November 28, 2023
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 CI Financial Corp.
(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) that, in connection with the proposed purchase by the Filer of a portion of its issued and outstanding common shares (the Common Shares) pursuant to an issuer bid commenced on November 10, 2023 (the Offer), the Filer be exempt from the requirement set out in subsection 2.32(4) of National Instrument 62-104 Take-Over Bids and Issuer Bids (NI 62-104) that the Offer not be extended if all the terms and conditions of the Offer have been complied with or waived unless the Filer first takes up all of the Common Shares deposited under the Offer and not withdrawn (the Exemption Sought).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 Multilateral Instrument 11-102 – Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Newfoundland and Labrador and Prince Edward Island.
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 validly existing under the Business Corporations Act (Ontario) and is in good standing.
The registered and head office of the Filer is in Toronto, Ontario.
The Filer is a reporting issuer in the Province of Ontario. The Filer is not in default of any requirement of the securities legislation in any jurisdiction in which it is a reporting issuer.
The authorized share capital of the Filer consists of an unlimited number of Common Shares and an unlimited number of preference shares. As at November 8, 2023, 162,784,729 Common Shares were issued and outstanding and no preference shares were issued and outstanding.
The Common Shares are listed and posted for trading on the Toronto Stock Exchange (the TSX) under the symbol "CIX".
Management of the Filer believes that the recent trading price of the Common Shares is not fully reflective of the value of the Filer's business and future prospects and that the purchase of Common Shares pursuant to the Offer constitutes an efficient means of providing value to the holders of Common Shares (each a Shareholder, collectively the Shareholders). Management of the Filer proposed the Offer to the board of directors of the Filer (the Board). After consideration of a number of factors, including that the Offer allows the Filer an opportunity to return up to $100,000,000 of capital in an equitable and efficient way to Shareholders who elect to tender their Common Shares to the Offer, while at the same time increasing the equity ownership of Shareholders who elect not to tender, the Board determined that the Offer is in the best interests of the Filer and its Shareholders.
The Filer formally commenced the Offer on November 10, 2023. The issuer bid circular dated November 10, 2023 prepared and filed by the Filer in connection with the Offer (the Circular) specifies that the Filer proposes to purchase, by way of a modified "Dutch auction" procedure in the manner described below, up to $100,000,000 of the issued and outstanding Common Shares (the Maximum Purchase Amount) at a purchase price of not less than $13.64 and not more than $15.28 per Common Share (the Price Range).
The Offer is made only for Common Shares and not for any convertible securities. Pursuant to subsection 2.8(b) of NI 62-104, the Filer also sent the offer to purchase in respect of the Offer and Circular to each holder of convertible securities that, before the expiry of the deposit period of the Offer, are convertible into Common Shares. Such convertible securities may, at the option of the holder, be converted for Common Shares in accordance with the terms of such convertible securities prior to the expiry of the deposit period of the Offer. Common Shares issued upon the conversion of the convertible securities may be tendered to the Offer in accordance with the terms of the Offer.
The Filer will fund any purchase of Common Shares pursuant to the Offer, together with all related fees and expenses of the Offer, from available cash on hand and advances under the revolving portion of its credit facility pursuant to a credit agreement between the Filer, Royal Bank of Canada, The Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, and National Bank of Canada dated February 14, 2023, as amended. The Offer is not conditional upon the receipt of any financing.
Each Shareholder wishing to tender to the Offer may do so pursuant to:
(a) auction tenders in which the tendering Shareholders specify the number of Common Shares being tendered at a specified price per Common Share (the Auction Price) within the Price Range in increments of $0.25 per Common Share other than an increment from $13.64 to $13.78 (the Auction Tenders); or
(b) purchase price tenders in which the tendering Shareholders do not specify a price per Common Share, but rather agree to have a specified number of Common Shares purchased at the Purchase Price (as defined below) to be determined by the Filer (the Purchase Price Tenders).
Shareholders who tender Common Shares without making a valid Auction Tender or Purchase Price Tender will be deemed to have made a Purchase Price Tender.
If a Shareholder wishes to deposit Common Shares in separate lots at a different price for each lot, that Shareholder must complete a separate letter of transmittal (and, if applicable, a notice of guaranteed delivery) for each price at which the Shareholder is depositing Common Shares. A Shareholder may not deposit the same Common Shares pursuant to both an Auction Tender and a Purchase Price Tender, or pursuant to an Auction Tender at more than one price.
Any Shareholder who beneficially owns fewer than 100 Common Shares (an Odd Lot Holder) and tenders all such Common Shares pursuant to an Auction Tender at a price at or below the Purchase Price, or pursuant to a Purchase Price Tender, will be considered to have made an "Odd Lot Tender".
