Loblaw Companies Limited – s. 6.1 of NI 62-104

Order

Headnote

Section 6.1 of NI 62-104 -- Issuer bid -- relief from requirements applicable to issuer bids in Part 2 of NI 62-104 -- issuer proposes to repurchase 3,269,208 of its common shares at a discount to market price from a related party -- the subject shares represent less than 1% of the issuer's outstanding shares -- the repurchase is an exempt related party transaction under MI 61-101 -- selling shareholder is not able to sell shares into the market and is required to restrict sales to persons that are related to it or else put the tax-deferred nature of the butterfly reorganization at risk, to the detriment of the issuer and all other shareholders -- repurchase was reviewed, negotiated and unanimously approved by issuer's independent directors with the support of a financial advisor -- shares are highly liquid securities and the purchase price will be at a discount to the prevailing market price of the shares so other shareholders will be able to sell their shares in the market at a higher price than what the selling shareholder is receiving from the issuer -- share repurchase is exempt from the requirements applicable to issuer bids in Part 2 of NI 62-104, subject to conditions, including that, the repurchase is announced at least two clear trading days before it is completed so that the purchase price takes into account any changes in the market price following announcement of the repurchase.

Statutes Cited

National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c.S.5, AS AMENDED AND IN THE MATTER OF LOBLAW COMPANIES LIMITED

ORDER (Section 6.1 of National Instrument 62-104)

UPON the application (the "Application") of Loblaw Companies Limited ("Loblaw") to the Ontario Securities Commission (the "Commission") for an order of the Commission pursuant to section 6.1 of National Instrument 62-104 Take-Over Bids and Issuer Bids ("NI 62-104") exempting Loblaw from the requirements applicable to issuer bids in Part 2 of NI 62-104 (the "Issuer Bid Requirements") in respect of the proposed purchase by Loblaw of 3,269,208 of Loblaw's common shares (the "Subject Shares") in one trade executed following the close of markets on December 21, 2020 (the "Loblaw Transaction") from 1283837 Ontario Limited, an entity controlled by W. Galen Weston (the "Weston Entity", and together with the other entities controlled by W. Galen Weston, the "Weston Control Group");

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON Loblaw (and the Weston Control Group in respect of paragraphs 7, 8, 14, 16, 17, 18, 22, and 33, as they relate to the Weston Entity or the Weston Control Group) having represented to the Commission that:

1. Loblaw is a corporation existing under the Canada Business Corporations Act and is in good standing.

2. The registered office of Loblaw is located at 22 St. Clair Avenue East, Suite 700, Toronto, Ontario, Canada, M4T 2S5. The head office of Loblaw is located at 1 President's Choice Circle, Brampton, Ontario, Canada, L6Y 5S5.

3. Loblaw is a reporting issuer in each of the provinces and territories of Canada, and is not in default of any requirements under applicable securities legislation or the rules and regulations made pursuant thereto in the jurisdictions in which it is a reporting issuer.

4. The authorized share capital of Loblaw consists of an unlimited number of common shares (the "Loblaw Shares"), up to 1,000,000 first preferred shares ("Loblaw First Preferred Shares"), an unlimited number of second preferred shares, series A ("Loblaw Second Preferred Shares, Series A") and an unlimited number of second preferred shares, Series B ("Loblaw Second Preferred Shares, Series B"). As of December 7, 2020, there were 352,861,654 Loblaw Shares, no Loblaw First Preferred Shares, no Loblaw Second Preferred Shares, Series A and 9,000,000 Loblaw Second Preferred Shares, Series B issued and outstanding.

5. The Loblaw Shares and Loblaw Second Preferred Shares, Series B are listed on the Toronto Stock Exchange (the "TSX") under the symbols "L" and "L.PR.B", respectively.

6. George Weston Limited ("GWL") is the controlling shareholder of Loblaw. As of December 7, 2020, GWL was the beneficial owner of an aggregate of 184,020,849 Loblaw Shares, representing approximately 52.2% of the issued and outstanding Loblaw Shares.

