Securities Law & Instruments


Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Securities Act, s. 53 – Prospectus Requirements – Distributions by an issuer to its shareholders in securities of another company that it owns (e.g. spin-off transactions) – The issuer will distribute the shares of the other company as a dividend to the issuer’s shareholders; the other company is not a reporting issuer; the issuer has a de minimis connection to Canada; as a result of the transfer, the shareholders of the issuer will hold their interests in the subsidiary directly as opposed to indirectly through their shareholdings of the issuer.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53, 74(1).

March 22, 2019

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
DOWDUPONT INC.
(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) for an exemption (the Exemption Sought) from the prospectus requirement in section 53 of the Securities Act (Ontario) in connection with the proposed distributions (collectively, the Spin-Offs) by the Filer of (i) the shares of common stock (Dow Shares) of Dow Inc. (Dow), a wholly-owned subsidiary of the Filer, and, (ii) subsequently, shares of common stock (Corteva Shares) of Corteva, Inc. (Corteva), a wholly-owned subsidiary of the Filer; by way of a dividend in specie to holders (Filer Shareholders) of shares of common stock of the Filer (Filer Shares) resident in Canada (Filer Canadian Shareholders).

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 subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1.             The Filer is a corporation incorporated in Delaware with principal executive offices in Midland, Michigan, U.S.A. and Wilmington, Delaware, U.S.A. The Filer is a holding company with businesses in the materials science, agriculture and specialty products sectors.

2.             The Filer is not a reporting issuer, and currently has no intention of becoming a reporting issuer, under the securities laws of any jurisdiction of Canada.

3.             The authorized capital stock of the Filer consists of 5 billion Filer Shares, US$0.01 par value per share, and 250 million shares of preferred stock, US$0.01 par value per share. As of January 31, 2019, there were 2,254,762,058 Filer Shares and no preferred shares issued and outstanding.

4.             The Filer Shares are listed on the New York Stock Exchange (NYSE) and trade under the symbol “DWDP”. Other than the foregoing listing on the NYSE, no securities of the Filer are listed or posted for trading on any exchange or market in Canada or outside of Canada. The Filer has no present intention of listing its securities on any Canadian stock exchange.

5.             The Filer is subject to the 1934 Act.

6.             Based on a geographic breakdown snapshot of registered holders prepared for the Filer by Computershare Trust Company, NA (the Filer’s transfer agent), as of January 31, 2019 there were 789 registered Filer Canadian Shareholders, representing approximately 0.91% of the registered shareholders of the Filer worldwide, and holding 307,192 Filer Shares, representing approximately 0.01% of the outstanding Filer Shares. The Filer does not expect these numbers to have materially changed since that date.

7.             Based on a geographic analysis of beneficial shareholders prepared for the Filer by Broadridge Financial Solutions, Inc., as of January 29, 2019, there were 88,087 beneficial Filer Canadian Shareholders, representing approximately 5.20% of the beneficial holders of Filer Shares worldwide, and holding approximately 60,597,741 Filer Shares, representing approximately 2.69% of the outstanding Filer Shares. The Filer does not expect these numbers to have materially changed since that date.

8.             Based on the information above, the number of registered and beneficial Filer Canadian Shareholders and the proportion of Filer Shares held by such shareholders are de minimis.

9.             On November 1, 2018, the Filer announced a new share repurchase program of US$3 billion, which it expects to complete by the date of the Dow Spin-Off (defined below). Based on the market capitalization of the Filer Shares of approximately US$123.3 billion (using the number of issued and outstanding Filer Shares as of January 31, 2019 and the closing price of the Filer Shares on the NYSE on March 8, 2019), the Filer expects the number of registered and beneficial Filer Canadian Shareholders and the proportion of Filer Shares held by such shareholders after completion of such share repurchase to continue to be de minimis.

10.          The Filer is proposing to separate through a series of transactions, (i) its materials science business (the New Dow Business) into its wholly owned subsidiary, Dow (and its subsidiaries), and (ii) its agriculture business (the Corteva Agriscience™ Business) into its wholly owned subsidiary, Corteva (and its subsidiaries). These transactions in addition to certain related transactions, are expected to result in the Spin-Offs by the Filer, pro rata to the Filer Shareholders by way of a dividend in specie, of all of the Dow Shares (the Dow Spin-Off) and all of the Corteva Shares (the Dow Spin-Off) outstanding immediately prior to each respective Spin-Off.

11.          Dow is a corporation incorporated in Delaware with principal executive offices in Midland, Michigan, U.S.A. It is currently a wholly-owned subsidiary of the Filer that, at the time of the Dow Spin-Off, will hold, directly and through its subsidiaries, the New Dow Business.

12.          Corteva is a corporation incorporated in Delaware with principal executive offices in Wilmington, Delaware, U.S.A. It is currently a wholly-owned subsidiary of the Filer that, at the time of the Corteva Spin-Off, will hold, directly and through its subsidiaries, the Corteva Agriscience™ Business.

13.          As of the date hereof, all of the issued and outstanding Dow Shares and Corteva Shares, being 100 Dow Shares and 100 Corteva Shares, are held directly by the Filer, and no other shares or classes of stock of Dow or Corteva are issued and outstanding.

