Brookfield Business Partners L.P. and Brookfield Business Corporation

le 1 mars 2022

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- partnership creates corporation to provide investors with alternative way to hold its units -- corporation issues exchangeable shares whose terms are structured so that each exchangeable share is functionally and economically equivalent to a partnership unit -- each exchangeable share provides an equivalent economic return as a partnership unit -- both the partnership and the corporation are reporting issuers -- related party transactions between the partnership and the corporation are exempt from the related party transaction requirements, subject to conditions -- partnership may include corporation's exchangeable shares when calculating market capitalization for the purposes of using the 25% market capitalization exemption for certain related party transactions, subject to conditions.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, Part 5, ss. 5.5(a), 5.7(1)(a) and 9.1.

March 1, 2022

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 BROOKFIELD BUSINESS PARTNERS L.P., AND BROOKFIELD BUSINESS CORPORATION

DECISION

Background

The principal regulator in the Jurisdiction has received an application from Brookfield Business Partners L.P. (BBU) and Brookfield Business Corporation (BBUC, and together with BBU, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that:

(a) BBU be exempt from the requirements of Part 5 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101, and such requirements, the Related Party Transaction Requirements) in connection with any related party transaction of BBU with BBUC or any of BBUC's subsidiary entities (the BBU Related Party Relief);

(b) BBUC be exempt from the Related Party Transaction Requirements in connection with any related party transaction of BBUC with BBU or any of BBU's subsidiary entities (the BBUC Related Party Relief); and

(c) BBU be exempt from the requirements of sections 5.4 and 5.6 of MI 61-101 (the Valuation and Minority Approval Requirements) in connection with any related party transaction of BBU entered into indirectly through Holding LP (as defined below) or any subsidiary entity of Holding LP, if that transaction would qualify for the transaction size exemptions set out in sections 5.5(a) and 5.7(1)(a) of MI 61-101 if the class A exchangeable subordinate voting shares of BBUC (the Exchangeable Shares) were included in the calculation of BBU's market capitalization (the Transaction Size Relief, collectively with the BBU Related Party Relief and the BBUC Related Party Relief, the Exemption Sought).

A decision granting the Exemption Sought to the Filers was issued by the principal regulator on October 8, 2021 (the Initial Decision) in connection with a preliminary prospectus filed by the Filers on July 30, 2021 to facilitate the Special Distribution (as defined below). The Filers were unable to file a final prospectus within the maximum time period prescribed by section 2.3 of National Instrument 41-101 General Prospectus Requirements and filed the New Prospectus (as defined below) on January 26, 2022.

Other than the filing of the New Prospectus, there have been no changes to the terms of the Special Distribution, the Exchangeable Share Provisions, or the ownership and control of BBUC that will exist upon completion of the Special Distribution. The representations of the Filers made in the Initial Decision have been repeated here and updated where appropriate given the passage of time since the date of the Initial Decision.

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 Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, Manitoba, New Brunswick, Quebec, and Saskatchewan.

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 and MI 61-101 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

Relevant Entities

BBU

1. BBU is an exempted limited partnership established, registered and in good standing under the laws of Bermuda. BBU's registered and head office is located at 73 Front Street, 5^th Floor, Hamilton HM 12, Bermuda.

2. BBU is a reporting issuer in all of the provinces and territories of Canada and is an SEC foreign issuer within the meaning of section 1.1 of National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers (NI 71-102) and satisfies its continuous disclosure obligations by complying with U.S. federal securities laws as permitted under NI 71-102. BBU is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer.

3. The authorized capital of BBU consists of: (a) non-voting limited partnership units (the BBU Units); and (b) general partnership units.

4. The BBU Units are listed on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX) under the symbols "BBU" and "BBU.UN", respectively.

5. BBU's only substantial asset is its limited partnership interest in Brookfield Business L.P. (Holding LP), a Bermuda exempted limited partnership established, registered and in good standing under the laws of Bermuda.

6. Brookfield Business Partners Limited, a wholly-owned subsidiary of Brookfield Asset Management Inc. (Brookfield), holds the general partner units in BBU.

Brookfield

7. Brookfield is a corporation existing and in good standing under the Business Corporations Act (Ontario). Brookfield's registered and head office is located at Suite 300, Brookfield Place, 181 Bay Street, Toronto, Ontario, M5J 2T3.

8. Brookfield is a reporting issuer in all of the provinces and territories of Canada and is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer.

9. The Class A Limited Voting Shares of Brookfield are listed on the NYSE and the TSX under the symbols "BAM" and "BAM.A", respectively.