7. W. Galen Weston is the controlling shareholder of GWL. As of December 7, 2020, the Weston Control Group beneficially owned or had control or direction over an aggregate of 81,706,054 common shares of GWL (the "GWL Shares"), representing approximately 53.2% of the issued and outstanding GWL Shares. Through his control of GWL, W. Galen Weston also controls Loblaw.

8. In addition, as of December 7, 2020, the Weston Control Group beneficially owned or had control or direction over an aggregate of 5,280,208 Loblaw Shares (which include the Subject Shares), representing approximately 1.5% of the issued and outstanding Loblaw Shares. All of the Subject Shares are held by the Weston Entity in the Province of Ontario.

9. Pursuant to a "Notice of Intention to Make Normal Course Issuer Bid" dated April 29, 2020 that was filed with, and accepted by, the TSX, Loblaw is permitted to make purchases of up to 17,888,888 Loblaw Shares, representing approximately 5% of outstanding Loblaw Shares as at the date specified in the notice, pursuant to a normal course issuer bid (the "Loblaw NCIB") during the 12-month period beginning on May 1, 2020 and ending on April 30, 2021. As at December 7, 2020, an aggregate of 5,045,667 Loblaw Shares have been acquired under the Loblaw NCIB.

10. To the best of Loblaw's knowledge, as of December 7, 2020, the "public float" for the Loblaw Shares represented approximately 46.2% of all issued and outstanding Loblaw Shares for purposes of the TSX rules governing normal course issuer bids (the "TSX NCIB Rules").

11. The Loblaw Shares are "highly-liquid securities" within the meaning of section 1.1 of Commission Rule 48-501 Trading during Distributions, Formal Bids and Share Exchange Transactions ("Rule 48-501") and section 1.1 of the Universal Market Integrity Rules ("UMIR").

12. On November 1, 2018, Loblaw spun out its approximate 61.6% effective interest in Choice Properties Real Estate Investment Trust ("Choice REIT") by way of a butterfly reorganization (the "Butterfly Reorganization"). In connection with the Butterfly Reorganization, holders of Loblaw Shares (the "Loblaw Shareholders") other than GWL received 0.135 of a GWL Share for each Loblaw Share held, which was equivalent to the market value of their pro rata interest in Choice REIT, and GWL received Loblaw's approximate 61.6% effective interest in Choice REIT.

13. The Butterfly Reorganization was the only form of spin-out that could be implemented on a basis that was tax efficient for both Loblaw and its Canadian shareholders. At the time of announcement of the Butterfly Reorganization, Loblaw's interest in Choice REIT had an embedded deferred liability for Canadian income tax purposes in an amount of approximately $640 million. Had Loblaw spun-out, or directly distributed, its interest in Choice REIT to all Loblaw Shareholders, Loblaw would have triggered that entire tax liability for itself, to the detriment of Loblaw Shareholders in an implied amount of approximately $1.70 per Loblaw Share. In addition, such a direct distribution would generally have been taxable to Loblaw Shareholders as a dividend.

14. The Weston Control Group has indicated to Loblaw that it wishes to sell 3,269,208 Subject Shares held by the Weston Entity. The Weston Control Group confirmed that these sales are part of an internal reorganization of W. Galen Weston's holdings and that the Weston family intends to maintain its control position in Loblaw.

15. The Subject Shares represent approximately 0.93% of the issued and outstanding Loblaw Shares as at December 7, 2020.

16. The Weston Control Group has also indicated to GWL that it wishes to sell 1,300,000 GWL Shares held by the Weston Entity as part of an internal reorganization of W. Galen Weston's holdings. GWL has also made an application to the Commission for an order of the Commission pursuant to section 6.1 of NI 62-104 exempting GWL from the Issuer Bid Requirements in respect of the proposed purchase by GWL of 1,300,000 GWL Shares from the Weston Entity on substantially the same terms as the Loblaw Transaction.

17. For the purposes of the "butterfly" rules in section 55 of the Income Tax Act (the "Tax Act"), if a "specified shareholder" (for the purposes of those rules) sells Loblaw Shares or GWL Shares to an unrelated person or partnership in certain circumstances, this could cause the Butterfly Reorganization to become taxable to Loblaw and GWL and each of them would be liable for a substantial amount of tax. The members of the Weston Control Group, including the Weston Entity, are "specified shareholders" for the purposes of the "butterfly" rules in section 55 of the Tax Act.

