Dual application – Issuer bid – Modified Dutch auction – Application for relief from the requirement to take up and pay for shares on a pro rata basis and the related disclosure requirements for the issuer bid circular (section 2.26 of NI62-104 and item 8 of Form 62-104F2) – Application for relief from the requirement to take up all securities deposited under the issuer bid and not withdrawn if all the terms and conditions of the Offer have been complied with or waived unless and the Offer is under subscribed (section 2.32 of NI62-104).
Applicable Legislative Provisions
Regulation 61-101 respecting Protection of Minority Security Holders in Special Transactions, s. 3.4.
Regulation 62-104 respecting Take-Over Bids and Issuer Bids, ss. 2.26, 2.32, 6.1.
Form 62-104F2, Item 8.
July 13, 2017
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
The securities regulatory authority or regulator responsible in each of the Jurisdictions (the “Decision Makers”) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the “Legislation”) granting the Filer, in connection with the proposed purchase of a portion of its outstanding subordinate voting shares (the “Shares”) pursuant to an issuer bid (the “Offer”), an exemption from the following requirements (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 security holder (the “Proportionate Take Up Requirements”);
b) to disclose the proportionate take up requirement in the issuer bid circular of the Filer (the “Circular”) (the “Proportionate Take Up Disclosure Requirement”); and
c) to not extend the Offer if all the terms and conditions of the Offer have been complied with or waived, unless first taking up all securities deposited and not withdrawn under the Offer (the “Extension Take Up Requirement”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
a) the Autorité des marchés financiers is the principal regulator for this application;
b) the Filer has given notice that it intends to rely on subsection 4.7(1) of Regulation 11-102 respecting Passport System (the “Regulation 11-102”) in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Newfoundland and Labrador, the Yukon, the Northwest Territories and Nunavut;
c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in Regulation 14-101 respecting Definitions and Regulation 11-102 have the same meaning if used in this decision, unless otherwise defined herein.
This decision is based on the following statements of facts of the Filer:
1. The Filer is a corporation governed by the Canada Business Corporations Act.
2. The head office of the Filer is located at 726, rue Saint-Joseph, Valcourt (Québec), Canada, J0E 2L0.
3. The Filer is a reporting issuer in each of the jurisdictions of Canada and the Shares are listed for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “DOO”. The Filer is not in default of any requirement of the securities legislation in the jurisdictions in which it is a reporting issuer.
4. The authorized share capital of the Filer consists of unlimited number of multiple voting shares (the “MVS”), an unlimited number of Shares and an unlimited number of preferred shares issuable in series. As of May 19, 2017, there were 32,800,865 Shares and 79,023,344 MVS issued and outstanding, and no preferred shares were issued and outstanding. The MVS are not listed for trading on any stock exchange. Each outstanding MVS may at any time, at the option of the holder, be converted into one Share.
5. On May 19, 2017, the closing price of the Shares on the TSX was $32.34.
6. As at May 19, 2017, Beaudier Inc. (“Beaudier”) and 4338618 Canada Inc. (“4338618”) beneficially owned 24,743,163 and 16,494,313 MVS, respectively, which in the aggregate represented approximately 36.9% of the total issued and outstanding Shares and MVS, and Bain Capital Luxembourg Investments S.à r.l. (“Bain Capital”) beneficially owned 31,744,393 MVS, which in the aggregate represented approximately 28.4% of the total issued and outstanding Shares and MVS.
7. The Filer launched the Offer on June 12, 2017 pursuant to which it is offering to purchase a number of Shares having an aggregate purchase price not to exceed $350,000,000 (the “Specified Dollar Amount”).
8. Holders of MVS are entitled to participate in the Offer by depositing their MVS to the Offer. MVS deposited will be considered as Shares (i.e. on an as-converted basis) for purposes of all calculations under the Offer. The MVS which are taken up by the Filer will be converted into Shares on a one-for-one basis immediately prior to take up.
9. The purchase price per Share will be determined by the Filer through a modified “Dutch auction” procedure in the manner described below within a range of not less than $37.00 and not more than $44.00 per Share, as specified in the Circular (the “Price Range”).