Taking into account the number of Common Shares deposited pursuant to the Auction Tenders and Purchase Price Tenders and the prices specified by Shareholders depositing Common Shares pursuant to the Auction Tenders, the Filer will determine a single price payable per Common Share (the Purchase Price) promptly following the expiration of the Offer. The Purchase Price will be the lowest price per Common Share that enables the Filer to purchase the maximum number of Common Shares validly deposited and not properly withdrawn pursuant to the Offer having an aggregate purchase price not exceeding the Maximum Purchase Amount. For the purposes of determining the Purchase Price, Common Shares deposited pursuant to a Purchase Price Tender will be deemed to have been deposited at a price of $13.64 per Common Share (which is the minimum price per Common Share under the Offer).
If the aggregate Purchase Price for the Common Shares validly deposited and not withdrawn pursuant to Auction Tenders at Auction Prices at or below the Purchase Price and Purchase Price Tenders would result in an aggregate Purchase Price in excess of the Maximum Purchase Amount, then such deposited Common Shares will be purchased as follows:
(a) first, the Filer will purchase all Common Shares tendered at or below the Purchase Price by Odd Lot Holders at the Purchase Price; and
(b) second, the Filer will purchase Common Shares at the Purchase Price on a pro rata basis according to the number of Common Shares deposited or deemed to be deposited at a price equal to or less than the Purchase Price by the depositing Shareholders, for an aggregate purchase price of the Maximum Purchase Amount less the aggregate purchase price of the Common Shares purchased from Odd Lot Holders. All Auction Tenders and Purchase Price Tenders will be subject to adjustment to avoid the purchase of fractional Common Shares (with fractions rounded down to the nearest whole Common Share).
Until expiry of the Offer, all information about the number of Common Shares tendered and the prices at which such Common Shares are tendered will be required to be kept confidential by the depositary and the Filer until the Purchase Price has been determined.
All Common Shares purchased by the Filer pursuant to the Offer (including Auction Tenders tendered at a price below the Purchase Price) will be purchased at the Purchase Price, payable in cash. All payments to Shareholders will be subject to deduction of applicable withholding taxes.
Common Shares validly deposited by a Shareholder pursuant to an Auction Tender will not be purchased by the Filer pursuant to the Offer if the Auction Price per Common Share specified by the Shareholder is greater than the Purchase Price.
Certificates for all Common Shares not purchased under the Offer (including Common Shares deposited pursuant to an Auction Tender at prices greater than the Purchase Price, Common Shares not purchased because of pro-ration, improper tenders, or Common Shares not taken up due to the termination of the Offer), or properly withdrawn before the Expiration Date (as defined below), will be returned (in the case of certificates representing Common Shares all of which are not purchased) or replaced with new certificates representing the balance of Common Shares not purchased (in the case of certificates representing Common Shares of which less than all are purchased), promptly after the Expiration Date or termination of the Offer or the date of withdrawal of the Common Shares, without expense to the Shareholder. In the case of Common Shares tendered through book-entry transfer into the account of Computershare Investor Services Inc. at Depository Trust Company (DTC) or CDS Clearing and Depository Services Inc. (CDS), the Common Shares will be credited to the appropriate account maintained by the tendering Shareholder at DTC or CDS, as applicable, without expense to the Shareholder.
Shareholders who do not accept the Offer will continue to hold the same number of Common Shares held before the Offer and their proportionate ownership of Common Shares will increase following completion of the Offer, subject to the number of Common Shares purchased under the Offer.
To the knowledge of the Filer, after reasonable inquiry, no person or company beneficially owns, or exercises control or direction over, more than 10% of the voting rights attached to all of the Filer's outstanding voting securities.
On November 8, 2023, the date prior to the announcement of the Filer's intention to proceed with the Offer, the closing price of the Common Shares on the TSX was $13.64 per Common Share.
As of November 8, 2023, there were 162,784,729 Common Shares issued and outstanding. If the Purchase Price is determined to be $13.64 (being the minimum Purchase Price under the Offer), the maximum number of Common Shares that the Filer is offering to purchase pursuant to the Offer represents approximately 4.5% of the outstanding Common Shares. If the Purchase Price is determined to be $15.28 (being the maximum Purchase Price under the Offer), the maximum number of Common Shares that the Filer is offering to purchase pursuant to the Offer represents approximately 4.0% of the outstanding Common Shares.
As of November 9, 2023, to the knowledge of the Filer and its directors and officers, after reasonable inquiry, no director or officer of the Filer, no associate or affiliate of the Filer or of an insider of the Filer, no insider of the Filer (other than a director or officer), and no person or company acting jointly or in concert with the Filer, has indicated any present intention to deposit any of such person's Common Shares pursuant to the Offer.
The Offer is scheduled to expire at 5:00 p.m. (Eastern time) on December 18, 2023 (the Expiration Date).