18. The Weston Entity could effect the sale of the Subject Shares in the open market in reliance on the exemption for a trade by a control person provided in National Instrument 45-102 Resale of Securities (the "NI 45-102 Exemption"). However, as a result of the Butterfly Reorganization and in order to not put the tax-deferred nature of the Butterfly Reorganization at risk, the Weston Entity is unable to sell the Subject Shares into the market and must restrict sales to persons that are related to it. Accordingly, the NI 45-102 Exemption is not available to facilitate the sale of the Subject Shares. As the only practical alternative, the Weston Control Group approached Loblaw to ask Loblaw to consider repurchasing the Subject Shares.

19. The Loblaw Transaction will be executed at a price that is 97% of the lesser of: (a) the volume weighted average price (the "VWAP") of the Loblaw Shares on the TSX for the 20 trading days immediately prior to the date the Loblaw Transaction is agreed to; and (b) the VWAP of the Loblaw Shares on the TSX for the two trading days immediately prior to completion of the Loblaw Transaction (the "Purchase Price"). Other than the Purchase Price, no fee or other consideration will be paid by Loblaw in connection with the Loblaw Transaction.

20. The Loblaw Transaction was reviewed, negotiated and unanimously approved by the independent directors of Loblaw (the "Independent Directors"), and Scotia Capital Inc. (the "Financial Advisor") was engaged to provide financial advice to support this process. The board of Loblaw approved the Loblaw Transaction (with Galen G. Weston and Paviter S. Binning abstaining from the vote) on the basis of the unanimous recommendation of the Independent Directors.

21. As the Weston Entity is willing to sell the Subject Shares at a discount to the prevailing market price of the Loblaw Shares, Loblaw has determined that (a) it would be advantageous to purchase the Subject Shares from a pricing, volume and timing perspective, (b) it will be able to purchase the Subject Shares at a lower per share price than the price that it would be able to purchase Loblaw Shares under the Loblaw NCIB, and (c) the purchase of Subject Shares is in the best interests of Loblaw and Loblaw Shareholders, constitutes a desirable use of Loblaw's funds and would not impose an imprudent financial burden on Loblaw.

22. Other than the Subject Shares, (a) Loblaw has no current plans to repurchase any Loblaw Shares from the Weston Control Group, and (b) the Weston Control Group has no current plans to sell any Loblaw Shares.

23. The Loblaw Transaction was not proposed or agreed to with the intention of conferring preferential treatment to the Weston Control Group and the Financial Advisor has advised that the Loblaw Transaction does not confer preferential treatment on the Weston Control Group from a financial perspective. In particular, the Financial Advisor has advised that if the Weston Entity was to sell the Subject Shares into the market, it would be able to do so at less than a 3% discount. In addition, other than accommodating the Butterfly Reorganization considerations set out above, the tax result of the Loblaw Transaction is expected to be effectively the same for the Weston Entity as if it sold the Subject Shares into the market.

24. The purchase of Subject Shares will not adversely affect Loblaw or the rights of any of Loblaw's security holders and will not materially affect control of Loblaw. The Loblaw Transaction will not prejudice the ability of other Loblaw Shareholders to otherwise sell Loblaw Shares in the open market at the prevailing market price.

25. Following the receipt of this Order, and prior to or upon Loblaw entering into the definitive agreement with respect to the Loblaw Transaction, Loblaw will issue and file a press release (the "Press Release") that: (a) describes the Loblaw Transaction (including the terms of this Order); and (b) states that, immediately following the completion of the Loblaw Transaction, Loblaw will file a report on SEDAR indicating the aggregate dollar amount paid for the Subject Shares pursuant to the Loblaw Transaction.

26. The Press Release will be issued and filed at least two clear trading days prior to the completion of the Loblaw Transaction.

27. Immediately following the completion of the Loblaw Transaction, Loblaw will file a report on SEDAR indicating the aggregate dollar amount paid for the Subject Shares pursuant to the Loblaw Transaction.

28. Loblaw and the entities in the Weston Control Group, including the Weston Entity, are "related parties" and the Loblaw Transaction would be a "related party transaction" for the purposes of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101").

