Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Take-over Bids -- Exemption from the proportionate take-up requirements in section 97.2(1) of the Securities Act (Ontario) -- Exemption from the extension take-up requirements in section 98.3(4) of the Securities Act (Ontario) -- Dutch auction -- An issuer conducting an issuer bid under a modified Dutch auction procedure requires relief from the requirements for proportionate take up, and to take up and pay for securities if all terms and conditions are met and the issuer bid is under-subscribed. The issuer is disclosing the maximum dollar amount of shares it will acquire under the bid, and the minimum and maximum amount it will pay for shares tendered; as a result, the potential for confusion is minimal -- The issuer will comply with the U.S. regime in connection with the Offer.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 97.2(1), 98.3(4) and 104(2)(c).
OSC Rule 62-504, s. 4.2(2).
August 3, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
GENWORTH MI CANADA INC.
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that, in connection with the proposed purchase by the Filer of a portion of its outstanding common shares (the Shares) pursuant to an issuer bid (the Offer), the Filer be exempt from the following requirements in the Legislation (the Exemption Sought):
(a) to take up and pay for securities deposited pursuant to the Offer proportionately according to the number of securities deposited by each depositing security holder;
(b) to provide disclosure of the proportionate take-up and payment in the issuer bid circular (the Circular); and
(c) to not extend the Offer if all the terms and conditions of the Offer have been complied with or waived unless the Filer first takes up all Shares deposited and not withdrawn under the Offer.
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 British Columbia, Alberta, Manitoba, Saskatchewan, Québec, Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, the Northwest Territories, Nunavut and the Yukon.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer(s):
1. The Filer is a corporation existing under the Canada Business Corporations Act and a reporting issuer in each of the Jurisdictions. The Filer is not on the list of defaulting reporting issuers maintained by the Securities Regulator in each of the Jurisdictions that maintains such a list.
2. The authorized share capital of the Filer consists of an unlimited number of common shares (Shares), an unlimited number of preferred shares (Preferred Shares) and one special share. As of June 30, 2010, 117,100,000 Shares, no Preferred Shares and one special share were issued and outstanding.
3. Brookfield Life Assurance Company Limited (Brookfield) is the beneficial owner of 67,325,900 Shares (representing approximately 57.5% of the outstanding Shares) and one special share.
4. The Shares are listed on the Toronto Stock Exchange (TSX) under the symbol "MIC".
5. On July 13, 2010, the closing price of the Shares on the TSX was C$23.10 and on such date the Shares had an aggregate market value of approximately C$2,705,010,000, based on such closing price. Based on such closing price, the Shares, excluding the Shares held by Brookfield, had an aggregate market value of approximately C$1,149,781,710.
6. The Filer made the Offer on July 19, 2010 by way of a modified Dutch auction procedure as follows:
a. the Circular specifies the maximum aggregate purchase price of Shares which the Filer will purchase under the Offer (the Specified Dollar Amount);
b. the Circular specifies the range of prices within which the Filer is prepared to purchase the Shares (the Price Range);
c. the Filer will fund the purchase of Shares pursuant to the Offer, together with the fees and expenses of the Offer, from available cash on hand;
d. each holder of Shares (collectively, the Shareholders) wishing to tender to the Offer has the right either to:
i. specify the lowest price within the Price Range (an Auction Price) at which that Shareholder is willing to sell its tendered Shares (an Auction Tender), or
ii. elect to tender a number of shares that will allow them to retain the Shareholder's proportionate interest in the Filer following the completion of the Offer (a Proportionate Tender);
e. Shareholders may make multiple Auction Tenders but not in respect of the same Shares (i.e. shareholders may tender different Shares at different prices but cannot tender the same Shares at different prices); Shareholders who make a Proportionate Tender must tender all Shares beneficially owned by them to the Offer; Shareholders who make an Auction Tender may not make a Proportionate Tender; Shareholders who make a Proportionate Tender may not make an Auction Tender;
f. any Shareholder who owns fewer than 100 Shares and tenders all of such Shareholder's Shares pursuant to an Auction Tender at or below the Purchase Price will be considered to have made an "Odd-Lot Tender";
g. the Filer will determine the purchase price payable per Share (the Purchase Price) based on the Auction Prices and the number of Shares specified in valid Auction Tenders; the Purchase Price will be the lowest price that enables the Filer to purchase that number of Shares tendered pursuant to valid Auction Tenders having an aggregate purchase price not to exceed an amount (the Auction Tender Limit Amount) equal to (i) the Specified Dollar Amount less (ii) the product of (A) the Specified Dollar Amount and (B) a fraction, the numerator of which is the aggregate number of Shares owned by shareholders making valid Proportionate Tenders, and the denominator of which is the aggregate number of Shares outstanding at the time of the expiry of the Offer;
h. if the aggregate purchase price for Shares validly tendered pursuant to Auction Tenders at Auction Prices at or below the Purchase Price is less than or equal to the Auction Tender Limit Amount, the Filer will purchase all Shares so deposited pursuant to Auction Tenders.
