June 26, 2015
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 MASCO CORPORATION
DECISION
Background
The principal regulator in the Jurisdiction has received an application from Masco Corporation (Masco) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption from the prospectus requirement contained in section 53 of the Securities Act (Ontario) (the Act) in connection with the distribution by Masco of all of the outstanding shares of common stock of TopBuild Corp. (the TopBuild Shares), a wholly-owned subsidiary of Masco, by way of a distribution in specie, to the holders of shares of Masco's common stock (the Masco Shares) resident in Canada (the Requested Relief).
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) Masco has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 – Passport System (MI 11-102) is intended to be relied on in each of the other provinces and territories of Canada.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.
Representations
This order is based on the following facts represented by Masco:
Masco is a Delaware corporation that manufactures, distributes and installs home improvement and building products, with an emphasis on brand-name consumer products and services holding leadership positions. Masco's principal executive office is located at 21001 Van Born Road, Taylor, Michigan 48180.
The authorized share capital of Masco consists of 1,400,000,000 Masco Shares, U.S.$1.00 par value, and 1,000,000 shares of preferred stock, of which 343,857,793 Masco Shares were issued and outstanding as at the close of business on June 10, 2015.
The Masco Shares are listed for trading on the New York Stock Exchange (the NYSE) under the symbol "MAS". Other than the foregoing listing on the NYSE, no securities of Masco are listed or posted for trading on any exchange or market in Canada or outside of Canada. Masco has no present intention of listing its securities on any Canadian exchange.
Masco is a registrant with the United States Securities and Exchange Commission (the SEC) and is subject to the requirements of the United States Securities Exchange Act of 1934, as amended (the 1934 Act), and the rules and regulations of the NYSE.
Masco is not a reporting issuer in any province or territory of Canada and does not have a present intention of becoming a reporting issuer in any province or territory of Canada.
TopBuild Corp. (TopBuild) is a Delaware corporation and a wholly-owned subsidiary of Masco. TopBuild's principal executive office is located at 260 Jimmy Ann Drive, Daytona Beach, Florida 32114.
All of the issued and outstanding TopBuild Shares are held by Masco. No other securities of TopBuild are issued and outstanding.
According to a registered shareholder report prepared for Masco by Computershare Trust Company, N.A. as at June 10, 2015, there were 14 registered holders of Masco Shares resident in Canada holding an aggregate of 12,832 Masco Shares, representing approximately 0.34% of the registered shareholders of Masco worldwide and less than 0.01% of the total outstanding Masco Shares as at such date.
According to a beneficial ownership report (the Beneficial Ownership Report) prepared for Masco by Broadridge Financial Solutions, Inc., as at March 13, 2015 (the Report Date), residents of Canada (i) beneficially owned 7,327,169 Masco Shares, representing approximately 2.20% of the total number of Masco Shares identified in the Beneficial Ownership Report, and (ii) represented in number 5,069 beneficial owners of Masco Shares, representing approximately 5.86% of the total number of beneficial holders identified in the Beneficial Ownership Report. The Beneficial Ownership Report accounts for approximately 95.51% of the total number of issued and outstanding Masco Shares as at the Report Date and is the most comprehensive source of information available to Masco regarding the holdings and jurisdictions of residence of the beneficial holders of Masco Shares. Masco does not expect the number of beneficial holders resident in Canada, or the number of Masco Shares beneficially owned by residents of Canada, to have changed materially between the Report Date and the record date for the Spin-Off, being June 19, 2015.
On September 30, 2014, Masco announced the proposed separation of its installation and "other services" businesses from its remaining businesses. This separation will be effected by way of a pro rata distribution of all of the outstanding TopBuild Shares to holders of Masco Shares (the Spin-Off). Masco will distribute 100% of the TopBuild Shares to the holders of Masco Shares at a rate of one TopBuild Share for every nine Masco Shares.
No fractional TopBuild Shares will be issued in connection with the Spin-Off. The distribution agent for the distribution will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing prices and distribute the net cash proceeds from the sales pro rata to each holder of Masco Shares who would otherwise have been entitled to receive a fractional share in the distribution.