10. Brookfield holds an approximate 64.5% economic interest in BBU on a fully-exchanged basis through its indirect ownership of redeemable partnership units of Holding LP (the Redeemable Partnership Units).

11. Brookfield indirectly holds 100% of the voting interests in BBU through its ownership of the general partner units of BBU.

12. BBU, Holding LP and certain of their subsidiaries have retained Brookfield and its related entities to provide management, administrative and advisory services under a master services agreement.

BBUC

13. BBUC is a corporation existing and in good standing under the Business Corporations Act (British Columbia), and was incorporated on June 21, 2021. BBUC's registered office is located at 1500 Royal Centre, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, V6E 4N7. BBUC's head office is located at 250 Vesey Street, 15th Floor, New York, New York, 10281, United States of America.

14. The authorized share capital of BBUC consists of an unlimited number of common shares (the BBUC Common Shares).

15. As at February 22, 2022, there are 7,345,846 BBUC Common Shares issued and outstanding, all of which are held, directly or indirectly, by Brookfield BBP Canada Holdings Inc. (CanHoldCo), a wholly-owned subsidiary of Holding LP.

16. BBUC's initial operations consist of business services and industrial operations primarily located in Australia, the United Kingdom, the United States and Brazil.

17. BBUC is not a reporting issuer in any jurisdiction and is not in default of any applicable requirement of securities legislation.

The Special Distribution

18. BBU believes that certain investors in certain jurisdictions may be dissuaded from investing in BBU because of the tax reporting framework that results from investing in units of a Bermuda exempted limited partnership.

19. BBUC was created, in part, to provide investors that would not otherwise invest in BBU with an opportunity to gain access to BBU's portfolio of services and industrial operations and their associated returns, and to provide investors with the flexibility to own, through the ownership of an Exchangeable Share, the economic equivalent of a BBU Unit.

20. BBU will be distributing Exchangeable Shares to holders of BBU Units (the Special Distribution). The Special Distribution is, in effect, a stock split of the BBU Units.

21. On January 26, 2022, (i) BBUC filed a preliminary long form prospectus to qualify the distribution of the Exchangeable Shares to be distributed pursuant to the Special Distribution, and (ii) BBU filed a preliminary short form prospectus to qualify the BBU Units issuable or deliverable upon the exchange, redemption or purchase of Exchangeable Shares pursuant to their terms (collectively, the New Prospectus).

22. Upon obtaining a receipt for the final prospectus, BBUC will become a reporting issuer in each of the provinces and territories of Canada.

23. BBUC has received conditional approval to have the Exchangeable Shares listed on the TSX, and the NYSE has conditionally authorized BBUC to list the Exchangeable Shares on the NYSE.

24. BBUC filed a registration statement on Form F-1 with the U.S. Securities and Exchange Commission (the SEC), to register the Exchangeable Shares that will be distributed pursuant to the Special Distribution, and BBU filed a registration statement of Form F-3 with the SEC, as amended, to register the BBU Units issuable or deliverable upon the exchange, redemption or purchase of Exchangeable Shares pursuant to their terms.

25. In November and December 2021, the following assets and ownership interests were transferred, directly or indirectly, by CanHoldCo to BBUC for consideration consisting of promissory notes (the 2021 Promissory Notes) and 7,345,846 BBUC Common Shares:

(a) an approximate 28% economic interest in Healthscope Pty Limited;

(b) an approximate 26% economic interest in BRK Ambiental Participações S.A.;

(c) an approximate 27% economic interest in Westinghouse Electric Company; and

(d) a 100% economic interest in Multiplex Global Limited.

26. Prior to the Special Distribution:

(a) BBUC will reclassify its share structure such that, following the reclassification, BBUC's authorized share capital will consist of: (i) an unlimited number of Exchangeable Shares; (ii) an unlimited number of class B multiple voting shares (the Class B Shares); (iii) an unlimited number of class C non-voting shares (the Class C Shares); (iv) an unlimited number of class A senior preferred shares (issuable in series); and (v) an unlimited number of class B junior preferred shares (issuable in series);

(b) the 2021 Promissory Notes and an additional promissory note issued to CanHoldCo in exchange for a contribution of cash will be settled in exchange for the issuance of up to 74 million Exchangeable Shares and cash;

(c) the 7,345,846 BBUC Common Shares held, directly or indirectly, by CanHoldCo will be converted into Class C Shares;

(d) CanHoldCo will subscribe for one (1) Class B Share for nominal consideration, following which all of BBUC's issued and outstanding securities will be held, directly or indirectly, by CanHoldCo;

(e) BBUC Holdings Inc., a wholly-owned subsidiary of BBUC, will loan an amount of cash currently estimated to be $391 million, to CanHoldCo in exchange for a promissory note;

(f) CanHoldCo will distribute all of the Exchangeable Shares to Holding LP as a return of capital; and

(g) BBU will receive Exchangeable Shares through a distribution by Holding LP of the Exchangeable Shares, on a proportionate basis, to all the holders of equity units of Holding LP, including Brookfield through its indirect ownership of Redeemable Partnership Units and special limited partnership units in Holding LP.

