The Ontario Securities Commission has overturned a Toronto Stock Exchange ruling that would have allowed Bank of Nova Scotia to vote on CI Financial Corp.'s shareholder rights plan.
The move is a victory for CI Financial, paving the way for it to win a three-year extension of its rights plan, commonly known as a poison pill, at next Wednesday's annual meeting. But it's a big loss for Scotiabank, which will be constrained on how it can sell its 36-per-cent stake in the fund giant.
Stephen MacPhail, chief executive officer of CI Financial, said he was "elated" by the OSC decision. "We believed that we were in the right all the time," he said. "It's been a colossal waste of time for us and very, very expensive."
Mr. MacPhail said he has been "shocked" at Scotiabank's stance against CI. "It's been a long road and an attack on CI's credibility. The Bank of Nova Scotia owes our shareholders an apology."
The OSC's ruling on Thursday came after lawyers for CI Financial, the TSX, and OSC commission staff argued their case at a hearing before the securities regulator. CI has maintained that only independent shareholders could vote on the extension of the rights plan to 2014 and that Scotiabank did not qualify.
CI's lawyer, Paul Le Vay, argued that the TSX lacked the jurisdiction to enable Scotiabank to vote on the rights plan. There are no TSX rules or regulations that govern midterm votes to ratify the continuation of a rights plan adopted by all shareholders.
The TSX also ignored the fact that Scotiabank voted for the rights plan in 2008, and any suggestion the bank is being disenfranchised is a "red herring," Mr. Le Vay said.
In a statement, Scotiabank said it was disappointed with the decision. "We remain convinced that our position on the fundamental rights of shareholders is correct."
CI has contended the rights plan would protect independent shareholders from a "creeping takeover" bid by the bank or any other party. CI has also warned that Scotiabank, which bought rival DundeeWealth Inc., does not share the same interests as other shareholders.
Michael Barrack, lawyer for the TSX, argued the exchange has jurisdiction over a rights plan when it is adopted, renewed or ratified, and the midterm vote has the "substance" of a renewal.
OSC litigator James Angus supported CI, saying that Scotiabank is a "sophisticated investor," and knew what it doing when it voted for the rights plan in 2008.