Northern Telephone Company Limited & Bell Canada. - s. 147

le 5 avril 2001

Ruling

IN THE MATTER OF

ONTARIO SECURITIES COMMISSION

RULE 61-501

AND

IN THE MATTER OF
NORTHERN TELEPHONE COMPANY LIMITED AND BELL CANADA

Rule 61-501

(section 9.1)

UPON the application (the "Application") of Northern Telephone Company Limited (the "Applicant") to the Director for a decision pursuant to section 9.1 of Ontario Securities Commission Rule 61-501 ("Rule 61-501") that, in connection with the proposed redemption by the Applicant of all of the common shares in the share capital of the Applicant not held directly or indirectly by Bell Canada (the "Transaction"), the Applicant be exempt from the requirement to obtain a formal valuation for the Transaction under section 4.4 of Rule 61-501 (the "Valuation Requirement");

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Applicant and Bell Canada having represented to the Director as follows:

1. The Applicant is incorporated pursuant to the Business Corporations Act (Ontario) (the "OBCA") and is a reporting issuer in the Provinces of Ontario and Quebec.

2. The Applicant's share capital is comprised of common shares (the "Common Shares") and preferred shares (the "Preferred Shares"). The Common Shares were listed and traded on the Canadian unlisted market until October 2000.

3. There are currently several series of redeemable Preferred Shares issued and outstanding. The Applicant intends to redeem the Preferred Shares prior to the completion of the Transaction in accordance with their terms.

4. As of January 17, 2001, there are 3,776,141 Common Shares outstanding, of which 3,773,332, or 99.92%, are held by 3588378 Canada Inc. ("Holdco"), a numbered company incorporated under the Canada Business Corporations Act with its head office situated in the Province of Quebec. Bell Canada owns all the outstanding shares of Holdco. The remaining 2,809 Common Shares, or 0.08% of the outstanding Common Shares, are publicly held securities owned by persons other than Bell Canada (the "Public Shareholders"). Forty-six residents of Ontario hold approximately 1,689, or 0.045%, of all the outstanding Common Shares.

5. Between 1995 and 2000, there were eleven trades of the Common Shares on the Canadian unlisted market. For the last two years during which the Common Shares were publicly traded, there is no trading history available for the Common Shares.

6. It is the Applicant's and Bell Canada's intention to consolidate the ownership of the Common Shares pursuant to the Transaction, such that there will no longer be any public ownership of the Common Shares. As a result, the Transaction is a "going private transaction" within the meaning of Rule 61-501.

7. Prior to the implementation of the Transaction, Bell Canada will incorporate a numbered corporation under the OBCA ("Newco"). Bell Canada will transfer the Common Shares it holds through Holdco to Newco (the "Rollover"). The Rollover is a technical prerequisite to the completion of the Transaction intended to permit an amalgamation under the OBCA between two corporations, each of which is governed by the OBCA.

8. The Transaction will occur as follows:

(a) the Applicant will convene a special meeting (the "Special Meeting") of the holders of the Common Shares (the "Northern Shareholders") and put before them a resolution to amalgamate the Applicant with Newco to form a new entity ("Amalco"). The creation of Amalco will require the adoption of a special resolution, namely a two-thirds majority approval by Northern Shareholders. Bell Canada has indicated its intention to vote the Common Shares held by Holdco in favour of the special resolution authorizing the creation of Amalco;

(b) upon the amalgamation being effected, all of the outstanding shares of Newco will be exchanged for common shares of Amalco and all of the Common Shares held by Newco will be cancelled;

(c) upon the amalgamation being effected, the Common Shares held by the Public Shareholders will be exchanged on a share for share basis for redeemable preferred shares of Amalco (the "Redeemable Amalco Shares"); and

(d) all Redeemable Amalco Shares will be redeemed for cash immediately after the amalgamation at a redemption price equal to the value of the Common Shares as determined by the valuation process referred to in paragraphs 10 and 11 below.

9. As Bell Canada owns 99.92% of the Common Shares, the Applicant and Bell Canada are, pursuant to section 4.8 of Rule 61-501, exempt from the minority approval requirement set out in section 4.7 of Rule 61-501.

10. The value of the Common Shares will be determined on the basis of a two-part valuation (the "Valuation") performed by Deloitte & Touche Inc. ("Deloitte"), the Applicant's current auditor. Deloitte is not an "independent valuator" within the meaning of Rule 61-501.

11. Based upon a preliminary valuation of the Common Shares, Deloitte has determined that the approximate value of the Common Shares is between $15.00 and $20.00 per Common Share (the "Valuation Range"). Upon completion of a final valuation of the Common Shares by Deloitte, the Applicant will determine a specific redemption price per Common Share within the Valuation Range.

12. On February 21, 2001, the Applicant established a special committee of independent directors to consider the Valuation Range and make recommendations to the Applicant's board of directors on or about April 6, 2001 in respect of the redemption price for the Common Shares.

13. The Applicant will include in the information circular to be provided to the Northern Shareholders in connection with the Special Meeting:

(a) a description of the relationship between Deloitte and the Applicant or any interested party;

(b) a description of the compensation paid or to be paid to Deloitte;

(c) a summary of the Valuation that provides sufficient detail to allow the Northern Shareholders to understand the principal judgments and principal underlying reasoning of Deloitte so as to form a reasoned judgment of the valuation opinion or conclusion;

(d) the valuation date;

(e) an address where a copy of the Valuation is available for inspection; and

(f) a statement to the effect that a copy of the Valuation will be sent to any Northern Shareholder upon request and without charge.

14. In the event that the Applicant had to comply with the Valuation Requirement, the preparation of a formal valuation would cost approximately $50,000. The cost of preparing the Valuation is approximately $30,000.

15. Based on a redemption price of $17.50 per Common Share (the midpoint of the Valuation Range) and the fact that there are currently 2,809 Common Shares held by the Public Shareholders, the estimated cost of the redemption of the Redeemable Amalco Shares will be $49,157.50 (i.e. 2,809 x $17.50 = $49,157.50). Based on a redemption price of $20.00 per Common Share (the upper end of the Valuation Range), the estimated cost of the redemption of the Redeemable Amalco Shares will be $56,180.

AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;

IT IS DECIDED pursuant to section 9.1 of Rule 61-501 that, in connection with the Transaction, the Applicant shall be exempt from the Valuation Requirement, provided that the Applicant complies with the other applicable provisions of Rule 61-501.

April 5, 2001.

Ralph Shay