E-L Financial Corporation Limited
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption from the extension take up requirements in subsection 2.32(4) of National Instrument 62-104 Take-Over Bids and Issuer Bids -- an issuer conducting an issuer bid requires relief from the requirement not to extend its issuer bid if all terms and conditions are met unless the issuer first takes up all securities validly deposited and not withdrawn under the issuer bid -- the issuer will comply with the U.S. regime in connection with the issuer bid -- requested relief granted, subject to conditions.
Applicable Legislative Provisions
National Instrument 62-104 Take-Over Bids and Issuer Bids, ss. 2.32(4) and 6.1.
December 1, 2020
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 E-L FINANCIAL CORPORATION LIMITED (the "Filer")
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") that, in connection with the proposed purchase by the Filer of a portion of its issued and outstanding common shares (the "Shares") pursuant to a formal issuer bid commenced on November 11, 2020 (the "Offer"), the Filer be exempt from the requirement set out in subsection 2.32(4) of National Instrument 62-104 Take Over Bids and Issuer Bids ("NI 62-104") that the Offer not be extended if all of the terms and conditions of the Offer have been complied with or waived, unless the Filer first takes up all Shares deposited under the Offer and not withdrawn (the "Exemption Sought").
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 given notice that subsection 4.7(1)(c) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation validly existing under the Business Corporations Act (Ontario) and is in good standing.
2. The head office of the Filer is located at 165 University Avenue, 10th Floor, Toronto, Ontario, M5H 3B8.
3. The Filer is a reporting issuer in each of the provinces of Canada and the Shares are listed for trading on the Toronto Stock Exchange (the "TSX") under the symbol "ELF". The Filer is not in default of any requirement of the securities legislation in any of the jurisdictions in which it is a reporting issuer.
4. The authorized share capital of the Filer consists of (a) an unlimited number of Shares, (b) 402,733 Preference Shares, issuable in series, and (c) an unlimited number of First Preference Shares, issuable in series. As at November 6, 2020, there were: (i) 3,818,439 Shares; (ii) 258 Series A Preference Shares; (iii) 4,000,000 First Preference Shares, Series 1; (iv) 4,000,000 First Preference Shares, Series 2; and (v) 4,000,000 First Preference Shares, Series 3, issued and outstanding.
5. On November 6, 2020, the last full trading day prior to the date of the announcement of the Offer, the closing price of the Shares on the TSX was $658.00. Based on such closing price, the Shares had an aggregate market value of approximately $2,512,532,862 on such date.
6. On November 11, 2020, the Filer commenced the Offer. The issuer bid circular dated November 9, 2020 prepared and sent by the Filer in connection with the Offer (the "Circular") specifies that the Filer proposes to purchase, by way of a modified "Dutch auction" procedure in the manner described, up to $100,000,000 of the issued and outstanding Shares at a purchase price of not less than $650.00 and not more than $750.00 per Share (the "Price Range of Shares").
7. The Filer will fund the purchase of Shares pursuant to the Offer, together with all related fees and expenses of the Offer, from available cash on hand or cash available to be drawn under the Filer's existing margin loan facility provided by RBC Dominion Securities Inc. The Filer has sufficient cash on hand to fund the entirety of the Purchase Price under the Offer, if fully subscribed.
8. Holders of Shares (collectively, the "Shareholders") wishing to tender to the Offer will be able to do so in two ways (i.e. the modified "Dutch auction" procedure):
(a) by making auction tenders pursuant to which they agree to sell a specified number of Shares (subject to proration) to the Filer at a specified price per Share (an "Auction Price") within the Price Range of Shares in increments of $5.00 per Share (each, an "Auction Tender"); or
(b) by making 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 (subject to proration) purchased at the purchase price per Share to be determined by the Auction Tenders (each, a "Purchase Price Tender").
9. 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 may make both an Auction Tender and a Purchase Price Tender, but not in respect of the same Shares. In both the case of Auction Tenders and Purchase Price Tenders, Shareholders may tender less than all of their Shares.
10. The Filer will determine the purchase price payable per Share (the "Purchase Price") by taking into account the number of Shares deposited pursuant to Auction Tenders and Purchase Price Tenders and the Auction Prices specified by Shareholders depositing Shares pursuant to Auction Tenders. For the purpose of determining the Purchase Price, Shares deposited pursuant to a Purchase Price Tender will be deemed to have been deposited at a price of $650.00 per Share (which is the minimum price per Share under the Offer). The Purchase Price will be the lowest price per Share that enables the Filer to purchase the maximum number of Shares validly deposited and not withdrawn pursuant to the Offer having an aggregate Purchase Price not to exceed $100,000,000.
11. Any Shareholder that owns fewer than 100 Shares (an "Odd-Lot Holder") who tenders all of their Shares pursuant to an Auction Tender at or below the Purchase Price, or makes a Purchase Price Tender, will be considered to have made an "Odd-Lot Tender".
12. If the aggregate Purchase Price for Shares validly deposited and not withdrawn pursuant to Auction Tenders at Auction Prices at or below the Purchase Price and Purchase Price Tenders would result in an aggregate Purchase Price in excess of $100,000,000, then such deposited shares will be purchased as follows:
(a) first, the Filer will purchase all Shares tendered at or below the Purchase Price by Odd-Lot Holders at the Purchase Price; and
(b) second, the Filer will purchase Shares at the Purchase Price on a pro rata basis according to the number of Shares deposited or deemed to be deposited at a price equal to or less than the Purchase Price by the depositing Shareholders, less the number of Shares purchased from Odd-Lot Holders. All Auction Tenders and Purchase Price Tenders will be subject to adjustment to avoid the purchase of fractional Shares.