10. 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 and, as required, a drawdown under the Filer's revolving credit facilities.
11. Holders of Shares and MVS (collectively, the “Shareholders”) wishing to tender to the Offer may do so pursuant to one of the following procedures:
a. auction tenders in which the tendering Shareholders specify the number of Shares being tendered at a price per Share (the “Auction Price”) within the Price Range in increments of $0.10 per Share (the “Auction Tenders”);
b. purchase price tenders in which the tendering Shareholders do not specify a price per Share, but rather agree to have a specified number of Shares purchased at the Purchase Price to be determined by the Auction Tenders (the “Purchase Price Tenders”);
c. proportionate tenders in which the tendering Shareholders agree to sell to the Filer, at the Purchase Price to be determined by the Auction Tenders, a number of Shares that will result in them maintaining their respective proportionate equity ownership in the Filer following completion of the Offer (the “Proportionate Tenders”).
12. 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 or a Purchase Price Tender may not make a Proportionate Tender and vice versa.
13. A Shareholder who owns fewer than 100 Shares and makes an Auction Tender regarding all of such Shareholder's Shares at an Auction Price at or below the Purchase Price (as defined below) or makes a Purchase Price Tender will be considered to have made an “Odd Lot Tender”.
14. The Filer will determine the purchase price payable per Share (the “Purchase Price”) based on the Auction Prices and the number of Shares deposited pursuant to valid Auction Tenders and Purchase Price Tenders. The Purchase Price will be the lowest price that enables the Filer to purchase that number of Shares deposited pursuant to valid Auction Tenders and Purchase Price Tenders having an aggregate purchase price not to exceed an amount (the “Auction Tender Limit Amount”) equal to
a. the Specified Dollar Amount, less
b. the product of:
i. the Specified Dollar Amount, and
ii. a fraction, the numerator of which is the aggregate number of Shares owned by Shareholders making valid Proportionate Tenders (including MVS that will be converted into Shares), and the denominator of which is the aggregate number of Shares and MVS outstanding at the time of expiry of the Offer.
15. If the aggregate purchase price for Shares validly deposited pursuant to Auction Tenders and Purchase Price Tenders is less than or equal to the Auction Tender Limit Amount, the Filer will purchase at the Purchase Price all Shares so deposited at Auction Prices less than or equal to the Purchase Price.
16. If the aggregate purchase price for Shares validly deposited pursuant to Auction Tenders and Purchase Price Tenders is greater than the Auction Tender Limit Amount, the Filer will purchase at the Purchase Price a portion of the Shares so deposited pursuant to Auction Tenders, determined as follows:
a. the Filer will purchase all such Shares deposited pursuant to Odd Lot Tenders at the Purchase Price; and
b. the Filer will purchase on a pro rata basis that portion of the Shares having an aggregate purchase price, based on the Purchase Price, equal to the difference between:
i. the Auction Tender Limit Amount, less
ii. the aggregate amount paid by the Filer for Shares deposited pursuant to Odd Lot Tenders.
17. The Filer will purchase at the Purchase Price that portion of the Shares (including MVS converted into Shares) deposited by Shareholders making valid Proportionate Tenders that results in such Shareholders maintaining their proportionate equity ownership following completion of the Offer.
18. The number of Shares that the Filer will purchase pursuant to the Offer and the aggregate purchase price will vary depending on the aggregate purchase price payable in respect of Shares required to be purchased pursuant to Auction Tenders and Purchase Price Tenders (the “Auction Tender Purchase Amount”). If the Auction Tender Purchase Amount is equal to the Auction Tender Limit Amount, the Filer will purchase Shares pursuant to the Offer 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 in the aggregate, with a proportionately lower aggregate purchase price.
19. Each of Beaudier, 4338618 and Bain Capital has advised the Filer that it intends to make a Proportionate Tender.
20. 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 and payable in cash. All Auction Tenders, Purchase Price Tenders and Proportionate Tenders will be subject to adjustment to avoid the purchase of fractional Shares. All payments to Shareholders will be subject to applicable tax deductions.
21. All Shares deposited pursuant to the Offer and not taken up will be returned to the appropriate Shareholders.
22. The Offer is subject to the provisions of the United States regulation entitled Regulation 14E adopted under the 1934 Act (“Regulation 14E”).
