Molson Inc. - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- business combination -- merger by way of a plan of arrangement is a business combination because the major shareholder of the issuer has entered into agreements with the major shareholder of the other merging entity -- agreements provide protections to majority shareholders -- purpose and effect of terms/protections is not to provide greater consideration to majority shareholder -- independent committee of the issuer has approved transaction -- exemption from the minority approval requirement granted.
Ontario Rules
Rule 61-501 - Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions, ss. 4.5 and 9.1.
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
THE PROVINCES OF
QUÉBEC AND ONTARIO
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
MOLSON INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of the provinces of Québec and Ontario (collectively, the "Jurisdictions") has received an application from Molson Inc. ("Molson") for a decision under the securities legislation of the Jurisdictions (the "Legislation") that, in connection with a proposed transaction (the "Transaction") in respect of Molson, to be carried out by way of plan of arrangement (the "Plan of Arrangement") pursuant to which Molson would combine its business with that of Adolph Coors Company ("Coors") to become Molson Coors Brewing Company ("Molson Coors"), Molson be exempt from the requirements of the Legislation,
(a) under subsections 4.3 and 4.5 of Québec Securities Commission Policy Q-27 ("Policy Q-27") to provide a valuation and to hold a minority vote; and
(b) under subsection 4.5 of Ontario Securities Commission Rule 61-501 ("Rule 61-501") to hold a minority vote;
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Autorité des marchés financiers is the principal regulator for this application;
AND WHEREAS Molson has represented to the Decision Makers that:
1. Molson is organized under the laws of Canada.
2. Molson is a reporting issuer or equivalent in all provinces and territories of Canada and is not on the list of defaulting reporting issuers maintained under the Securities Act (Québec) or the Securities Act (Ontario).
3. As at July 21, 2004, Molson's share capital consisted of 105,275,963 Class A Non Voting Shares (the "Class A Shares") and 22,380,676 Class B Voting Shares (the "Class B Shares"). Both classes of shares are listed on the Toronto Stock Exchange (the "TSX").
4. Pentland Securities (1981) Limited ("Pentland"), a corporation indirectly controlled by Eric Molson, owns approximately 10,000,000 Class B Shares, representing approximately 44.7% of the outstanding Class B Shares, and accordingly is a related party of Molson. The Estate of the late T.H.P. Molson, a family estate trust of which Eric Molson and his brother, Stephen Molson are, together with a corporate trustee, trustees, holds 2,407,200 Class B Shares representing approximately 10.8% of the outstanding Class B Shares. The balance of the Class B Shares are held by the public in approximately 500 accounts.
5. The Class A Shares and the Class B Shares (the "Molson Shares") are identical except that the Class A Shares do not vote, other than, voting separately as a class, to elect three directors and have a small ($0.033) preference on dividends after which dividends are paid equally on the two classes of shares. The Class B Shares are convertible into Class A Shares on a one-for-one basis. There are "coattail" provisions affording certain protections for the holders of the Class A Shares in the event of a take-over bid for the Class B Shares.
6. Coors is a Delaware corporation.
7. Coors is a reporting company in the United States. Coors is not a reporting issuer or equivalent in Canada.
8. As of July 19, 2004, Coors had outstanding 1,260,000 shares of Class A Voting Common Stock (the "Coors Voting Shares") which are all owned by the Adolph Coors Trust, the beneficiaries of which are members of the Coors family, and 36,043,934 shares of Class B Non-Voting Stock (the "Coors Non-Voting Shares"). The Coors Non-Voting Shares are listed on the New York Stock Exchange ("NYSE"). Members of the Coors family, including the Adolph Coors Trust, own approximately 10,000,000 Coors Non-Voting Shares, representing approximately 28% of the class. The Coors Non-Voting Shares and the Coors Voting Shares represent approximately 96.5% and 3.5% of the total equity of Coors, respectively. The Coors Voting Shares and the Coors Non-Voting Shares participate equally. The Coors Voting Shares are convertible into Coors Non-Voting Shares on a one-for-one basis.
9. The Transaction, if proceeded with, would effect a merger pursuant to a Plan of Arrangement under the Canada Business Corporations Act, utilizing an exchangeable share structure and Coors making certain amendments to its certificate of incorporation and by-laws including changing its name to Molson Coors. The material elements of the Transaction are as follows:
(a) At the effective time, the Class A Shares will be exchanged for 0.360 shares (the "Conversion Ratio") of an indirect subsidiary of Coors ("Exchangeco") (the "Class B Exchangeable Shares") which are in turn exchangeable for Molson Coors Non-Voting Shares on a one-for-one basis.
(b) At the effective time, the Class B Shares will be exchanged for a number of shares of Exchangeco (the "Class A Exchangeable Shares") as well as a number of Class B Exchangeable Shares, which are exchangeable for Molson Coors Non-Voting Shares and Molson Coors Voting Shares on a one-for-one basis, respectively. The aggregate number of Class A Exchangeable Shares and Class B Exchangeable Shares (the "Exchangeable Shares") received by a holder of Class B Shares will equal the number of Class B Shares multiplied by the Conversion Ratio.