29. Paragraphs 5.5(a) and 5.7(1)(a) of MI 61-101 (the "25% Market Cap Exemption") exempts related party transactions from the valuation and minority approval requirements if, at the time the transaction is agreed to, neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction, insofar as it involves interested parties, exceeds 25% of the issuer's market capitalization. The Loblaw Transaction is able to satisfy the conditions of the 25% Market Cap Exemption and accordingly, Loblaw is relying on same in respect of the Loblaw Transaction.

30. But for the fact that the Purchase Price will be at a discount to the prevailing market price and below the prevailing bid-ask price for the Loblaw Shares on the TSX at the time of the Loblaw Transaction, Loblaw could otherwise acquire the Subject Shares through the facilities of the TSX as a "block purchase" under the Loblaw NCIB in accordance with the block purchase exception in paragraph 629(1)7 of the TSX NCIB Rules and the exemption from the Issuer Bid Requirements set out in subsection 4.8(2) of NI 62-104.

31. In accordance with the requirements of the TSX, the Subject Shares repurchased under the Loblaw Transaction will be taken into account by Loblaw when calculating the maximum annual aggregate limit that is imposed upon the Loblaw NCIB. After the 3,269,208 Subject Shares are repurchased under the Loblaw Transaction, Loblaw will still be able to purchase 9,574,013 Loblaw Shares under the Loblaw NCIB.

32. As the Loblaw Transaction is not occurring pursuant to the Loblaw NCIB, it will not trigger the automatic securities disposition plan dated February 25, 2020 that operates pursuant to the Loblaw NCIB to allow GWL to maintain its approximate 52.2% interest in Loblaw.

33. At the time that the definitive agreement in respect of the Loblaw Transaction is entered into, and at the time that the Loblaw Transaction is completed, neither Loblaw, any member of the Weston Control Group, nor any of their respective personnel who negotiated the definitive agreement or made, participated in the making of, or provided advice in connection with the decision to enter into the Loblaw Transaction, will be aware of any "material change" or any "material fact" (each as defined in the Securities Act (Ontario) (the "Act")) in respect of Loblaw or the Loblaw Shares that has not been generally disclosed.

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED pursuant to section 6.1 of NI 62-104 that Loblaw be exempt from the Issuer Bid Requirements in connection with the Loblaw Transaction, provided that:

(a) following the receipt of this Order, and prior to or upon Loblaw entering into the definitive agreement in respect of the Loblaw Transaction, Loblaw issues and files the Press Release;

(b) the Press Release is issued and filed at least two clear trading days prior to the completion of the Loblaw Transaction;

(c) the Subject Shares will be repurchased by Loblaw from the Weston Entity for a per share purchase price equal to 97% of the lesser of: (i) the VWAP of the Loblaw Shares on the TSX for the 20 trading days immediately prior to the date the Loblaw Transaction is agreed to, and (ii) the VWAP of the Loblaw Shares on the TSX for the two trading days immediately prior to completion of the Loblaw Transaction;

(d) immediately following the completion of the Loblaw Transaction, Loblaw files a report on SEDAR indicating the aggregate dollar amount paid for the Subject Shares pursuant to the Loblaw Transaction;

(e) at the time that the definitive agreement in respect of the Loblaw Transaction is entered into, and at the time that the Loblaw Transaction is completed, the Loblaw Shares are "highly-liquid securities" within the meaning of section 1.1 of Rule 48-501 and section 1.1 of UMIR; and

(f) at the time that the definitive agreement in respect of the Loblaw Transaction is entered into, and at the time that the Loblaw Transaction is completed, neither Loblaw, any member of the Weston Control Group, nor any of their respective personnel who negotiated the definitive agreement or made, participated in the making of, or provided advice in connection with the decision to enter into the Loblaw Transaction, is aware of any "material change" or any "material fact" (each as defined in the Act) in respect of Loblaw or the Loblaw Shares that has not been generally disclosed.

DATED at Toronto this 17th day of December, 2020.

"Jason Koskela"

Acting Director, Office of Mergers & Acquisitions

Ontario Securities Commission