National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- approval for indirect change of control of manager resulting from the acquisition of its US parent company by London Stock Exchange Group -- acquirer has requisite experience and integrity to participate in Canadian capital markets -- transaction will not result in any material changes to operations and management of the manager or the funds it manages.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(a.1), 5.7(1)(a), 19.1.
October 31, 2014
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 RUSSELL INVESTMENTS CANADA LIMITED (THE MANAGER)
The principal regulator in the Jurisdiction has received an application from the Manager for a decision under the securities legislation of the Jurisdiction (the Legislation) for approval pursuant to subsection 5.5(1)(a.1) of National Instrument 81-102 Investment Funds (NI 81-102) of an indirect change of control of the Manager (the Approval Sought).
Under National Policy 11-203 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 Manager has provided notice pursuant to section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) that the Approval Sought is intended to be relied upon in each province and territory of Canada.
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are otherwise defined in this decision.
The decision is based on the following facts represented by the Manager:
The Manager and the Funds
1. The Manager is a corporation incorporated under the Canada Business Corporations Act and has its head office in Toronto, Ontario.
2. The Manager is the manager of the investment funds listed in Schedule A hereto (the Funds).
3. The Manager is registered in each of the provinces and territories of Canada in the categories of investment fund manager, portfolio manager and exempt market dealer. The Manager also is registered in Ontario as a commodity trading manager and as a mutual fund dealer exempt from membership in the Mutual Fund Dealers Association of Canada. The Manager also is registered in Manitoba as an advisor (commodities).
4. Each Fund is a reporting issuer in all of the Jurisdictions and distributes, or has distributed, its securities to the public pursuant to disclosure documents filed under National Instrument 81-101 -- Mutual Fund Prospectus Disclosure.
5. Neither the Manager nor any Fund is in default of applicable securities legislation in any of the Jurisdictions.
6. The Manager is a direct, wholly-owned subsidiary of Frank Russell Company (Russell) which, in turn, is controlled by The Northwestern Mutual Life Insurance Company.
7. Russell is headquartered in Seattle, Washington, United States of America. Russell is a global asset manager and an index services provider. As of June 30, 2014, Russell had approximately $298 billion in assets under management of which approximately $12 billion constituted the aggregate net assets of the Funds.
8. London Stock Exchange Group plc (LSEG) proposes to acquire the entire issued share capital of Russell from The Northwestern Mutual Life Insurance Company and minority shareholders of Russell (the Proposed Transaction) for a total consideration of US$2,700 million, subject to customary adjustments. The final purchase price is contingent on a number of variables and will not be determined until after closing. LSEG US Sub, Inc. -- a wholly-owned subsidiary of LSEG US Holdco, Inc. newly formed for the purposes of the acquisition -- will acquire Russell by way of a statutory merger under Washington state law. At completion, LSEG US Sub, Inc. will merge with and into Russell, with Russell surviving the merger as an indirect wholly-owned subsidiary of LSEG (and LSEG US Sub, Inc. ceasing to exist as a separate corporate entity).
9. Of the US$2,700 million consideration to be paid by LSEG, approximately US$1,600 million will be financed from the net proceeds of a rights issue. The remaining approximately US$1,100 million will be financed by LSEG from existing bank debt facilities.
10. When the Proposed Transaction is completed, the Manager will remain a direct, wholly-owned subsidiary of Russell but will become an indirect, wholly-owned subsidiary of LSEG.
11. Notice of the indirect change of control that will result from the Proposed Transaction has been provided to all securityholders of the Funds in accordance with the requirements of section 5.8(1) of NI 81-102 and filed on SEDAR.
12. LSEG is a diversified international markets infrastructure and capital markets business. LSEG operates in four main business divisions: Capital Markets, Post Trade Services, Information Services and Technology Services.
13. LSEG's Capital Markets division comprises a broad range of international equity, bond and derivatives markets, including London Stock Exchange, Borsa Italiana, MTS (one of Europe's leading fixed income markets) and Turquoise, the pan-European multilateral trading facility.
14. LSEG operates CC&G, the Italian clearing house, and Monte Titoli, the European settlement business, selected as a first wave participant in TARGET2-Securities. LSEG is also the majority owner of LCH.Clearnet, which operates central counterparty clearing houses (CCPs) in the UK, France and the US.
15. LSEG offers its customers an extensive range of real-time and reference data products, including Sedol, UnaVista, Proquote and RNS. FTSE, LSEG's index business, calculates thousands of indices that measure and benchmark markets and asset classes in more than 80 countries around the world.
16. LSEG is also a leading developer of trading platforms and capital markets software. In addition to LSEG's own markets, over 40 other organisations and exchanges around the world use LSEG's MillenniumIT trading, surveillance and post trade technology.
