National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- approval for change of control of manager under s. 5.5(2) of NI 81-102 and abridgment of securityholder notice period to 30 days -- Filers have no current plan to change the manager of the Fund, or to amalgamate or merge the current manager with any other entity, for the foreseeable future.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(a.1), 5.7(1)(a), 5.8(1) and 19.1.
January 30, 2015
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 LINCLUDEN INVESTMENT MANAGEMENT LIMITED (the Manager or LIML)
The principal regulator in the Jurisdiction has received an application from the Manager and Morguard Corporation (Morguard, and together with the Manager, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for approval with respect to a proposed change of control of the Manager pursuant to section 5.5(1)(a.1) of National Instrument 81-102 Investment Funds (NI 81-102) (the Approval Sought) and an abridgement to not less than 30 days of the time period prescribed by section 5.8(1)(a) of NI 81-102 for delivering notice to unitholders of Lincluden Balanced Fund (the Fund) of the change of control of the Manager resulting from the Proposed Transaction (as defined below) (the Abridgement Relief).
Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission (the OSC) is the principal regulator for this application; and
(b) the Manager has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be replied upon in each province and territory of Canada (the Jurisdictions).
Defined terms contained in NI 81-102, National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are otherwise defined herein.
The decision is based on the following facts represented by the Filers:
Morguard and MFC
1. Morguard, a corporation existing under the Canada Business Corporations Act (the CBCA) with its head office in Toronto, Ontario, is a real estate investment company whose principal activities include the acquisition and ownership of commercial, hotel and multi-unit residential real estate properties.
2. Morguard is a reporting issuer in all of the provinces and territories of Canada and its shares are listed and posted for trading on the Toronto Stock Exchange under the symbol "MRC".
3. Morguard owns 100% of Morguard Investments Limited (MIL), which in turn owns 100% of Morguard Financial Corp. (MFC).
4. MFC, a corporation existing under the Business Corporations Act (Ontario) (the OBCA) with its head office in Toronto, Ontario, is a wealth management company focused primarily on providing portfolio management services specializing in real estate equities and income producing investments.
5. MFC is registered as (i) an investment fund manager (IFM) in Ontario and Québec; (ii) adviser in the category of portfolio manager (PM) in Ontario and British Columbia; and (iii) a dealer in the category of exempt market dealer (EMD) in all of the provinces except Newfoundland and Labrador.
6. Neither Morguard nor any of its affiliates currently has any intention to operate a family of public mutual funds.
LIML and LMFD
7. LIML, a corporation existing under the CBCA with its head office in Oakville, Ontario, is an employee owned firm which provides discretionary investment management for institutional and private clients.
8. LIML is registered as (i) an IFM in Ontario; (ii) an adviser in the category of PM in all of the provinces and territories of Canada; and (iii) a dealer in the category of EMD in Ontario, Alberta and Saskatchewan.
9. The issued and outstanding capital of LIML currently consists of an aggregate of 911 Class A common shares and 99,189 Class B common shares (collectively, the LIML Shares).
10. Lincluden Mutual Fund Dealer Inc. (LMFD), a corporation existing under the OBCA with its head office in Oakville, Ontario, which is a wholly owned subsidiary of LIML, is registered as a mutual fund dealer in Ontario and is a member of the Mutual Fund Dealers Association of Canada, and focuses primarily on the distribution of units of the Fund where there is no other registered broker or dealer involved in the sale.
11. LIML is the manager, trustee and portfolio manager of the Fund, an open-ended public mutual fund established as a trust under the laws of the Province of Ontario.
12. The Fund is a reporting issuer in each of the provinces and territories of Canada.
13. Units of the Fund are distributed in each of the provinces and territories of Canada under a simplified prospectus, an annual information form and fund fact documents, which are all dated May 16, 2014.
14. None of Morguard, MIL, MFC, LIML, LMFD or the Fund is in default of any securities legislation in any of the Jurisdictions.
The Proposed Transaction
15. Morguard entered into a share purchase agreement dated as of December 17, 2014 with all of the holders of the issued and outstanding LIML Shares (the Selling Shareholders) to purchase directly from the Selling Shareholders an aggregate of 546.6 Class A common shares and 59,513.4 Class B common shares of LIML representing approximately 60% of the issued and outstanding LIML Shares for consideration comprising of cash and common shares in the capital of Morguard (the Morguard Shares) (the Proposed Transaction).
16. It is anticipated that the Proposed Transaction will be accomplished through a series of events (as more particularly described below) which will be completed in their entirety on or about January 31, 2015 (the Closing Date), provided that, among other things, all necessary regulatory notices, non-objections, and approvals have been given and received. If completed as contemplated, following the Closing Date, Morguard will be, directly or indirectly, the new majority beneficial owner of LIML and LMFD.
17. A notice of the Proposed Transaction has been delivered to the Compliance & Registrant Regulation branch of the principal regulator pursuant to section 11.9 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103).
