Headnote NP 11-203 – relief from prospectus requirements to allow U.S. parent company to spin off shares of its subsidiary to investors by way of distribution in kind – distribution not covered by legislative exemptions – U.S. parent company is a public company in the U.S. but is not a reporting issuer in Canada – U.S. parent company has a de minimis presence in Canada. Following the spin off, subsidiary will become independent public company based in the Netherlands and will not be a reporting issuer in Canada – no investment decision required from Canadian shareholders in order to receive shares from distribution.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c.S.5, as am., ss.53, 74(1)
June 22, 2012
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 SARA LEE 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”) for an exemption from the prospectus requirements of section 53 of the Securities Act (Ontario) (the “Act”) in connection with the distribution by the Filer of all of the outstanding shares of common stock of DE US, Inc. (“DE US”), a wholly-owned subsidiary of the Filer, on a pro rata basis and by way of a dividend in specie, to the Filer's shareholders (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 has provided notice that Section 4.7(1) of MI 11-102 is intended to be relied upon in each of the other provinces and territories of Canada.
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 Maryland corporation engaged in the business of manufacturing and marketing brand-name products for consumers throughout the world, focussed primarily in the meats, bakery and beverage categories. The Filer’s principal executive offices are located at 3500 Lacey Road, Downers Grove, Illinois.
The Filer is not a reporting issuer under the securities laws of any province or territory of Canada. The Filer has no intention of becoming a reporting issuer under the securities laws of any province or territory of Canada.
The Filer’s common shares (the “Filer Shares”) are widely held and trade on the New York Stock Exchange, the Chicago Stock Exchange and the London Stock Exchange (collectively, the “Exchanges”). Filer Shares are not listed on any Canadian stock exchange.
As of May 1, 2012, there were 615 registered holders of Filer Shares resident in Canada (the “Canadian Shareholders”) holding approximately 312,931 Filer Shares, representing approximately 1.1% of the registered shareholders of the Filer worldwide and approximately 0.05% of the outstanding Filer Shares as of such date. As such, the proportion of Filer Shares held by residents in Canada is de minimis.
Based on information obtained as of October 6, 2011 in connection with the transactions proposed herein, there were 1,313 beneficial holders of Filer Shares resident in Canada, representing approximately 1.1% of all beneficial holders of Filer Shares. The Filer does not expect the percentage of beneficial shareholders resident in Canada to have materially changed since that date. As such, the number of beneficial holders of Filer Shares resident in Canada is de minimis.
The Filer is proposing to spin-out (the “Spin-off Transaction”) its international coffee and tea businesses into an independent public company (DutchCo) through a series of transactions. These transactions are expected, in addition to certain related transactions, to result in (1) the distribution (the “Stock Dividend”) by the Filer, pro rata to its shareholders of all of the shares of common stock (the “DE Shares”) of DE US, which will be 100% of the DE Shares outstanding immediately prior to such distribution, (2) the subsequent merger (the “Merger”) of DE US with a wholly owned subsidiary of D.E Master Blenders 1753 N.V (“DutchCo”), with DE US surviving the merger as a subsidiary of DutchCo, and (3) the exchange of DutchCo ordinary shares (the “DutchCo Shares”) for the previously distributed DE Shares.
DE US is a Delaware corporation and a wholly owned subsidiary of the Filer that at the time of the Stock Dividend will hold, through its subsidiaries, the assets and liabilities associated with the Filer’s international coffee and tea businesses.
DutchCo is a private company with limited liability incorporated under the laws of the Netherlands and will convert to a public company with limited liability prior to completion of the separation. All of the currently outstanding ordinary shares of DutchCo are owned by a wholly owned subsidiary of the Filer. The Filer intends to cause its subsidiary to transfer the Filer’s interest in DutchCo to DE US prior to the effective time of the Merger, at which time DutchCo will be an independent public company based in the Netherlands.
In connection with the Spin-off Transaction, DutchCo filed with the SEC on June 1, 2012 amendment no. 7 to a registration statement on Form F-1 under the U.S. Securities Act of 1933 (as subsequently amended, restated and supplemented, the "Registration Statement"). The final prospectus filed as part of the Registration Statement will contain audited consolidated financial statements of DutchCo, and it will be made available to shareholders of the Filer for information purposes. The SEC declared the Registration Statement effective on June 1, 2012.