(c) A holder of Class A Shares or Class B Shares need not accept exchangeable shares of Exchangeco, but at his or her election, may obtain Molson Coors Non-Voting or Molson Coors Voting Shares directly.
(d) The Class A Exchangeable Shares will be exchangeable at any time for Molson Coors Voting Shares and will, prior to exchange, (i) mirror the economics of the Molson Coors Voting Shares and, (ii) through a voting trust mechanism, have the same voting rights as the Molson Coors Voting Shares. The Class B Exchangeable Shares will be exchangeable at any time for Molson Coors Non-Voting Shares and will, prior to exchange, (i) mirror the economics of the Molson Coors Non-Voting Shares, and (ii) through a voting trust mechanism have the same voting rights as the Molson Coors Non-Voting Shares (principally the right to participate with the holders of the Molson Coors Non-Voting Shares in the election of three directors).
(e) Application will be made to list the Class A Exchangeable Shares, the Class B Exchangeable Shares, the Molson Coors Non-Voting Shares and the Molson Coors Voting Shares on the TSX. Application will also be made to list the Molson Coors Voting Shares on the NYSE. The Molson Coors Non-Voting Shares will continue to trade on the NYSE.
(f) Certain amendments will be made to the certificate of incorporation and the by-laws of Coors to accommodate the Transaction. The relevant aspects of those changes are as follows:
(i) implementation of the flow-through rights to vote held by the holders of the Class A Exchangeable Shares and the Class B Exchangeable Shares;
(ii) right of the Molson Coors Non-Voting Shares (and on a flow-through basis, the Class B Exchangeable Shares) to elect three directors;
(iii) creation of coattail provisions in substance equivalent to those currently attaching to the Class A Shares;
(iv) creation of a nominating committee to consist of five directors, two directors nominated by Pentland, two directors nominated by the Coors family and one independent director. The families' respective nominees will form two nominating subcommittees, each entitled to nominate exclusively five persons to stand for election as directors. The board of directors will constitute the nominating committee for the purpose of nominating the three persons who will stand for election by the holders of the Molson Coors Non-Voting Shares. The Chief Executive Officer and the initial Vice-Chairman will also be nominated to stand for election as directors. The by-laws will provide for a board of 15 directors. A majority of directors must be independent;
(v) the following actions will require the approval of two-thirds of the directors: any acquisition or disposition of any business or assets (other than in the ordinary course of business) having a value in excess of 15% of the total assets of the Molson Coors; the sale of any capital stock of either Molson or Coors Brewing Company ("CBC"), or the issuance by Molson or CBC of any shares to third parties; the sale of all or substantially all of the assets of Molson or CBC; any issuance of shares other than pursuant to an employee benefit plan or a registered public offering; and any adoption, approval or recommendation of any plan of complete or partial liquidation, merger or consolidation of Molson Coors.
(vi) the following actions will require the approval of two-thirds of the directors: the creation of new committees of the board of directors and the assignment and removal of directors to committees, other than in order to comply with applicable law; the nomination of persons to stand for election by holders of Molson Coors Non-Voting Shares; the removal, appointment and material change in the compensation of the Chief Executive Officer, provided, however, that if any such action is proposed but fails to obtain the required two-thirds majority, it shall be referred to a committee of independent directors for a two-third vote approval; any increase or decrease in the number of members of the board of directors; any relocation of any of the Molson Coors' Executive Offices or North American Operational Headquarters; any amendment, alteration or repeal of the by-laws or adoption of any by-law; any amendment to the certificate of incorporation; any declaration or payment of dividends other than a regular quarterly dividend consistent with past practice; and entering into any transaction with any affiliate of Molson Coors or any family member of an affiliate.
(g) The executive offices will be in Montreal and Denver, Colorado.
10. On July 21, 2004, Molson and Coors entered into a Combination Agreement with respect to the Transaction.
11. Molson has established an independent committee (the "Committee") of its board to review the terms and conditions of the Transaction and make a recommendation to the board of directors as to the fairness of the Transaction to the minority shareholders from a financial and non-financial point of view and oversee the negotiation of the Transaction. The Committee is comprised of six directors independent of the Molson family and of management. The Committee has retained legal and financial advisors. The Committee has received an opinion from its financial advisors to the effect that, as at the date of the Combination Agreement, the Conversion Ratio is fair from a financial point of view to holders of its Class A Shares and Class B Shares (other than Pentland and Eric Molson).
12. Separately, the board of directors of Molson has retained its own financial advisors. The board of directors of Molson has received fairness opinions with respect to the Transaction from its two financial advisors to the effect that, as at the date of the Combination Agreement, the Conversion Ratio is fair from a financial point of view to holders of the Class A Shares and Class B Shares.