Holders of Masco Shares will not be required to pay any cash, deliver any other consideration or surrender or exchange their Masco Shares in order to receive TopBuild Shares in connection with the Spin-Off. The Spin-Off will occur automatically without any investment decision on the part of the holders of Masco Shares.
Following completion of the Spin-Off, Masco shareholders as of the record date for the Spin-Off will own 100% of the TopBuild Shares, and TopBuild will cease to be a subsidiary of Masco and will become an independent, publicly-traded company.
Following completion of the Spin-Off, the Masco Shares will continue to be listed for trading on the NYSE. It is expected that the TopBuild Shares will be listed for trading on the NYSE under the symbol "BLD". TopBuild has no present intention of listing its securities on any Canadian exchange or of becoming a reporting issuer in any province or territory of Canada after completion of the Spin-Off.
The Spin-Off is being effected in accordance with the laws of Delaware. No shareholder approval of the Spin-Off is required or is being sought under the laws of Delaware or any applicable United States federal securities laws.
On March 4, 2015, TopBuild filed a registration statement on Form 10 with the SEC detailing the proposed Spin-Off, and subsequently filed amendments to the registration statement on April 10, 2015, May 21, 2015 and June 8, 2015 (the registration statement, as so amended, is referred to as the Registration Statement). The Registration Statement was declared effective by the SEC on June 15, 2015.
All materials relating to the Spin-Off sent by or on behalf of Masco to holders of Masco Shares resident in the United States (including the information statement comprising part of the Registration Statement (the Information Statement)) have been sent concurrently to holders of Masco Shares resident in Canada (the Masco Canadian Shareholders).
The Information Statement contains prospectus-level disclosure about TopBuild.
Following completion of the Spin-Off, TopBuild will be subject to the requirements of the 1934 Act and the rules and regulations of the NYSE, and will send the continuous disclosure materials that it sends to holders of TopBuild Shares resident in the United States concurrently to the holders of TopBuild Shares resident in Canada.
Masco Canadian Shareholders who receive TopBuild Shares pursuant to the Spin-Off will have the same rights and remedies available to holders of Masco Shares resident in the United States under the laws of the United States in respect of the disclosure documentation received in connection with the Spin-Off.
There will be no active trading market for the TopBuild Shares in Canada following the Spin-Off and none is expected to develop. Consequently, it is expected that any resale of TopBuild Shares distributed in the Spin-Off will occur through the facilities of the NYSE or any other exchange or market outside of Canada on which the TopBuild Shares may be quoted or listed at the time that the trade occurs or to a person or company outside of Canada.
Neither Masco nor TopBuild is in default of any of its obligations under the securities legislation of any jurisdiction in Canada.
Subject to the satisfaction of certain conditions, it is currently anticipated that the Spin-Off will become effective on or about June 30, 2015.
The distribution by Masco of TopBuild Shares to Masco Canadian Shareholders would be exempt from the prospectus requirement pursuant to subsection 2.31(2) of National Instrument 45-106 – Prospectus and Registration Exemptions (NI 45-106) but for the fact that TopBuild is not a reporting issuer under the securities legislation of any jurisdiction in Canada.
The distribution by Masco of TopBuild Shares to Masco Canadian Shareholders would be exempt from the prospectus requirement pursuant to subsection 2.11(a) of NI 45-106 if the Spin-Off were considered a "reorganization or arrangement that is under a statutory procedure". The term "statutory procedure" is not defined and, although the Spin-Off is being effected in accordance with Delaware corporate law, it is not possible to conclude with certainty that such a transaction constitutes a "reorganization or arrangement that is under a statutory procedure".
The distribution by Masco of TopBuild Shares to Masco Canadian Shareholders meets the requirements of paragraph 2.11(b)(i) of NI 45-106 in that an information circular will be delivered to each holder of Masco Shares. However, shareholder approval of the transaction is not required under Delaware corporate law or applicable United States federal securities laws and accordingly is not being sought. As a result, the requirement in paragraph 2.11(b)(ii) of NI 45-106 is not met.
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 Requested Relief is granted provided that the first trade in TopBuild Shares issued in connection with the Spin-Off 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.
"Timothy Moseley"
"William J. Furlong"
Ontario Securities Commission Ontario Securities Commission