Fractional shares of DutchCo Shares will not be distributed. An exchange agent will aggregate the amount of fractional shares that would otherwise have been distributed into whole shares of DutchCo and will sell such shares into the open market within ten business days after the distribution date at prevailing share prices and distribute the cash proceeds in U.S. dollars, net of brokerage fees and other costs, from the sale to the exchange agent. The exchange agent will distribute such net proceeds pro rata to each Filer Shareholder who would otherwise have been entitled to receive a fractional share of DutchCo.
Shareholders of the Filer will not be required to pay for the DE Shares or DutchCo Shares received pursuant to the Stock Dividend, or to surrender or exchange Filer Shares or take any other action to be entitled to receive their DE Shares, or the DutchCo Shares that they will receive in exchange for their DE Shares. The Stock Dividend and the Merger will occur automatically and without any investment decision on the part of the Filer Shareholders.
After the completion of the Spin-off Transaction, the Filer will continue to be listed and traded on the Exchanges.
DutchCo will apply to have the DutchCo Shares listed on the NYSE Euronext in Amsterdam. DutchCo will also be registered with the SEC as a foreign private issuer.
Sara Lee’s coffee and tea business is being spun out into a Netherlands corporation because the coffee and tea business in headquartered in the Netherlands and is principally administered there.
Prior to the completion of the Spin-off Transaction, neither DE US nor DutchCo are or intend to become reporting issuers in any province or territory in Canada or list their securities on any stock exchange in Canada. To the knowledge of the Filer, DutchCo has no intention of becoming a reporting issuer in any province or territory in Canada or listing its securities on any stock exchange in Canada after the completion of the Spin-off Transaction.
The Spin-off Transaction will be effected under the laws of the United States, Delaware, Maryland and the Netherlands.
Because the Stock Dividend will be by way of a dividend of DE Shares to the Filer Shareholders, no shareholder approval of the proposed transaction is required (or being sought) under Maryland law.
All materials relating to the Spin-off Transaction sent by or on behalf of the Filer and DutchCo to registered shareholders of the Filer in the United States will be sent concurrently to the registered shareholders resident in Canada. The prospectus that forms part of the Registration Statement will be sent to registered shareholders resident in Canada after the SEC declares the Registration Statement effective.
Following the completion of the Spin-off Transaction and Stock Dividend, the Filer and DutchCo, respectively, will send concurrently to the registered holders of Filer Shares and DutchCo Shares, respectively, resident in Canada the same disclosure materials required to be sent under applicable U.S. or Netherlands laws, as the case may be, that each sends to registered holders of Filer Shares and DutchCo Shares with addresses, as shown on their respective books to be, in the United States or the Netherlands, as applicable.
The Canadian Shareholders who receive DE Shares (and ultimately DutchCo Shares) as a dividend pursuant to the Spin-off Transaction will have the benefit of the same rights and remedies in respect of the disclosure documentation received in connection with the Spin-off Transaction and the Stock Dividend that are available to Filer Shareholders in the United States.
The Canadian Shareholders who receive DE Shares (and ultimately DutchCo Shares) following completion of the Spin-off Transaction will have the same rights and remedies under Netherlands law as securityholders resident in the Netherlands in the event of a misrepresentation in the continuous disclosure documents of DutchCo.
The Stock Dividend to Canadian Shareholders would be exempt from the Prospectus Requirements pursuant to subsection 2.31(2) of National Instrument 45-106 - Prospectus and Registration Exemptions ("NI 45-106") but for the fact that DE US is not a reporting issuer under the Act.
The distribution of DutchCo Shares in exchange for DE Shares in connection with the Merger is exempt from the Prospectus Requirements under section 2.11 of NI 45-106 because it will be effected pursuant to a statutory procedure under Delaware law.
The Filer, DE US and DutchCo are not in default of any securities legislation in any of the provinces or territories of Canada.
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 the first trade in DutchCo Shares issued in connection with the Merger subsequent to the issuance of the Stock Dividend will be deemed to be a distribution unless the conditions in section 2.6 or subsection 2.14(1) of National Instrument 45-102 Resale of Securities are satisfied.
“Paulette L. Kennedy” “Margot C. Howard”
Ontario Securities Commission Ontario Securities Commission