The Hudbay Minerals Proceedings And The Return Of Acquiror-Side Shareholder Approval Rights


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.

The Background

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.

The Decision

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 Issue

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


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