June 12, 2019
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
HUDSON’S BAY COMPANY
(THE FILER)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer for an exemption (the Exemption Sought) under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) from Sections 3.2 and 3.3 of National Instrument 52-107 – Acceptable Accounting Principles and Auditing Standards (NI 52-107), exempting the Filer, subject to the conditions set out below, from the requirement in section 3.2 and 3.3 of National Instrument 52-107 – Acceptable Accounting Principles and Auditing Standards (NI 52-107) that financial statements referred to in paragraphs 2.1(2)(b), (c), (e) and (i) of NI 52-107 and financial information referred to in paragraphs 2.1(1)(f) and (g) of NI 52-107 that are filed with or delivered to a securities regulatory authority or regulator, other than acquisition statements, be prepared in accordance with International Financial Reporting Standards (IFRS). The Filer is seeking the Exemption Sought to permit the Filer to prepare such financial statements in accordance with U.S. GAAP (as defined in NI 52-107) as if it were an SEC Issuer (as defined in NI 52-107).
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)(c) of Multilateral Instrument 11-102 – Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec, Saskatchewan and the Yukon Territory.
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 incorporated under the Canada Business Corporations Act.
The Filer is a reporting issuer in each of the Jurisdictions and is not in default of the securities legislation in any Jurisdiction.
The Filer’s registered and executive office is located at 401 Bay Street, Toronto, Ontario, M5H 2Y4.
The Filer’s authorized share capital consists of: (i) an unlimited number of Common Shares, and (ii) an unlimited number of preferred shares, issuable in series.
As of June 3, 2019, 184,076,650 Common Shares and 50,919,608 Convertible Preferred Shares (defined below) are issued and outstanding.
The Common Shares are listed on the Toronto Stock Exchange (TSX) under the symbol “HBC”. The Convertible Preferred Shares are not listed on any exchange.
Neither the Common Shares nor the Convertible Preferred Shares are listed on any U.S. stock exchange.
The Filer operates various retail businesses in Canada and the United States, a retail joint venture in Europe and real estate joint ventures in each of Canada, the United States and Europe.
Under applicable U.S. federal securities laws, the Filer is required to determine if it qualifies as a Foreign Private Issuer, as defined in Rule 405 of Regulation C under the Securities Act of 1933, as amended, and Rule 3b-4 under the Securities Exchange Act of 1934, as amended (the 1934 Act). The test is performed annually at the end of the Filer’s second fiscal quarter, and the Filer’s status may change from year to year.
On December 6, 2017 the Filer issued, on a private placement basis, eight-year mandatory convertible preferred shares (the Convertible Preferred Shares) to Fabric Luxembourg Holdings S.à r.l. (the Investor).
The Convertible Preferred Shares are convertible into Common Shares (the Underlying Common Shares) at any time at the option of the Investor, and the Filer may require the conversion of the Convertible Preferred Shares in certain limited circumstances.
Pursuant to an investor rights agreement (the Investor Rights Agreement) dated October 24, 2017 between the Filer and the Investor, the Investor was provided with certain customary registration rights in respect of the sale or distribution of the Underlying Common Shares, which rights would, in certain circumstances, effectively require the Filer to become an SEC Issuer.
As a result, the Filer began preparations to file a registration statement under Section 12 of the 1934 Act (the SEC Registration) and, with the assistance of external advisors, commenced the process of converting its historical financial statements to U.S. GAAP.
On May 31, 2019 the Filer filed a draft registration statement on Form 40-F with the Securities Exchange Commission (SEC) under the Multijurisdictional Disclosure System (the MJDS Registration) on a confidential basis, which is subject to SEC review and has not yet been made effective.
On June 10, 2019, the Filer announced that a group of shareholders of the Filer, who collectively own approximately 57% of the outstanding Common Shares on an as-converted basis, which includes individuals and entities related to, or affiliated with, Richard A. Baker, Governor and Executive Chairman of the Filer; Rhône Capital L.L.C.; WeWork Property Advisors; Hanover Investments (Luxembourg) S.A.; and Abrams Capital Management, L.P., submitted a non-binding proposal (the Proposal) for the privatization of the Filer at a price of C$9.45 per share, payable in cash (the Proposed Transaction).
The Filer has determined that it is not in the best interests of the Filer and its shareholders to effect the MJDS Registration while the Filer’s board of directors is reviewing and evaluating the Proposed Transaction, as the Filer would apply to cease to be a reporting issuer in the event that the Proposed Transaction is completed.
The Filer is therefore seeking the Exemption Sought such that it may prepare and file its financial statements in accordance with U.S. GAAP until the earlier of (a) 60 days following the earlier of (i) withdrawal of the Proposal, or termination of the Filer’s board of directors’ consideration of the Proposed Transaction, (ii) the termination of an arrangement or other similar agreement (a Definitive Agreement) in respect of the Proposed Transaction, or (iii) closing of the Proposed Transaction, or (b) the filing deadline in respect of the Filer’s audited annual financial statements for the year ended February 1, 2020 (being May 1, 2020).
While the Filer is relying on the Exemption Sought, the Filer shall (i) file its financial statements prepared in accordance with U.S. GAAP on SEDAR, and (ii) disclose in its corresponding management’s discussion and analysis or its corresponding earnings release that it has received the Exemption Sought and has filed the MJDS Registration on a confidential basis.
Should the Exemption Sought expire pursuant to paragraphs 17(a) or 17(b) above, as the case may be, the Filer anticipates that it will promptly effect the MJDS Registration, thereby becoming an SEC Issuer.
Upon becoming an SEC Issuer, the Filer may, under Part 3.7 of NI 52-107, prepare its financial statements, other than acquisition statements, in accordance with U.S. GAAP.
If the Filer does not become an SEC Issuer within the applicable time limits set out in paragraphs 17(a) or 17(b), the Filer will re-file on SEDAR all previously filed financial statements prepared in accordance with U.S. GAAP; the re-filed financial statements will be prepared in accordance with IFRS; and the Filer will issue a news release upon re-filing the financial statements that explains the nature and purpose of the re-filings.
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,
(a) until the earlier of (a) 60 days following the earlier of (i) withdrawal of the Proposal, or termination of the Filer’s board of directors’ consideration of the Proposed Transaction, (ii) the termination of a Definitive Agreement in respect of the Proposed Transaction, or (iii) closing of the Proposed Transaction, or (b) May 1, 2020, provided that
(b) while the Filer relies on the Exemption Sought, the Filer files its financial statements in accordance with U.S. GAAP, and
(c) if the Filer does not become an SEC Issuer within the applicable time limits set out in paragraphs 17(a) or 17(b) above, the Filer will re-file on SEDAR all previously filed financial statements prepared in accordance with U.S. GAAP; the re-filed financial statements will be prepared in accordance with IFRS; and the Filer will issue a news release upon re-filing the financial statements that explains the nature and purpose of the re-filings.
“Marie-France Bourret”
Marie-France Bourret
Manager, Corporate Finance
Ontario Securities Commission