13. As the Transaction will proceed by way of Plan of Arrangement, the court will play an oversight role and will determine the fairness and reasonableness of the Transaction to Molson and its shareholders. Molson will offer a right of dissent to Molson shareholders and will ask the court for shareholder approval to be set at two-thirds of the Class A Shares (including holders of options to purchase Class A Shares) and the Class B Shares, voting as separate classes at a special meeting of shareholders of Molson (the "Meeting").
14. The completion of the Transaction will be subject to a number of conditions, including, without limitation, receipt of all applicable regulatory, court and shareholder approvals. The management information circular to be prepared for the Meeting will comply, subject to receipt of the requested relief requested hereby, with the requirements of applicable corporate and securities laws.
15. It is proposed that the Adolph Coors Trust and Pentland will enter into a shareholders' agreement, deposit their Coors Voting Shares and Class A Exchangeable Shares, respectively, into voting trusts, and enter into voting trust agreements with respect to the following:
(a) each would agree to vote their shares to elect the five directors nominated by the subcommittees of the nominating committee of the board of Molson Coors;
(b) each would vote their shares to ensure that at least a majority of the total number of directors are not members of the Coors or Molson families and are independent directors;
(c) removal of directors between annual meetings. Each could direct the voting trustee to remove directors which it had nominated; and
(d) any other matter put to a vote of holders of Molson Coors Voting Shares including a sale, merger, dissolution or liquidation of Molson Coors or amendments to the certificate of incorporation or by-laws. If either opposes a matter put to a vote, the voting trustee will be instructed to vote against adoption.
16. The Adolph Coors Trust has entered into a support agreement with Molson whereby they agreed to support the Transaction, subject to the Transaction being terminated by Molson or Coors. Pentland entered into a similar support agreement with Coors.
17. Other than the voting trust agreements and the support agreements, no other arrangements have been entered into between Pentland, the Adolph Coors Trust and Coors.
18. The Transaction is a "going private transaction" within the meaning of section 1.1(3) of Q-27 in that it is an arrangement involving a related party "...as a consequence of which the title of a holder of an equity security of the issuer may be terminated without the holder's consent". The Transaction would be excluded from the definition of a "going private transaction" under paragraph (e) of the definition in Q-27 as Pentland will receive identical consideration for each of its securities held, except to the extent that the arrangements described in this order might constitute "indirect consideration of greater value" paid to Pentland.
19. The Transaction is a "business combination" within the meaning of Rule 61-501 in so far as it is an arrangement involving Molson as a consequence of which the interest of a holder of an equity security of Molson may be terminated without the holder's consent. Paragraph (e) of the definition of "business combination" in section 1.1 of Rule 61-501 would provide an exemption if there is no "collateral benefit" provided to a related party. To the extent that the arrangements described in this order constitute collateral benefits to Pentland, this exemption is not available.
20. Unless discretionary relief is granted, Molson would be subject to the requirement to provide a valuation under section 4.3 of Q-27, and would be required to hold a minority vote under section 4.5 of Q-27 and section 4.5 of Rule 61-501 in connection with the Transaction.
21. The Transaction is subject to a number of mechanisms which have the effect of ensuring that the interests of all of the shareholders of Molson are protected, including the following:
(a) the review and recommendation of the Committee of Molson;
(b) the opinion of the Committee's financial advisor that the Conversion Ratio is fair to holders of Class A Shares and Class B Shares (other than Pentland and Eric Molson);
(c) the opinions of the financial advisors to the Board that the Conversion Ratio is fair to holders of Class A Shares and Class B Shares;
(d) the two-thirds approval of each class of shares of Molson. Pentland owns only a nominal number of the Class A Shares;
(e) the supervision of the court, whose mandate is to determine the fairness and reasonableness of the Transaction to all stakeholders; and
(f) the right of a shareholder to dissent.
22. A minority vote of each class of shareholders would unduly favour a very small group of shareholders, as the Class B Shares constitute approximately 17% of the equity of Molson, and Pentland holds approximately 44.7% of the Class B Shares. Accordingly, if minority approval is required of the holders of the Class B Shares, the holders of a maximum of approximately 4.7% (being 50.1% of the Class B Shares not held by Pentland) of the total equity of Molson could determine whether the Transaction will proceed. To not grant the requested relief could, as contemplated by Section 3.1 of the Companion Policy to Q-27 or Section 3.3 of the Companion Policy to Rule 61-501, result in unfairness to security holders who are not interested parties, being the holders of the Class A Shares who represent 83% of the total equity of Molson and who, aside from voting rights, have interests identical to those of the holders of Class B Shares.
AND WHEREAS pursuant to the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers under the Legislation is that, in connection with the Transaction, Molson:
(a) is exempt from the requirement under subsections 4.3 and 4.5 of Policy Q-27 to provide a formal valuation and to hold a minority vote; and
(b) is exempt from the requirement under subsection 4.5 of Rule 61-501 to hold a minority vote.
August 11, 2004.
"Josée Deslauriers"