27. The distribution ratio of one (1) Exchangeable Share for every two (2) BBU Units was based on the fair market value of the businesses to be transferred by BBU to BBUC, the number of BBU Units outstanding at the time of the Special Distribution (assuming exchange of the Redeemable Partnership Units), and the market capitalization of BBU.

28. Each Exchangeable Share has been structured with the intention of providing an economic return equivalent to a BBU Unit and the rights, privileges, restrictions and conditions attached to each Exchangeable Share (the Exchangeable Share Provisions) are such that each Exchangeable Share is as nearly as practicable, functionally and economically, equivalent to a BBU Unit. In particular:

(a) each Exchangeable Share will be exchangeable at the option of a holder for one (1) BBU Unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BBUC) (an Exchange);

(b) the Exchangeable Shares are redeemable by BBUC at any time (including following a notice requiring redemption having been given by BBU) for BBU Units (or its cash equivalent, at BBUC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) (a Redemption);

(c) upon a liquidation, dissolution or winding up of BBUC, holders of Exchangeable Shares will be entitled to receive BBU Units (or its cash equivalent, at BBUC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) and not any remaining property or assets of BBUC following such payment (a BBUC Liquidation);

(d) upon a liquidation, dissolution or winding up of BBU, including where substantially concurrent with a BBUC Liquidation, all of the Exchangeable Shares will be automatically redeemed for BBU Units (or its cash equivalent, at BBUC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) (a BBU Liquidation); and

(e) subject to applicable law and in accordance with the Exchangeable Share Provisions, each Exchangeable Share will entitle the holder to dividends from BBUC payable at the same time as, and equivalent to, each distribution on a BBU Unit. The Exchangeable Share Provisions also provide that if a distribution is declared on the BBU Units and an equivalent dividend is not declared and paid concurrently on the Exchangeable Shares, then the undeclared or unpaid amount of such dividend accrues and accumulates and is to be paid upon the first to occur of any of the circumstances contemplated by paragraphs (a) to (d) above, if not yet paid.

29. Upon being notified by BBUC that BBUC has received a request for an Exchange, BBU has an overriding call right to purchase (or have one of its affiliates purchase) all of the Exchangeable Shares that are the subject of the Exchange notice from the holder of Exchangeable Shares for BBU Units (or its cash equivalent, at BBU's election) on a one-for-one basis (subject to adjustment to reflect certain capital events).

30. Upon being notified by BBUC that it intends to conduct a Redemption, BBU has an overriding call right to purchase (or have one of its affiliates purchase) all but not less than all of the then outstanding Exchangeable Shares for BBU Units (or its cash equivalent, at BBU's election) on a one-for-one basis (subject to adjustment to reflect certain capital events).

31. Upon the occurrence of a BBU Liquidation or BBUC Liquidation, BBU will have an overriding liquidation call right to purchase (or have one of its affiliates purchase) all but not less than all of the then outstanding Exchangeable Shares on the day prior to the effective date of such BBU Liquidation or BBUC Liquidation for BBU Units on a one-for-one basis (subject to adjustment to reflect certain capital events).

32. Prior to the Special Distribution, Brookfield will enter into a rights agreement (the Rights Agreement) pursuant to which it will agree that, for the five-year period beginning on the date of the Special Distribution, Brookfield will guarantee BBUC's obligation to deliver BBU Units or its cash equivalent in connection with an Exchange.

33. An investment in Exchangeable Shares will be as nearly as practicable, functionally and economically, equivalent to an investment in BBU Units. BBU expects that:

(a) investors of Exchangeable Shares will purchase Exchangeable Shares as an alternative way of owning BBU Units rather than a separate and distinct investment; and

(b) the market price of the Exchangeable Shares will be significantly impacted by (i) the combined business performance of BBUC and BBU as a single economic unit, and (ii) the market price of the BBU Units, in a manner that should result in the market price of the Exchangeable Shares tracking the market price of the BBU Units.