i. if the aggregate purchase price for Shares validly tendered pursuant to Auction Tenders at Auction Prices at or below the Purchase Price is greater than the Auction Tender Limit Amount, the Filer will purchase a portion of the Shares so deposited pursuant to Auction Tenders, determined as follows: (i) the Filer will purchase all such Shares tendered by Shareholders pursuant to Odd-Lot Tenders; and (ii) the Filer will purchase on a pro rata basis that portion of such Shares having an aggregate purchase price equal to (A) the Auction Tender Limit Amount, less (B) the aggregate amount paid by the Filer for Shares tendered pursuant to Odd-Lot Tenders;
j. the Filer will purchase at the Purchase Price that portion of the Shares owned by Shareholders making valid Proportionate Tenders that results in the tendering Shareholders maintaining their proportionate Share ownership following completion of the Offer;
k. the number of Shares that the Filer will purchase pursuant to the Offer and the aggregate purchase price will vary depending on whether the aggregate purchase price payable in respect of Shares required to be purchased pursuant to Auction Tenders (the Auction Tender Purchase Amount) is equal to or less than the Auction Tender Limit Amount. If the Auction Tender Purchase Amount is equal to the Auction Tender Limit Amount, the Filer will purchase Shares for an aggregate purchase price equal to the Specified Dollar Amount; if the Auction Tender Purchase Amount is less than the Auction Tender Limit Amount, the Filer will purchase proportionately fewer Shares, with a proportionately lower aggregate purchase price;
l. all Shares purchased by the Filer pursuant to the Offer (including Shares tendered at Auction Prices below the Purchase Price) will be purchased at the Purchase Price. Shareholders will receive the Purchase Price in cash; all Auction Tenders and Proportionate Tenders will be subject to adjustment to avoid the purchase of fractional Shares; all payments to Shareholders will be subject to deduction of applicable withholding taxes; and
m. all Shares tendered at prices above the Purchase Price or otherwise invalidly tendered will be returned to the appropriate Shareholders.
7. The Offer is subject to Regulation 14E (Regulation 14E) promulgated under the United States Securities Exchange Act of 1934, as amended. A majority of the Filer's Shares are beneficially held by residents of the United States, including those held indirectly through Brookfield by Genworth Financial Inc.
8. Brookfield (which beneficially owns approximately 57.5% of the outstanding Shares) has advised the Filer that it intends to make a Proportionate Tender.
9. Until expiry of the Offer, all information about the number of Shares tendered and the prices at which the Shares are tendered will be required to be kept confidential by the depositary and the Filer until the Purchase Price has been determined.
10. Shareholders who do not accept the Offer will continue to hold the number of Shares owned before the Offer and their proportionate Share ownership will increase following completion of the Offer.
11. The Filer may elect to extend the bid in circumstances where the Offer is undersubscribed. Under the Legislation, an issuer may not extend an issuer bid if all the terms and conditions of the issuer bid have been complied with or waived unless the issuer first takes up all the securities deposited and not withdrawn under the issuer bid (the Extension Take Up Requirement). Regulation 14E requires an issuer to pay for all equity securities deposited under an issuer bid promptly following the expiry of the bid and, subject to an exception not available in the circumstances described herein, does not permit the bid to be extended after the initial take up of and payment for the securities.
12. The Filer intends to rely on the exemption from the formal valuation requirements applicable to issuer bids under Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) set out in subsection 3.4(b) of MI 61-101 (the Liquid Market Exemption).
13. There is a "liquid market" for the Shares, as such term is defined in MI 61-101, because:
a. there is a published market for the Shares (TSX);
b. during the 12 months before announcement of the issuer bid:
i. the number of outstanding Shares was at all times at least 5,000,000 (excluding Shares beneficially owned, or over which control and direction was exercised, by related parties and securities that were not freely tradeable);
ii. the aggregate trading volume of Shares on TSX was at least 1,000,000 Shares;
iii. there were at least 1,000 trades in the Shares on TSX; and
iv. the aggregate value of the trades in the Shares on TSX was at least C$15,000,000; and
c. the market value of the Shares on TSX, as determined in accordance with MI 61-101, was at least C$75,000,000 for June 2010;
14. Based on the facts set forth in paragraph 13 and the maximum number of Shares that may be purchased under the Offer, assuming an aggregate purchase price equal to the Specified Dollar Amount, the Filer has determined that there is a liquid market for the Shares and that it is reasonable to conclude that, following the completion of the Offer, there will be a market for holders of Shares who do not tender to the Offer that is not materially less liquid than the market that existed at the time the Offer was announced.
15. The Circular:
a. discloses the mechanics for the take-up of and payment for Shares as described in paragraph 6 above;
b. explains that, by tendering Shares at the lowest price in the Price Range under an Auction Tender or by tendering Shares under a Proportionate Tender, a Shareholder can reasonably expect that the Shares so tendered will be purchased at the Purchase Price, subject to proration and other terms of the Offer as specified in paragraph 6 above;
c. discloses that the Filer has filed for an exemption from the Extension Take Up Requirement;
d. discloses that Brookfield has advised that it intends to make a Proportionate Tender;
e. discloses the facts supporting the Filer's reliance on the Liquid Market Exemption; and
f. except to the extent exemptive relief is granted pursuant to this Decision, contains the disclosure prescribed by the Legislation for issuer bids.
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:
a. Shares deposited under the Offer and not withdrawn are taken up and paid for, or dealt with, in the manner described in paragraph 6 above;
b. the Filer is eligible to rely on the Liquid Market Exemption and complies with the representations in paragraph 13 above; and
c. the Filer complies with the requirements of Regulation 14E in respect of the conduct of the Offer.