Headnote
NP 11-203 – MI 61-101 – insider bid – multi-jurisdictional bid in UK and Canada – under UK rules, offeror required to proceed with the bid on pre-announced terms - MI 61-101 requires the offeror to obtain a valuation in order to make a bid – relief granted from requirement that valuation be sent with the takeover bid circular – valuation may follow separately but offer to remain open for 14 days thereafter to allow shareholders to review – other conditions and restrictions.
Applicable Legislative Provisions
MI 61-101 – Protection of Minority Security Holders in Special Transactions
January 29, 2009
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 ROSCO SA (the “FILER”) AND ARAWAK ENERGY LIMITED (“ARAWAK”)
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 (the “Legislation”) that the requirements contained in the Legislation to include a formal valuation (the “Valuation Requirement”) of the Common Shares in the takeover bid circular to be prepared and mailed to shareholders of Arawak by the Filer (the “Takeover Bid Circular”) shall not apply to the proposed offer by the Filer (the “Offer”) to acquire all the issued and outstanding common shares of Arawak (“Common Shares”) not already owned by the Filer and its affiliates.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:
(a) the Ontario Securities Commission is the principal regulator for this Application; and
(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 Québec.
Interpretation
Terms defined in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Filer:
The Parties
The Filer
The Filer is a corporation incorporated under the laws of Switzerland.
The Filer currently owns 67,315,812 Common Shares or approximately 36.86% of the outstanding Common Shares of Arawak. The Filer is an affiliate of Vitol B.V. because both are direct or indirect wholly-owned subsidiaries of Vitol Holding B.V. The Filer and its affiliates are referred to in this application as the “Vitol Group”.
Vitol B.V. currently owns 8,352,587 Common Shares representing approximately 4.57% of the outstanding Common Shares of Arawak.
Arawak
Arawak is a corporation incorporated under the Companies (Jersey) Law 1991.
Arawak is a reporting issuer in Ontario, Alberta and British Columbia and the Common Shares are listed on The Toronto Stock Exchange (the “TSX”) and the London Stock Exchange.
The Offer
On October 28, 2008 (the “Announcement Date”), the Filer announced the pre-conditional all-cash Offer for the remaining Common Shares that it and its affiliates do not already own. The Vitol Group currently owns 41.43% of the Common Shares and the acceptance condition set out in the Offer is such that the Filer will accept all Common Shares tendered to the Offer provided that it results in the Vitol Group owning more than 50% of the Common Shares.
The Offer by the Filer will be a premium all-cash offer and was originally to be priced at $0.90 per Common Share, representing a premium of 157% over the closing price of October 27, 2008 for the Common Shares on the TSX, the last trading day prior to the Announcement Date, and a 38% premium over the average closing price for the one month period immediately preceding the Announcement Date.
The Offer by the Filer will constitute an “insider bid” pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”) and accordingly will require that a “formal valuation”, as defined in MI 61-101 (a “Formal Valuation”) be obtained by the Filer.
The Takeover Bid Circular was to have been mailed by the Filer once it had received:
(a) anti-monopoly regulatory clearance from government authorities in the Russian Federation, unless the Filer decides to waive this as a pre-condition and proceed with the Offer; and
(b) the Formal Valuation, unless the principal regulator has granted a waiver from such requirement.
The Common Shares of Arawak are listed on both the London Stock Exchange and the TSX, and the Offer is governed by the takeover provisions of both Canadian securities legislation and the City Code on Takeovers and Mergers (the “UK Code”).
Under the UK Code, an announcement of a firm intention to make an offer generally requires the offeror to proceed with the offer on the announced offer terms. At the same time, pursuant to the Valuation Requirement, the offeror cannot make the Offer until the Formal Valuation has been obtained. The preparation of the Formal Valuation, therefore, has caused material delay in making the Offer which the Filer, under the UK Code, will now be required to make, and such delay has and will continue to cause prejudice to the Filer in respect of the Offer.
On December 23, 2008, the Filer made application to the Ontario Securities Commission for relief from the Valuation Requirement.
On January 19, 2009, the Filer received anti-monopoly regulatory clearance from governmental authorities in the Russian Federation.