13. As of November 9, 2020, no director or officer of the Filer, and to the knowledge of the Filer and its directors and officers after reasonable inquiry, no insider of the Filer (other than a director or officer), no associate or affiliate of the Filer or of an insider of the Filer, and no person or company acting jointly or in concert with the Filer, has indicated any present intention to deposit any of such person's or company's Shares pursuant to the Offer.
14. 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 payments to Shareholders will be subject to deduction of applicable withholding taxes.
15. All Shares tendered to the Offer and not taken up will be returned to the appropriate Shareholders.
16. Assuming the Offer is fully subscribed:
(a) if the Purchase Price is determined to be $650.00, being the minimum Purchase Price under the Offer, the number of Shares that will be purchased by the Filer is 153,846, representing approximately 4.0% of the Filer's issued and outstanding Shares as at November 6, 2020; and
(b) if the Purchase Price is determined to be $750.00, being the maximum Purchase Price under the Offer, the number of Shares that will be purchased by the Filer is 133,333, representing approximately 3.5% of the Filer's issued and outstanding Shares as at November 6, 2020.
17. Shareholders who do not accept the Offer will continue to hold the same number of Shares held before the Offer and their proportionate Share ownership will increase following completion of the Offer.
18. The Offer is subject to the provisions of the United States regulation entitled Regulation 14E adopted under the Securities Exchange Act of 1934, as amended ("Regulation 14E").
19. The Offer is scheduled to expire at 11:59 p.m. (Toronto time) on December 16, 2020 (the "Expiration Date").
20. The Filer may wish to extend the Offer without first taking up all the Shares deposited and not withdrawn under the Offer if all the terms and conditions of the Offer have been complied with or waived by the Filer by the Expiration Date but the aggregate Purchase Price for Shares validly tendered pursuant to Auction Tenders and Purchase Price Tenders is less than $100,000,000.
21. Pursuant to subsection 2.32(4) of NI 62-104, an issuer may not extend an issuer bid if all the terms and conditions of the issuer bid have been complied with or waived unless the issuer first takes up all the securities deposited and not withdrawn under the issuer bid.
22. Under Regulation 14E, the Filer must promptly pay for all Shares deposited pursuant to the Offer at the time of expiry of the Offer. Regulation 14E does not provide for extensions of the Offer in the manner required by subsection 2.32(4) of NI 62-104.
23. The Filer is relying on the exemption from the formal valuation requirements applicable to issuer bids under Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") set out in subsection 3.4(b) of MI 61-101 (the "Liquid Market Exemption").
24. There is a "liquid market" for the Shares, as such term is defined in MI 61-101, as of the date the Offer was publicly announced because:
(a) there is a published market for the Shares (i.e. the TSX); and
(b) Cormark Securities Inc. ("Cormark"), a person qualified and independent of all interested parties to the Offer, provided an opinion to the Filer in accordance with section 1.2 of MI 61-101 that there is a liquid market for the Shares as of the date the Offer was publicly announced (the "Liquidity Opinion") and a copy of the Liquidity Opinion was included in the Circular.
25. Cormark also indicated in the Liquidity Opinion that it concluded that, following the completion of the Offer, there will be a market for holders of Shares who do not tender to the Offer that is not materially less liquid than the market that existed at the time of the making of the Offer.
26. Based on the maximum number of Shares that may be purchased under the Offer and the Liquidity Opinion, the board of directors of the Filer determined that it is reasonable to conclude that, following the completion of the Offer in accordance with its terms, there will be a market for holders of the Shares who do not tender to the Offer that is not materially less liquid than the market that existed at the time of the making of the Offer.
27. The board of directors of the Filer has determined that the Offer is in the best interests of the Filer and believes that the Offer is an advisable use of the Filer's financial resources given its cash requirements and borrowing costs.
28. The Circular:
(a) discloses the mechanics for the take-up of, and payment for, Shares as described herein;
(b) explains that, by tendering Shares at the lowest price in the Price Range of Shares under an Auction Tender or by making a Purchase Price Tender, a Shareholder can reasonably expect that the Shares so tendered will be purchased at the Purchase Price, subject to proration and other terms of the Offer as specified herein;
(c) discloses that the Filer has applied for the Exemption Sought;
(d) discloses the manner in which an extension of the Offer will be communicated to Shareholders;
(e) discloses that Shares deposited pursuant to the Offer may be withdrawn at any time prior to the expiry of the Offer;
(f) discloses the facts supporting the Filer's reliance on the Liquid Market Exemption, including the Liquidity Opinion; and
(g) includes the disclosure prescribed by applicable securities laws with respect to issuer bids.
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:
(a) the Filer takes up and pays for Shares deposited pursuant to the Offer and not withdrawn, in each case, in the manner described above and as set out in the Circular;
(b) the Filer is eligible to rely on the Liquid Market Exemption; and
(c) the Filer complies with the requirements of Regulation 14E in respect of the Offer.
Acting Director, Office of Mergers & Acquisitions
Ontario Securities Commission