34. BBUC is intended to be an entity through which persons who do not wish to hold BBU Units directly, may hold their interests in BBU, and BBU is the entity through which holders of Exchangeable Shares and BBU Units hold their interests in the collective operations of BBU and its subsidiaries, including BBUC and its subsidiaries.

Ownership and Control of BBUC

35. The Related Party Transaction Requirements do not apply to an issuer carrying out a related party transaction if:

(a) as provided under paragraph 5.1(d) of MI 61-101, the parties to the transaction consist solely of (i) an issuer and one or more of its wholly-owned subsidiary entities, or (ii) wholly-owned subsidiary entities of the same issuer. A person is considered to be a "wholly-owned subsidiary entity" of an issuer if the issuer owns, directly or indirectly, all of the voting and equity securities and securities convertible into voting and equity securities of the person; and/or

(b) as provided under paragraph 5.1(g) of MI 61-101 (the Downstream Transaction Carve-Out), the transaction is a downstream transaction for the issuer. A "downstream transaction" means, for an issuer, a transaction between the issuer and a related party of the issuer if, at the time the transaction is agreed to, (i) the issuer is a control person of the related party, and (ii) to the knowledge of the issuer after reasonable inquiry, no related party of the issuer, other than a wholly-owned subsidiary entity of the issuer, beneficially owns or exercises control or direction over, other than through its interest in the issuer, more than five per cent of any class of voting or equity securities of the related party that is a party to the transaction.

36. Section 1.3 of MI 61-101 provides that, for the purposes of MI 61-101, a transaction of a wholly-owned subsidiary entity of an issuer is deemed to be a transaction of the issuer.

37. Related party transactions among BBU and BBUC will be required for the operation of the Exchangeable Share Provisions and in connection with ordinary course financial support arrangements which may be entered into from time to time.

38. The only voting securities of BBUC are the Exchangeable Shares and the Class B Shares. Holders of Exchangeable Shares are entitled to one (1) vote per Exchangeable Share held and holders of Class B Shares are entitled to cast, in the aggregate, a number of votes equal to three (3) times the number of votes attached to the Exchangeable Shares.

39. Neither the Exchangeable Shares nor the Class B Shares carry a residual right to participate in the assets of BBUC upon liquidation or winding-up of BBUC, and accordingly, are not equity securities under the Legislation. The Class C Shares are the only equity securities of BBUC.

40. All of the Class B Shares and the Class C Shares will be indirectly owned by BBU and none of them will be transferable except to an affiliate of BBU. Accordingly, all of the equity securities of BBUC are held indirectly by BBU.

41. BBUC is not a wholly-owned subsidiary of BBU; BBU will not own, directly or indirectly, all of the voting securities of BBUC because Brookfield and members of the public will hold Exchangeable Shares. However, by virtue of the terms of the Class B Shares, BBU holds a 75% voting interest in BBUC, will control BBUC and the appointment and removal of directors of BBUC; the voting rights attached to the Exchangeable Shares do not allow holders of Exchangeable Shares to affect the control of BBUC. The voting right attached to each Exchangeable Share is expected to assist with index inclusion.

42. BBU is not able to rely on the Downstream Transaction Carve-Out because, upon completion of the Special Distribution, Brookfield will beneficially own or exercise control or direction over, more than five per cent of the Exchangeable Shares, as it will hold, directly or indirectly, approximately 64.5% of the Exchangeable Shares. Brookfield will accordingly have an approximate 16% voting interest in BBUC.

43. BBUC is a controlled subsidiary of BBU and BBU will consolidate BBUC and its businesses in BBU's financial statements.

44. By virtue of the Exchangeable Share Provisions, the economic rights of the holders of the Exchangeable Shares will not be affected by transactions between BBU and BBUC. BBU, as the sole holder of equity securities of BBUC, will receive any benefit and/or bear any detriment from related party transactions between BBU and BBUC.

45. Minority approval is required of every class of affected securities, being equity securities of the issuer. For BBUC, minority approval of a related party transaction of BBUC with BBU would be sought from the holders of its Class C Shares, all of which are held by BBU. BBU, as the counterparty to such a related party transaction, does not require the protections of MI 61-101.

Market Capitalization Calculation

46. It is anticipated that BBU will, from time to time, enter into transactions with certain related parties, including Brookfield and its affiliates (other than BBU and its related entities, including BBUC) indirectly through Holding LP and its subsidiaries (including BBUC and its subsidiaries).

