West Street Capital Corporation
Headnote
MI 11-102, NP 11-203 and MI 61-101 -- business combination -- relief from requirement to obtain minority approval -- offer to acquire all issued and outstanding preferred shares of Filer -- if offeror does not acquire sufficient number of preferred shares to effect a compulsory acquisition, Filer may effect an amalgamation transaction pursuant to OBCA which would require minority approval under MI 61-101 by holders of the Filer's common shares -- Under proposed amalgamation, holders of common shares would receive functionally equivalent interest in new entity as they held in the Filer -- Proposed amalgamation will provide equal treatment to all holders of common shares and will not have any adverse effect on the holders of common shares.
Applicable Legislative Provisions
Multilateral Instrument 11-102 Passport System.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions, s. 3.6(5).
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 4.5, 9.1
July 27, 2009
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
WEST STREET CAPITAL CORPORATION
(the Filer)
DECISION
Background
The principal regulator in the Jurisdiction (the Principal Regulator) has received an application from the Filer, in connection with the proposed Amalgamation (as defined below) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the requirement to obtain minority approval for a business combination from the holders of issued and outstanding common shares of the Filer (the Common Shares), as set out in section 4.5 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101), be waived (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 Quebec.
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:
1. Pursuant to the requirements of National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions and MI 11-102, the Ontario Securities Commission is the principal regulator to review and grant the Exemption Sought as the head office of the Filer is located in Ontario.
2. The Filer was incorporated under the Business Corporations Act (Ontario) (the OBCA) on April 4, 1984 under the name Enfield Corporation Limited and on May 13, 2004, changed its name to West Street Capital Corporation. The address of the Filer's corporate and registered head office is Brookfield Place, Suite 300, 181 Bay Street, Toronto, Ontario, M5J 2T3. The Filer is a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec and Newfoundland and Labrador and is not in default of its reporting issuer obligations under the securities legislation of such provinces.
3. The issued and outstanding capital of the Filer consists of 7% Cumulative Redeemable Convertible Class E Preferred Shares, Series 1 (Preferred Shares) and Common Shares. Both classes of shares are listed on the TSX Venture Exchange.
4. Brookfield Asset Management Inc. (BAM) owns 1,539,505 Preferred Shares, representing approximately 92.9% of the currently issued and outstanding Preferred Shares, and 5,429,840 Common Shares, representing approximately 49.7% of the currently issued and outstanding Common Shares. The remaining Preferred Shares and Common Shares are owned by the public.
5. The Filer has not paid dividends on the Preferred Shares since November 1991. The Preferred Shares are redeemable at any time for a redemption price of $25.00 per Preferred Share, plus accrued but unpaid dividends. The Preferred Shares cannot be redeemed in part, without the approval of the holders, if dividends are accrued and unpaid.
6. The Preferred Shares do not carry a residual right to participate in the earnings of the Filer and, on liquidation or winding up of the Filer, in its assets. The Preferred Shares are convertible into Common Shares only if the Filer calls the Preferred Shares for redemption. The Filer has no intention of redeeming the Preferred Shares.
7. Because dividends on the Preferred Shares are in arrears, the holders of the Preferred Shares are entitled to elect two directors to the board of the Filer, which currently consists of a total of four directors. The Preferred Shares are otherwise non-voting.
8. BAM has made an offer (the Offer) to purchase all of the issued and outstanding Preferred Shares not already owned by BAM on the basis of $35.00 per Preferred Share. The Offer and accompanying take-over bid circular were sent by BAM to holders of Preferred Shares on June 19, 2009. The Offer is currently scheduled to expire on July 27, 2009, unless extended or withdrawn by BAM.
9. The Offer is an "insider bid" under MI 61-101. In accordance with the applicable requirements in Part 2 of MI 61-101, a special committee of independent directors of the Filer (the Special Committee) engaged KPMG Corporate Finance Inc. (KPMG) to prepare a formal valuation of the Preferred Shares in accordance with the requirements of MI 61-101 and to provide the Special Committee its opinion as to the fairness of the consideration under the Offer, from a financial point of view, to the holders of Preferred Shares. KPMG determined as of May 31, 2009 that the fair market value of the Preferred Shares is in the range of $27.19 to $29.97 per Preferred Share and that the consideration under the Offer is fair, from a financial point of view, to holders of Preferred Shares.
