointed toward the “extreme volatility” of crypto assets, the difficulties involved in accurately valuing them and consumers’ generally poor understanding of these assets as reasons that crypto products are poorly suited for small investors. The FCA believes that this ban will be beneficial to small investors, saving them £75-million to £234.3-million per year in losses from investing in these products. The proposed ban would affect complex financial products based on crypto assets that the FCA feels are not appropriate for retail investors, such as contracts for differences, options and futures, and exchange traded notes.
Thanks for joining us for another installment of Friday Finds! Join us next week as we cover more of the latest corporate and securities law news.