If all the terms and conditions of the Offer have been complied with or waived by the Filer by the Expiration Date but the aggregate Purchase Price of the Common Shares validly tendered and not withdrawn pursuant to Auction Tenders and Purchase Price Tenders is less than the Maximum Purchase Amount, the Filer may wish to extend the Offer. The Filer will not extend the Offer if, all the terms and conditions of the Offer have been complied with or waived by the Filer by the Expiration Date and the aggregate Purchase Price of the Common Shares validly tendered and not withdrawn pursuant to Auction Tenders and Purchase Price Tenders is equal to or greater than the Maximum Purchase Amount.
Pursuant to subsection 2.32(4) of NI 62-104, an issuer may not extend an issuer bid if all the terms and conditions of the issuer bid have been complied with or waived unless the issuer first takes up all securities deposited under the issuer bid and not withdrawn.
As the determination of the Purchase Price requires that all Auction Prices and the number of Common Shares deposited pursuant to both Auction Tenders and Purchase Price Tenders be known and taken into account, the Filer will be unable to take up the Common Shares deposited and not withdrawn under the Offer as of the Expiration Date prior to extending the Offer because the Purchase Price will not and cannot be known as additional Auction Tenders and Purchase Price Tenders may be made during the extension period that will impact the calculation of the Purchase Price. Accordingly, the Exemption Sought is required in connection with an extension of the Offer to enable the Filer to make a final determination regarding the Purchase Price, taking into account all Common Shares tendered prior to the Expiration Date and those tendered during any extension period.
Common Shares deposited pursuant to the Offer, including those deposited prior to the Expiration Date, may be withdrawn by the Shareholder at any time prior to the expiration of any extension period in respect of the Offer.
The Filer is relying on the "liquid market exemption" set out in subsection 3.4(b) of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) from the formal valuation requirements applicable to issuer bids under MI 61-101 (the Liquid Market Exemption).
There is a "liquid market" for the Common Shares, as such term is defined in MI 61-101, as of the date the Offer was publicly announced because, in accordance with section 1.2 of MI 61-101:
(a) there is a published market for the Common Shares (i.e. the TSX);
(b) during the 12-month period before November 9, 2023 (the date the Offer was publicly announced)
(i) the number of issued and outstanding Common Shares was at all times at least 5,000,000 (excluding Common Shares beneficially owned, or over which control or direction was exercised, by related parties), all of which Common Shares are freely tradeable;
(ii) the aggregate trading volume of Common Shares on the TSX was at least 1,000,000 Common Shares;
(iii) there were at least 1,000 trades in the Common Shares on the TSX; and
(iv) the aggregate value of the trades in the Common Shares on the TSX was at least $15,000,000; and
(c) the market value of the Common Shares on the TSX, as determined in accordance with MI 61-101, was at least $75,000,000 for October 2023 (the calendar month preceding the calendar month in which the Offer was publicly announced).
Based on the maximum number of Common Shares that may be purchased under the Offer, the Board determined that it is reasonable to conclude that, following completion of the Offer, there will be a market for holders of Common Shares who do not tender to the Offer that is not materially less liquid than the market that existed at the time of the making of the Offer.
The Board has determined that the Offer is in the best interests of the Filer and Shareholders, and that the Offer is an advisable use of the Filer's financial resources and that, after giving effect to the Offer, the Filer will continue to have sufficient financial resources and working capital to conduct its ongoing business and operations and that the Offer is not expected to preclude the Filer from pursuing its foreseeable business opportunities or the future growth of the Filer's business..
The Circular:
(a) discloses the mechanics for the take up of, and payment for, deposited Common Shares;
(b) explains that, by tendering Common Shares under an Auction Tender at the lowest price in the Price Range or by tendering Common Shares under a Purchase Price Tender, a Shareholder can reasonably expect that the Common Shares so tendered will be purchased at the Purchase Price, subject to proration and other terms of the Offer as specified herein;
(c) discloses that the Filer has applied for the Exemption Sought;
(d) sets out the manner in which an extension of the Offer will be communicated to Shareholders and the public;
(e) discloses that Common Shares deposited pursuant to the Offer may be withdrawn any time prior to the expiration of any extension period in respect of the Offer;
(f) discloses the facts supporting the Filer's reliance on the Liquid Market Exemption; and
(g) contains the disclosure prescribed by the Legislation for issuer 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:
(a) Common Shares validly deposited under the Offer and not withdrawn are taken up and paid for, or dealt with, in the manner set out in the Circular and described above;
(b) the Filer is eligible to rely on the Liquid Market Exemption; and
(c) the Filer will issue and file a press release announcing receipt of the Exemption Sought promptly, and in any case, no later than one (1) business day following receipt of the Exemption Sought.
"David Mendicino" David Mendicino
Manager, Office of Mergers & Acquisitions
Ontario Securities Commission