10. The Special Committee concluded that the Offer is fair, from a financial point of view, to the holders of Preferred Shares and recommended that the Board of Directors of the Filer recommend that holders tender their Preferred Shares to the Offer.
11. If BAM acquires less than 90% of the outstanding Preferred Shares not already held by BAM under the Offer, or is otherwise unable to acquire the Preferred Shares not deposited under the Offer pursuant to section 188 of the OBCA, BAM currently intends, depending on the number of Preferred Shares taken up and paid for under the Offer, to acquire the remaining Preferred Shares by means of either: (a) an amalgamation of the Filer with a newly incorporated BAM subsidiary that will have no assets (other than the cash necessary to redeem the minority Preferred Shares), no liabilities and no business, on such terms and conditions as BAM, at the time, believes to be appropriate (the Amalgamation) or (b) an arrangement pursuant to section 182 of the OBCA (the Arrangement and together with the Amalgamation, the Subsequent Acquisition Transaction).
12. Prior to the currently scheduled expiry of the Offer, BAM intends to vary the Offer to increase the price per Preferred Share and to disclose its intention to carry out the Subsequent Acquisition Transaction, the tax consequences of the Subsequent Acquisition Transaction to holders of Preferred Shares and BAM's intention to vote the Preferred Shares it acquires pursuant to the Offer in favour of the Subsequent Acquisition Transaction.
13. The consideration to be paid to holders whose Preferred Shares are acquired pursuant to the Amalgamation will be equal in amount to and in the same form (indirectly through the redemption of redeemable preferred shares) as that payable under the Offer. Holders of Common Shares would receive a common share of the corporation resulting from the Amalgamation (\'") for each Common Share but would otherwise be unaffected by the Amalgamation. BAM would not increase its ownership of Common Shares by way of the Amalgamation.
14. If the Filer decides to effect the Amalgamation, the Filer will hold a special meeting of holders of Preferred Shares and holders of Common Shares to consider the Amalgamation. Under the OBCA, the Amalgamation must be approved at the special meeting by at least two-thirds of the votes cast by holders of Preferred Shares present in person or by proxy and at least two-thirds of the votes cast by holders of Common Shares present in person or by proxy. Holders of Preferred Shares and holders of Common Shares will be entitled to exercise rights of dissent in respect of the Amalgamation.
15. The Amalgamation would be a "business combination", as defined in MI 61-101, requiring the Filer to obtain minority approval; however, the only class of "affected securities" under MI 61-101 is the Common Shares, so the Amalgamation would be subject to obtaining approval by the minority holders of the Common Shares. The Filer would not be required to obtain a formal valuation for the Amalgamation because no securities of the Filer are listed or quoted on the stock exchanges listed in section 4.4(1)(a) of MI 61-101.
16. The Arrangement would not be a "business combination", as defined in MI 61-101, because it would not result in termination of the interest of a holder of an equity security of West Street.
17. If the Amalgamation is carried out, holders of Common Shares will receive fair value for their shares since each common share of Amalco will be functionally equivalent to each Common Share. Therefore, the Amalgamation would not result in any economic change to the position of or alteration of the rights of the holders of Common Shares.
18. The Filer will not carry out the Amalgamation unless it is approved by a majority of the votes cast in respect of Preferred Shares not beneficially owned by BAM, other than Preferred Shares acquired by BAM pursuant to the Offer.
19. Since the Amalgamation will provide equal treatment to all holders of Common Shares and will not have any adverse effect on the holders of Common Shares, the holders of Common Shares will not be prejudiced as a result of the Amalgamation nor if the Exemption Sought is granted.
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:
(i) the Filer obtains minority approval for the Amalgamation from the holders of Preferred Shares in accordance with Part 8 of MI 61-101; and
(ii) the Amalgamation is effected as described in paragraphs 11 to 14 above.