The January 23, 2009 decision of the Ontario Securities
Commission (the "OSC") in a proceeding initiated by
significant shareholders of HudBay Minerals Inc.
("HudBay") seeking voting rights in connection with
HudBay's proposed acquisition of Lundin Mining Corporation
("Lundin") raises questions about whether and when
shareholders of the acquiror should have the right to vote
on acquisition transactions.
This past November, HudBay announced a deal to purchase all the
outstanding shares of Lundin. Under the proposed transaction, each
Lundin share would be exchanged for 0.3913 HudBay shares, such that
the current HudBay shareholders and the current Lundin shareholders
would each, as a group, hold approximately 50% of the shares of
HudBay post-closing. HudBay received the approval of the Toronto
Stock Exchange (the "TSX") to list the HudBay shares
proposed to be issued to Lundin shareholders, without being
required to have a vote of the HudBay shareholders.
On January 23, 2009, the OSC set aside the decision of the TSX.
The OSC determined that, because of the impact that the transaction
might have on HudBay shareholders, the "quality of the
marketplace...would be significantly undermined" if the
transaction were to proceed without HudBay shareholder
The core question is whether, in circumstances where a
publicly-traded acquiror is seeking to acquire another issuer and
to pay for the acquisition by issuing shares, the shareholders of
the acquiror should have the right to vote to approve (or not
approve) the transaction.
The issue has a unique Canadian dimension. Under the TSX rules,
acquisitions of publicly traded targets are generally exempted from
the general rule that acquirors obtain approval of their
shareholders for acquisitions involving issuances of stock in
excess of 25%, though the TSX retains discretion to impose a
shareholder approval requirement taking into account the effect
that the transaction may have on the "quality of the
market." By contrast, the New York Stock Exchange uniformly
requires shareholder approval for transactions which would cause a
company to issue more than 20% of its stock, while the London Stock
Exchange has a threshold of 25%, whether or not the target is
publicly traded. The TSX exemption was introduced in 2005 on
the basis that Canadian companies generally have less access to
capital and credit than their international counterparts.
The OSC's Analysis