Headnote
Mutual Reliance Review System for Exemptive Relief Applications ― Offeror needs relief from the requirement that all holders of the same class of securities must be offered identical consideration – under the take-over bid, Canadian resident securityholders will receive shares of Offeror ― shareholders resident in US and other foreign jurisdictions will receive substantially the same value as Canadian securityholders, but in the form of cash based on the proceeds from the sale of their shares ― number of shares held by US and foreign residents is de minimis
Applicable Legislative Provisions Securities Act, R.S.O 1990, c. S.5, as am., ss. 97(1) & 104(2)(c)
April 18, 2008
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)
AND
IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF SHERRITT INTERNATIONAL CORPORATION (the Filer)
DECISION
Background
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) exempting the Filer from the requirement under the Legislation to offer identical consideration to all holders of the same class of securities that are subject to a take-over bid (the Identical Consideration Requirement) in connection with the Filer’s offer to purchase all of the issued and outstanding units of Royal Utilities Income Fund (the Exemption Sought).
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 had 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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, the Yukon, the Northwest Territories and Nunavut.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation continued under the Business Corporations Act (Ontario), with its registered and head office in Toronto, Ontario.
The Filer is a reporting issuer or the equivalent in each of the provinces and territories of Canada and is not in default of any requirements of the applicable securities legislation of any such jurisdiction in which it is a reporting issuer.
The authorized capital of the Filer consists of an unlimited number of common shares (the Sherritt Shares) of which 258,059,308 Sherritt Shares were issued and outstanding as of April 15, 2008. The Sherritt Shares are listed and posting for trading on the Toronto Stock Exchange (the TSX).
Royal Utilities Income Fund (Royal Utilities) is an unincorporated, open-ended, limited purpose investment trust governed by the laws of the Province of Alberta, established pursuant to an amended and restated declaration of trust dated as of June 26, 2007, as supplemented by the first amendment to the amended and restated declaration of trust dated January 22, 2007. Royal Utilities’ head office is in Toronto, Ontario.
To the knowledge of the Filer, Royal Utilities is a reporting issuer or the equivalent in each of the provinces and territories of Canada and is not in default of any requirements of the applicable securities legislation of any such jurisdiction in which it is a reporting issuer.
The units of Royal Utilities (the Units) are listed and posted for trading on the TSX.
On March 18, 2008, the Filer announced its intention to make an offer to acquire all of the outstanding Units it does not own (the Offer) and subsequently prepared and delivered a take-over bid circular dated March 21, 2008 (the Circular) to all holders of the outstanding Units (the Unitholders). On April 14, 2008, the Filer entered into a support agreement with Royal Utilities pursuant to which the Filer agreed to amend the terms of the Offer. Under the terms of the amended Offer, the consideration offered for each Unit is at the election of each Unitholder and consists of either: (i) $12.68 in cash; (ii) 0.8315 of a common share of Sherritt, or any combination thereof, subject, in each case, to pro ration as set forth in the Offer. The total amount of cash available under the Offer shall not exceed $250 million and the total number of common Sherritt Shares available under the Offer shall not exceed 31,438,717 Sherritt Shares.
Unitholder lists delivered to the Filer by CDS Inc. disclosed that, as of March 11, 2008: (i) U.S. residents comprised 73 holders of Units collectively holding approximately 0.87% of the outstanding Units (the U.S. Unitholders) and (ii) foreign (i.e., non-U.S. and non-Canadian) residents comprised 63 holders of Units collectively holding less than 1% of the outstanding Units (Foreign Unitholders).
Sherritt indirectly holds interests in businesses in Cuba and, accordingly, does not carry on any business in the United States, which maintains an embargo against Cuba. Although Sherritt is eligible to use the multi-jurisdictional disclosure system (the MJDS) to register Sherritt Shares for distribution under the securities legislation of the United States (an MJDS Registration), it has determined that an MJDS Registration is not feasible in the circumstances for the reason, among others, that Sherritt attempts to avoid any requirement to make a filing in the United States which could give rise to an allegation that it has any business in the United States.
Accordingly, the Sherritt Shares issuable under the Offer to U.S. Unitholders have not been registered or otherwise qualified for distribution under the securities legislation of the United States and the delivery of Sherritt Shares to U.S. Unitholders without any further action by the Filer may constitute a violation of certain laws of the United States. Furthermore, the MJDS would not provide relief from the registration or qualification requirements under such U.S. securities laws.
To the extent that U.S. Unitholders who accept the Offer are entitled to receive Sherritt Shares, the Filer proposes to deliver Sherritt Shares to CIBC Mellon Trust Company (the Depositary) for sale by the Depositary on behalf of U.S. Unitholders (the Vendor Placement). Such Sherritt Shares will be delivered by the Depositary to a broker retained for the purpose of effecting sales on behalf of U.S. Unitholders. Such U.S. Unitholders will receive their pro rata share of the cash proceeds from the sale of such Sherritt Shares, less commission and applicable withholding tax. All Sherritt Shares will be pooled and sold as soon as practicable in transactions effected on the TSX.
To the extent that any of the Foreign Unitholders are resident in jurisdictions which do not permit the Sherritt Shares to be delivered without registration or qualification under the laws of their own jurisdiction, the Filer may utilize a vendor placement mechanism similar to the one described in paragraph 11 above, modified as necessary to comply with the laws of such foreign jurisdiction.
Any sale of Sherritt Shares on behalf of U.S. Unitholders and Foreign Unitholders described in paragraphs 11 and 12 above will be completed as soon as practicable after the date on which the Filer takes up the Units tendered by the U.S. Unitholders and Foreign Unitholders under the Offer and will be done in a manner intended to maximize the consideration to be received from the sale by the applicable U.S. Unitholders or Foreign Unitholders and minimize any adverse impact of the sale on the market for the Sherritt Shares.
The Filer’s financial advisor has confirmed that there is a liquid market for the Sherritt Shares to enable the proposed Vendor Placement to be completed in a timely manner, with no adverse effect on the market for the Sherritt Shares.
The Offer to the U.S. Unitholders, as amended by the Vendor Placement, and sale of the Sherritt Shares for the benefit of the U.S. Unitholders pursuant to the Vendor Placement does not constitute a violation of U.S. federal and state securities laws.
The Offer is not being made to, nor will deposits be accepted from or on behalf of, Unitholders in any jurisdiction in which the making or acceptance of the Offer would not be in compliance with the laws of such jurisdiction.
The Circular discloses the procedures described in paragraph 11 to be followed for the U.S. Unitholders who tender to the Offer.
Except to the extent that relief from the Identical Consideration Requirement is granted, the Offer is otherwise made in compliance with the requirements under the Legislation governing take-over bids.
Decision
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 the Exemption Sought is granted provided that:
(i) insofar as U.S. Unitholders and Foreign Unitholders, who would otherwise receive the Sherritt Shares pursuant to the Offer, instead receive cash proceeds from the sale of such Sherritt Shares in accordance with the procedures set out in paragraphs 11 and 12 above.
“Lawrence E. Ritchie” Commissioner Ontario Securities Commission
“Paul K. Bates” Commissioner Ontario Securities Commission