18. The Transaction will involve, among other things, the following series of events that are intended to be completed on a sequential basis:
(a) the Selling Shareholders will transfer 40% of their respective LIML Shares to a newly formed corporation (Vendor Holdco) in consideration of the issuance from its treasury of shares in the capital of Vendor Holdco such that Vendor Holdco will be wholly-owned by the Selling Shareholders, except for one Class A common share issued to MIL;
(b) after the completion of the event in (a), Morguard will purchase directly, for consideration comprising of cash and Morguard Shares, all of the remaining issued and outstanding LIML Shares held by the Selling Shareholders (which will represent approximately 60% of the issued and outstanding LIML Shares) and which will result in the direct acquisition by Morguard of approximately 60% of the issued and outstanding LIML Shares; and
(c) after the completion of the events in (a) and (b), Morguard will transfer the LIML Shares acquired from the Selling Shareholders to MIL in consideration of the issuance from its treasury of shares in the capital of MIL to Morguard.
Change of Control of Manager
19. As the share ownership of the Manager will change such that after the Closing Date, MIL will own 60% of the issued and outstanding LIML Shares and Morguard will indirectly own 60% of the Manager, the Proposed Transaction will result in a change of control of the Manager and accordingly regulatory approval is required pursuant to section 5.5(1)(a.1) of NI 81-102.
Impact on the Manager and the Fund
20. Completion of the Proposed Transaction is not expected to result in any material changes to, or impact on, the business, operations or affairs of the Fund, the unitholders of the Fund or the Manager.
21. The Manager will continue to act as the investment fund manager of the Fund as a discrete, separate and distinct legal entity in materially the same manner as it has conducted such activities immediately prior to the Closing Date.
22. There are no plans to change the role of the Manager as manager of the Fund or the structure of the Fund. The Manager will operate autonomously with the existing senior management team. There are no immediate plans to make staffing changes or changes to the Manager's business model.
23. There is no current intention to: (i) change the name of the Manager or the name of the Fund as a result of the Proposed Transaction; (ii) change the officers or registered individuals of the Manager; (iii) make any substantive changes as to how the Manager operates or manages the Fund; (iv) change the portfolio managers of the Fund; or (v) immediately following the Proposed Transaction, or within a foreseeable period of time, change the Manager to another investment fund manager. The only change that is contemplated is that Morguard will elect three of the five directors of the Manager after the Proposed Transaction closes.
24. There is no current intention to merge or integrate the business operations of LIML or LMFD into Morguard or MIL. With respect to MFC, it is expected that the assets of MFC, with client consent, will be transferred to LIML by on or about December 31, 2015 and that the employees of MFC will become employees of LIML on or about the same time.
25. No current directors, officers or employees of Morguard or its affiliates are expected to become involved in the day-to-day management of the Fund following completion of the Proposed Transaction.
26. It is not expected that there will be any change to the fund accounting and other administrative functions undertaken by the current providers to the Manager or the Fund, both internal and external.
27. It is not expected that there will be any change to the custodian or trustee of the Fund.
28. The members of the Independent Review Committee (IRC) of the Fund will cease to be IRC members by operation of section 3.10(1)(c) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107). Immediately following the completion of the Proposed Transaction, the same members of the IRC will be re-appointed by the Manager.
29. To the extent that any related party issues arise following the Proposed Transaction, in particular if, in the future, the Manager wishes to appoint a portfolio manager or subadviser for the Fund that is an affiliate, the Manager will establish written policies and procedures to address the conflict of interest matter and will refer such policies and procedures to the IRC for its review and input, in accordance with its obligations under NI 81-107.
30. The Proposed Transaction is not expected to impact the financial stability of the Manager or its ability to fulfill its regulatory obligations.
31. Written notice (the Notice) regarding the Proposed Transaction was sent to each unitholder of the Fund on or before December 31, 2014, which, if the Closing Date occurs on January 31, 2015, means that unitholders of the Fund will have received the Notice approximately 30 days before the Closing Date of the Proposed Transaction.
32. While the Proposed Transaction is pending, but not closed, there is uncertainty among clients and others regarding LIML. To preserve the business and relationships of LIML it is strongly preferred to close the transaction promptly and minimize this period of uncertainty.
33. Completion of the Proposed Transaction will give rise to a deemed tax year end of LIML for income tax purposes and accounting for this will be simplified if the Proposed Transaction is completed on January 31, 2015.
34. It is the Filers' view that it would not be prejudicial to the unitholders of the Fund to abridge the notice period required under s. 5.8(1)(a) of NI 81-102 from 60 days to not less than 30 days for the following reasons:
(a) the unitholders of the Fund will be sufficiently aware of the Proposed Transaction;
(b) the Proposed Transaction is not expected to result in any change in how the Manager administers or manages the Fund;
(c) the Proposed Transaction will not have any impact on the unitholders' interest in the Fund and unitholders are not required to take any action; unitholders need only consider whether they wish to exit the Fund. The change of control of the Manager, by itself, will not trigger any other material change to the Fund;
(d) the Fund calculates and publishes its net asset value per unit on a daily basis and permits redemptions of units of the Fund on a daily basis allowing unitholders of the Fund to redeem their units prior to the Closing Date.
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:
(a) the Approval Sought is granted; and
(b) the Abridgement Relief is granted provided that
(i) the Notice is given to unitholders of the Fund at least 30 days before the Closing Date, and
(ii) no material changes will be made to the management, operations or portfolio management of the Fund for at least 60 days following the date the Notice was delivered.