17. Headquartered in London, with significant operations in Italy, France, North America and Sri Lanka, LSEG employs approximately 2,800 people. LSEG's shares are admitted to the premium segment of the Official List and to trading on the London Stock Exchange. LSEG is a member of the FTSE 100 index and had a market capitalisation of approximately £5,466 million as at the close of business on August 21, 2014. Borse Dubai and the Qatar Investment Authority are significant shareholders of LSEG, each holding 17.4% and 10.3% respectively of LSEG's issued share capital.
18. For the year ended March 31, 2014, LSEG's adjusted total income was £1,213.1 million and total revenue was £1,088.3 million (including eleven months' contribution from LCH.Clearnet); its adjusted operating profit was £514.7 million and operating profit was £353.1 million.
19. Neither LSEG nor any of its affiliates:
(a) currently manages any investment funds in Canada; or
(b) is registered as an adviser, dealer or investment fund manager in Canada.
Impact of the Proposed Transaction
20. As LSEG does not currently manage any investment funds in Canada, the Manager anticipates that there will be no duplication of Canadian personnel, systems, products or services resulting from the Proposed Transaction which will require rationalization. Accordingly, completion of the Proposed Transaction is not expected to result in any material changes to the business or operations of any Fund or the Manager. In particular:
(a) there is no current intention to:
(i) change any of the directors, officers, advising representatives or associate advising representatives of the Manager;
(ii) change how the Manager operates or administers the Funds or to change the fees or expenses that are charged to the Funds;
(iii) implement any mergers involving the Funds nor rename any Fund; or
(iv) merge the Manager with another entity or change the manager of the Funds to another investment fund manager; and
(b) the Manager will re-appoint the current members of the independent review committee (IRC) of the Funds in order that the Proposed Transaction will not result in any change to the composition of the IRC.
No current directors, officers or employees of LSEG or its affiliates are expected to become involved in the day-to-day management of the Funds following completion of the Proposed Transaction.
21. The activities of a number of members of LSEG's group are regulated in the United Kingdom and various other jurisdictions. LSEG is a public company with securities admitted to the Official List of the UK Listing Authority and to trading on the London Stock Exchange. Certain other members of LSEG's group are subject to regulation in various jurisdictions. These regulations are, among other things, designed to ensure that the persons and companies involved in the management of the activities of LSEG and its services possess the requisite integrity and experience.
22. The aggregate net assets of the Funds constituted approximately four percent of the global assets under management of Russell as of June 30, 2014. Accordingly, Russell's Canadian business managed by the Manager is not the primary asset being acquired by LSEG through the Proposed Transaction.
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 Approval Sought is granted.
Russell LifePoints Fixed Income Portfolio
Russell LifePoints Conservative Income Portfolio
Russell LifePoints Balanced Income Portfolio
Russell LifePoints Balanced Portfolio
Russell LifePoints Balanced Growth Portfolio
Russell LifePoints Long-Term Growth Portfolio
Russell LifePoints All Equity Portfolio
Russell LifePoints Fixed Income Class Portfolio
Russell LifePoints Conservative Income Class Portfolio
Russell LifePoints Balanced Income Class Portfolio
Russell LifePoints Balanced Class Portfolio
Russell LifePoints Balanced Growth Class Portfolio
Russell LifePoints Long-Term Growth Class Portfolio
Russell LifePoints All Equity Class Portfolio
Russell Canadian Cash Fund
Russell Canadian Fixed Income Fund
Russell Inflation Linked Bond Fund
Russell Canadian Equity Fund
Russell US Equity Fund
Russell Overseas Equity Fund
Russell Global Equity Fund
Russell Short Term Income Pool
Russell Fixed Income Pool
Russell Global Unconstrained Bond Pool
Russell Global High Income Bond Pool
Russell Canadian Dividend Pool
Russell Focused Canadian Equity Pool
Russell Canadian Equity Pool
Russell Smaller Companies Pool
Russell Focused US Equity Pool
Russell US Equity Pool
Russell Overseas Equity Pool
Russell Focused Global Equity Pool
Russell Global Equity Pool
Russell Emerging Markets Equity Pool
Russell Global Infrastructure Pool
Russell Global Real Estate Pool
Russell Money Market Pool
Russell Income Essentials Portfolio
Russell Real Assets Portfolio
Russell Diversified Monthly Income Portfolio
Russell Multi-Asset Growth & Income
Russell Short Term Income Class
Russell Fixed Income Class
Russell Global Unconstrained Bond Class
Russell Global High Income Bond Class
Russell Canadian Dividend Class
Russell Focused Canadian Equity Class
Russell Canadian Equity Class
Russell Smaller Companies Class
Russell Focused US Equity Class
Russell US Equity Class
Russell Overseas Equity Class
Russell Focused Global Equity Class
Russell Global Equity Class
Russell Emerging Markets Equity Class
Russell Money Market Class
Russell Income Essentials Class Portfolio
Russell Diversified Monthly Income Class Portfolio
Russell Multi-Asset Growth & Income Class