Recently, the Ontario Securities Commission (“OSC”) released its reasons for a September order dismissing an application for exemptive relief from the minimum tender requirement under Canada’s securities take-over bid regime. ESW Capital, LLC (“ESW”), the largest shareholder of Optiva Inc. (“Optiva”), sought the relief in connection with a contested proposed take-over bid involving shares of Optiva (“Voting Shares”). The application is the first instance in which a Canadian securities regulator has been asked to grant exemptive relief from the minimum tender requirement. The OSC concluded that “there were no exceptional circumstances or abusive or improper conduct that undermined minority shareholder choice to warrant intervention…[and that] predictability is an important aspect of take-over bid regulation and [OSC] must be cautious in granting exemptive relief that alters the recently recalibrated bid regime”.
Optiva, a provider of telecommunications customer support software, had three control block shareholders: ESW, holding approximately 28% of Voting Shares; Maple Rock Capital Partners Inc. (“Maple Rock”); and EdgePoint Investment Group Inc. (“EdgePoint”). The latter two collectively held approximately 40.5% of the Voting Shares. The three control block shareholders had a history of disagreement over the strategic direction and governance of Optiva dating back to 2019.
In the summer, ESW announced its intention to proceed with all-cash offer to acquire all Voting Shares at $60 per share, a significant premium to the prevailing market price (the “Proposed Offer”). The Proposed Offer was conditional upon, among other things, exemptive relief from the mandatory minimum tender requirement under Ontario securities law. Following amendments to Canada’s bid regime in 2016, at least 50% of the securities subject to a bid (excluding those beneficially owned by the bidder and its joint actors) must be tendered to the bid before the bidder can take-up securities. As both Maple Rock and EdgePoint announced their intention not to tender to the Proposed Offer, the Proposed Offer was doomed to fail without ESW obtaining relief since Maple Rock and Edgepoint together held more than 50% of the securities subject to the proposed bid excluding those held by ESW.
Under the Securities Act, the OSC may grant exemptive relief from the minimum tender requirement if satisfied it would not be prejudicial to the public interest. In its reasons, the OSC assessed a number of factors through the lens of the underlying policy rationale of the amended take-over bid regime, including the nature and circumstance of the bid; the control dynamics of the target; the impact of a grant or denial of exemptive relief on shareholders; and the conduct of the target, bidder and control block holders.
The OSC describes the minimum tender requirement as part of “a material recalibration of bid dynamics” designed to facilitate collective shareholder decision-making. In order to maintain the recalibrated dynamics and ensure a clear and predictable framework, the OSC notes that the public interest discretion should only be exercised in exceptional circumstances or where there is clear improper or abusive conduct that undermines minority shareholder choice.
Though acknowledging that a potential consequence of the minimum tender requirement is enhanced leverage for control block holders, which may result in bids not being made at all or shareholders being deprived of the ability to respond to a bid, the OSC found no circumstances or conduct on the part of Maple Rock, EdgePoint or Optiva that warranted intervention. Because the control dynamics pre-dated the Proposed Offer, the OSC notes that it would have been apparent to Optiva’s remaining minority shareholders that the support of at least two of the control block shareholders would be necessary for a potential bid to succeed. The OSC also notes that, absent abuse, shareholders may engage in co-ordinated efforts to obtain additional control and influence, in order to pursue their own financial interests. In considering the shareholders rights plan, the OSC notes that it was approved by a majority of shareholders after the Proposed Offer and that adopting a tactical shareholders rights plan often provides protection to minority shareholders.
Though the take-over premium was substantial, the OSC ultimately held that, in the context of this application, preserving the minimum tender requirement protects against the potential for coercion of the minority shareholders and allows for potentially superior offers. The decision underscores the role of predictability of take-over bid regulation and the OSC’s commitment to the amended bid regime’s core objective of facilitating shareholder choice.
 ESW Capital, LLC (Re), 2021 ONSEC 7.
 NI 62-104 Take-Over Bids and Issuer Bids, s 2.29.19(c).