47. The Valuation and Minority Approval Requirements require, subject to the availability of an exemption, that an issuer obtain: (a) a formal valuation of the transaction in a form satisfying the requirements of MI 61-101 by an independent valuator; and (b) approval of the transaction by disinterested holders of the affected securities of the issuer.

48. A related party transaction that is subject to MI 61-101 may be exempt from the Valuation and Minority Approval Requirements if, at the time the transaction is agreed to, neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction, exceeds 25% of the issuer's market capitalization (the Market Cap Exemption).

49. It is unclear whether BBU would be entitled to rely on the Market Cap Exemption available under the Legislation because the definition of market capitalization in the Legislation does not contemplate securities of another entity that are exchangeable into equity securities of the issuer.

50. The Exchangeable Shares represent part of the equity value of BBU and are functionally and economically equivalent to the BBU Units. As a result of the Exchangeable Share Provisions, holders of Exchangeable Shares have the ability to receive a BBU Unit or its cash equivalent (the form of payment to be determined at the election of BBUC) and will receive identical distributions to the BBU Units, as and when declared by the board of directors of BBUC. Moreover, the economic interests that underlie the Exchangeable Shares are identical to those underlying the BBU Units; namely, the assets and operations held directly or indirectly by BBU.

51. Any costs related to a transaction occurring within the BBUC group would be borne by BBU as the sole holder of the equity securities of BBUC. BBU will consolidate BBU and its businesses in its financial statements and the business of BBU (including BBUC and its subsidiaries) will be the same as it was before the creation of BBUC and the transactions conducted in connection with, and to facilitate, the Special Distribution.

52. If the Exchangeable Shares are not included in the market capitalization of BBU, the equity value of BBU will be understated initially by the value of the Exchangeable Shares, being approximately 33% (assuming a one-for-two distribution ratio). As a result, related party transactions of BBU that are entered into through a subsidiary entity of BBUC may be subject to the Valuation and Minority Approval Requirements in circumstances where the fair market value of the transactions are effectively less than 25% of the fully diluted market capitalization of BBU.

53. BBU has already received relief similar to the Transaction Size Relief in respect of the Redeemable Partnership Units. On June 20, 2016, the Ontario Securities Commission granted BBU an exemption from the Valuation and Minority Approval Requirements in connection with any related party transaction of BBU entered into indirectly through Holding LP or a subsidiary of Holding LP if that transaction would qualify for the Market Cap Exemption if the Redeemable Partnership Units were included in the calculation of BBU's market capitalization.

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 Initial Decision is revoked and the Exemption Sought is granted provided that:

1. in respect of the BBU Related Party Relief and BBUC Related Party Relief:

(a) all of the equity securities of BBUC are owned, directly or indirectly, by BBU;

(b) all of the voting securities of BBUC (other than the Exchangeable Shares) are owned, directly or indirectly, by BBU;

(c) there are no material changes to the Exchangeable Share Provisions, as described above; and

(d) BBU consolidates BBUC and its businesses in BBU's financial statements;

2. in respect of the Transaction Size Relief:

(a) the transaction would qualify for the Market Cap Exemption if the Exchangeable Shares were considered an outstanding class of equity securities of BBU that were convertible into BBU Units;

(b) there are no material changes to the Exchangeable Share Provisions, as described above; and

(c) any annual information form or equivalent of BBU that is required to be filed in accordance with applicable securities laws contain the following disclosure, with any immaterial modifications as the context may require:

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") provides a number of circumstances in which a transaction between an issuer and a related party may be subject to valuation and minority approval requirements. An exemption from such requirements is available when the fair market value of the transaction is not more than 25% of the market capitalization of the issuer. Brookfield Business Partners L.P. ("BBU") has been granted exemptive relief from the requirements of MI 61-101 that, subject to certain conditions, permits it to be exempt from the minority approval and valuation requirements for transactions that would have a value of less than 25% of BBU's market capitalization, if Brookfield Asset Management Inc.'s ("Brookfield") indirect equity interest in BBU, and the class A exchangeable subordinate voting shares of Brookfield Business Corporation ("BBUC") are included in the calculation of BBU's market capitalization. As a result, the 25% threshold, above which the minority approval and valuation requirements apply, is increased to include the approximately 48% indirect interest in BBU in the form of redeemable partnership units of Brookfield Business L.P. (assuming exchange of such redeemable partnership units) held by Brookfield and the approximately 33% indirect interest in BBU in the form of class A exchangeable subordinate voting shares of BBUC held by Brookfield and the public.

"David Mendicino"
Manager
Office of Mergers & Acquisitions
Ontario Securities Commission