On January 16, 2009, the Filer and Arawak entered into a support agreement (the “Support Agreement”), whereby, among other things:
(a) the Filer agreed to increase the consideration to be offered to holders of Common Shares to $1.00 per Common Share (the “Improved Offer”); and
(b) the board of directors of Arawak, based in part on receiving a fairness opinion from RBC Capital Markets, agreed to recommend that holders of Common Shares tender to the Improved Offer.
Directors of Arawak and another shareholder associated with one of the directors, holding in the aggregate 9,285,776 Common Shares, or approximately 5.1% of the outstanding Common Shares, have agreed to tender their Common Shares to the Improved Offer.
The Formal Valuation is being prepared on the basis of revised reserves reports with respect to Arawak’s oil and gas properties as of December 31, 2008 and is not expected to be available until early in February, 2009.
Arawak is of the view that, absent unforeseen circumstances outside its control, the Formal Valuation will be available by February 16, 2009 and has agreed to use its commercially reasonable efforts to obtain the Formal Valuation in a timely manner and not later than February 10, 2009.
After reasonable inquiry, the Filer is of the view that, absent unforeseen circumstances, the Formal Valuation will be available by February 16, 2009.
The Filer has agreed that it will use commercially reasonable efforts to avoid taking any action (or omitting to take any action) that it is aware would reasonably be expected to delay or hinder the delivery of the Formal Valuation in a timely manner.
The Filer has requested (and Arawak supports such request) that the principal regulator permit the Improved Offer to be mailed to the holders of the Common Shares without complying with the Valuation Requirement, provided that the Formal Valuation (or a summary thereof), and the relevant disclosure required by MI 61-101 in connection therewith, be provided in an amendment to the Take-over Bid Circular when the Formal Valuation becomes available and that the deposit period for the Improved Offer not terminate, and that the Filer not take up any Common Shares deposited under the Offer, until holders of the Common Shares have had sufficient opportunity to receive and consider the Formal Valuation (or a summary thereof) and Directors’ Circular Amendment (as defined below).
The Filer has agreed to send and file the amendment to the Take-over Bid Circular including the Formal Valuation (or a summary thereof) as soon as practicable but in any event within 7 days of receiving the Formal Valuation.
Arawak has agreed to send and file the Directors’ Circular Amendment (as defined below) within 7 days of receiving a copy of the Formal Valuation.
The Support Agreement and other contractual arrangements between the Filer and Arawak do not preclude Arawak’s board of directors from changing its recommendation of the Improved Offer to holders of the Common Shares as a result of its review and consideration of the Formal Valuation and do not require the payment of any break fee or any similar payment in respect of a change in recommendation resulting from such review and consideration.
Decision
The principal regulator is satisfied that the decision meets the test contained in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Filer may pursue the Offer without complying with the Valuation Requirement in the Legislation and without including the Formal Valuation or a summary thereof in the Takeover Bid Circular provided:
(a) the Offer and Takeover Bid Circular shall be mailed on or after January 29, 2009;
(b) Arawak shall use commercially reasonable efforts to obtain the Formal Valuation in a timely manner and not later than February 10, 2009;
(c) the Filer has agreed that it will use commercially reasonable efforts to avoid taking any action (or omitting to take any action) that it is aware would reasonably be expected to delay or hinder the delivery of the Formal Valuation in a timely manner;
(d) the Formal Valuation or a summary thereof will be included in an amendment (the “Amendment”) to the Take-over Bid Circular and sent to holders of the Common Shares within 7 days of the date the Filer receives the Formal Valuation;
(e) the directors circular shall be amended by the board of directors of Arawak (the “Directors’ Circular Amendment”) to include any material information regarding the Formal Valuation, including its impact, if any, on the recommendation of Arawak’s board of directors and the Directors’ Circular Amendment shall be sent to holders of the Common Shares within 7 days of the date Arawak receives a copy of the Formal Valuation; and
(f) at least 14 days shall have elapsed between the later of (i) the date upon which the Filer has sent the Amendment to holders of Common Shares, and (ii) the date upon which Arawak has sent the Directors’ Circular Amendment to holders of common Shares and the date upon which the Filer takes up any Common Shares pursuant to the Improved Offer.
“Naizam Kanji”
Naizam Kanji
Manager, Corporate Finance (M&A)
Ontario Securities Commission