14.          The distribution agent will distribute to each Filer Shareholder entitled to Dow Shares or Corteva Shares in connection with the Spin-Offs, the number of whole Dow Shares or Corteva Shares, respectively, to which the Filer Shareholder is entitled in the form of a book-entry authorization. The Filer will not distribute fractional shares of Dow Shares or Corteva Shares in connection with the Spin-Offs. Instead, the distribution agent will aggregate the respective fractional shares into whole shares, sell such whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds (i.e., net of brokerage fees and other costs) of the sales pro rata to each Filer Shareholder who would otherwise have been entitled to receive fractional shares (net of any required withholding applicable taxes). Interest will not be paid on the amounts of payment made in lieu of fractional Dow Shares or Corteva Shares.

15.          Filer Shareholders will not be required to pay any consideration for the Dow Shares or the Corteva Shares, or to surrender or exchange Filer Shares or take any other action to receive their Dow Shares or Corteva Shares. The Spin-Offs will occur automatically and without any investment decision on the part of Filer Shareholders.

16.          Subject to the satisfaction of certain conditions, it is currently anticipated that: (a) the Dow Spin-Off will become effective on April 1, 2019, and following the Dow Spin-Off, Dow will cease to be a subsidiary of the Filer; and (b) the Corteva Spin-Off will become effective on June 1, 2019, and following the Corteva Spin-Off, Corteva will cease to be a subsidiary of the Filer.

17.          Each of Dow and Corteva intend to file applications to list the Dow Shares and the Corteva Shares, respectively, on a U.S. stock exchange (the U.S. Exchange).

18.          After the completion of the Spin-Offs, the Filer Shares will continue to be listed and traded on the NYSE.

19.          Neither Dow nor Corteva is a reporting issuer in any jurisdiction in Canada nor are their securities listed on any stock exchange in Canada. Neither Dow nor Corteva has any present intention to become a reporting issuer in any jurisdiction of Canada or to list its securities on any stock exchange in Canada after the completion of the Spin-Offs.

20.          The Spin-Offs will be effected under the laws of the State of Delaware.

21.          Because the Spin-Offs will be effected by way of a dividend of Dow Shares and Corteva Shares to Filer Shareholders, no shareholder approval of the Spin-Offs is required (or being sought) under Delaware law.

22.          In connection with the Spin-Offs, each of Dow and Corteva has filed with the SEC a registration statement on Form 10 under the 1934 Act, detailing the proposed respective Spin-Off. Dow filed its registration statement on September 7, 2018 and subsequently filed amendments thereto on October 19, 2018, November 19, 2018, February 11, 2019 and March 8, 2019, which registration statement was declared effective by the SEC on March 12, 2019. Corteva filed its registration statement on October 18, 2018 and subsequently filed an amendment thereto on December 19, 2018. Corteva will file further amendment(s) to its registration statement (the Corteva Registration Statement) closer to the date of the Corteva Spin-Off.

23.          Filer Shareholders will receive (and in the case of Corteva, after the SEC has completed its review of the Corteva Registration Statement) a notice of internet availability of an information statement with respect to each of Dow and Corteva (collectively, the Information Statements) detailing the terms and conditions of the respective Spin-Off. All materials relating to the Spin-Offs sent by or on behalf of the Filer, Dow and Corteva in the United States (including relating to the Information Statement) will be sent concurrently to Filer Canadian Shareholders.

24.          The Information Statements will contain respective prospectus level disclosure about Dow and Corteva, as the case may be.

25.          Filer Canadian Shareholders who receive Dow Shares and/or Corteva Shares pursuant to the Spin-Offs will have the benefit of the same rights and remedies in respect of the disclosure documentation received in connection with the Spin-Offs that are available to Filer Shareholders resident in the United States.

26.          Following the completion of the Spin-Offs, Dow and Corteva will be subject to the requirements of the 1934 Act and the rules and regulations of the respective U.S. stock exchange(s) on which the Dow Shares or the Corteva Shares are listed for trading. Dow and Corteva will send concurrently to holders of Dow Shares and Corteva Shares, respectively, resident in Canada the same disclosure materials required to be sent under applicable United States securities laws to holders of Dow Shares and Corteva Shares, respectively, resident in the United States.

27.          There will be no active trading market for the Dow Shares or the Corteva Shares in Canada following the respective Spin-Off and none is expected to develop. Consequently, it is expected that any resale of Dow Shares or Corteva Shares distributed in connection with the Spin-Offs will occur through the facilities of the applicable U.S. Exchange or any other exchange or market outside of Canada on which the Dow Shares or the Corteva Shares may be quoted or listed at the time that the trade occurs or to a person or company outside of Canada.

28.          The Spin-Offs to Filer Canadian Shareholders would be exempt from the prospectus requirement pursuant to subsection 2.31(2) of National Instrument 45-106 Prospectus Exemptions but for the fact that neither Dow nor Corteva is a reporting issuer under the securities legislation of any jurisdiction in Canada.

29.          None of the Filer, Dow nor Corteva is in default of any securities legislation in any jurisdiction of Canada.

Decision

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 the first trade in the Dow Shares and the Corteva Shares acquired pursuant to the Spin-Offs will be deemed to be a distribution that is subject to section 2.6 of National Instrument 45-102 Resale of Securities.

“Tim Moseley”
Vice-Chair
Ontario Securities Commission

“Cecilia Williams
Commissioner
Ontario Securities Commission