July 27, 2017
Securities regulators in Ontario, Québec, Alberta, New Brunswick and Manitoba recently issued guidelines to make board-commissioned fairness opinions more transparent for investors in conflict transactions, according to an article in The Globe and Mail. In the article, author Joyita Sengupta talks to M&A experts, including Jeremy Fraiberg, a partner in Osler’s Corporate Practice Group and Co-Chair of the firm’s M&A practice, to gain insight on the guidelines, which were recently released in a Staff Notice.
According to the article, regulators started reviewing conflict transactions two years ago and Canadian Securities Administrators staff “found that fairness opinions shared by financial advisors were often limited and didn’t provide enough detail for shareholders to make an informed decision when voting on a deal.”
“Really, what’s happened in the Canadian context is that fairness opinions have been short-form opinions. They’re very short and don’t release much in the way of math or financial analysis at all,” says Jeremy.
Since the Yukon Court of Appeal’s 2016 decision in InterOil, in which the US$2.5-billion take-over bid by Exxon Mobil Corp. for InterOil Corp. was blocked, there has been considerable discussion in the M&A community as to whether Canadian practice relating to fairness opinions should evolve in response to that decision, according to a recent Osler Update that discussed the CSA’s Notice.
The Globe and Mail states that in InterOil the report outlining the fairness opinion, which was given to InterOil’s shareholders, failed to give them enough information ahead of the deal. As well, the courts found that “shareholders should have been given the financial analysis that led to the opinion, the fee paid to the advisor and whether or not the advisor was receiving a success fee that could influence the way they present their opinion.” The Yukon Supreme Court later approved the deal after an amended arrangement was given.
“There’s been a big debate in Canada on whether to follow that and this is the first time the regulators are opining on that, although only on conflict transactions,” states Jeremy.
For more information, read Joyita Sengupta’s full article “Securities regulators weigh in on fairness reports in conflict transactions” in The Globe and Mail.