23. Until expiry of the Offer, all information about the number of Shares deposited and the Auction Prices will be required to be kept confidential by the depositary and the Filer until the Purchase Price has been determined.
24. Shareholders who do not accept the Offer will continue to hold the same number of Shares as before the Offer and their proportionate Share ownership will increase following completion of the Offer.
25. The Filer may extend the bid without first taking up Shares deposited and not withdrawn under the Offer if the aggregate purchase price for Shares validly tendered pursuant to Auction Tenders at Auction Prices and Purchase Price Tenders is less than the Auction Tender Limit Amount. Under the Extension Take-Up Requirement contained in the Legislation, a Filer may not extend an issuer bid if all the terms and conditions of the issuer bid have been complied with or waived unless the Filer first takes up all the securities deposited and not withdrawn under the Offer. Under Regulation 14E, the Filer must promptly pay for all securities deposited pursuant to the Offer at the time of expiry of the Offer. Regulation 14E does not allow the Filer to extend the Offer after having taken up and paid for securities deposited pursuant to the Offer.
26. The Filer relies on the exemption from the formal valuation requirements applicable to issuer bids set forth in subsection 3.4(b) Regulation 61-101 respecting Protection of Minority Security Holders in Special Transactions (“Regulation 61-101”) (the “Liquid Market Exemption”).
27. There was a “liquid market” for the Shares, as such term is defined in Regulation 61-101, as of the date of the making of the Offer because:
a. there was a published market for the Shares (the TSX);
b. during the 12 months before June 1, 2017 (the date the Offer was announced):
i. the number of issued and outstanding Shares was at all times at least 5,000,000 (excluding Shares beneficially owned, or over which control or direction was exercised, by related parties and securities that were not freely tradeable);
ii. the aggregate trading volume of Shares on the TSX was at least 1,000,000 Shares;
iii. there were at least 1,000 trades in the Shares on the TSX; and
iv. the aggregate value of the trades in the Shares on the TSX was at least $15,000,000;
c. the market value of the Shares on the TSX, as determined in accordance with Regulation 61-101, was at least $75,000,000 for May 2017 (the calendar month preceding the calendar month in which the Offer was announced).
28. The Filer has also obtained, on a voluntary basis, a liquidity opinion from RBC Dominion Securities Inc. (the “Liquidity Opinion”) to the effect that a liquid market for the Shares existed as of June 7, 2017 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 their Shares pursuant to the Offer that is not materially less liquid than the market that existed before the making of the Offer. As set out in the Circular, based on the liquid market test set out above and the Liquidity Opinion, the Filer determined 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 their Shares pursuant to the Offer that is not materially less liquid than the market that existed at the time of the making of the Offer.
29. The Filer discloses the following information in the Circular:
a. the mechanics for the take-up of and payment for Shares as described herein;
b. that, by making an Auction Tender at the lowest price in the Price Range, by making a Purchase Price Tender or by making a Proportionate Tender, a Shareholder can reasonably expect that the Shares so deposited will be purchased at the Purchase Price, subject to proration and other terms of the Offer as specified herein;
c. that the Filer has filed for an exemption from the Proportionate Take Up Requirement, the Proportionate Take Up Disclosure Requirement and the Extension Take Up Requirement;
d. that each of Beaudier, 4338618 and Bain Capital has advised the Filer that it intends to make a Proportionate Tender.
e. the facts supporting the Filer's reliance on the Liquid Market Exemption, including the Liquidity Opinion; and
f. subject to the exemptive relief being granted, the disclosure prescribed by the Legislation for issuer bids.
Each of the Decision Makers considers that the decision respects the criteria set out in the Legislation allowing the Decision Makers to make the decision.
The decision of the Decision Makers under the Legislation is that relief from the Exemption Sought is granted, provided that:
a. the Filer takes up Shares deposited pursuant to the Offer and not withdrawn and pays for such Shares, in each case, in the manner described above;
b. the Filer is eligible to rely on the Liquid Market Exemption; and
c. the Filer complies with the requirements of Regulation 14E.
Surintendant des marchés financiers