The OSC alleges Eric Inspektor, who headed the Kaptor Group of companies, raised money between 2005 and 2011 without ever being registered to sell securities and without issuing prospectuses or properly using accredited investor exemptions to sell to the public.Peter Power/The Globe and Mail
Activist Orange Capital's premium tender offer for units of Partners Real Estate Investment Trust now has the imprimatur of the Ontario Securities Commission, meaning that if the tactic works, it could be a tool that other activists use to build stakes and gather proxies.
Orange is offering to buy as much as 10 per cent of Partners for $5 a unit, which was a 7 per cent premium to the market price when the tender was announced in late May. The tender came with the stipulation that anybody offering up shares to be bought would have to give Orange the proxy to vote those shares – even if they weren't all taken up.
The plan would allow Orange to pick up as much as 10 per cent of all shares in Partners, and even more proxies as it tries to replace the board of the REIT. Orange has been very critical of the REIT's management, in particular because of a deal the company tried to do (which was later found to be offside and will be unwound.) More proxies means more votes.
In an activist situation, the key for the activist is how to accumulate a significant enough stake to make money. In most cases, the activist buys stealthily in the open market before having to publicly disclose its position and intentions. That's what Bill Ackman of Pershing Square Capital did in the Canadian Pacific Railway Ltd. fight.
There's two issues there. The first is that it's going to be tougher to do what Mr. Ackman did in the future. Canada is planning to lower the disclosure threshold from a 10 per cent stake to a 5 per cent stake, and change other rules that will make it tough to go past 5 per cent without paying a higher price. The second is a question of transparency. When an activist is buying in secret, shareholders who sell to that activist are missing out on a chance to participate in any change. Anyone who sells to Orange knows what they are missing out on. For the activist, though, there is the cost of paying the premium. The tradeoff for that expense is the ability to gather even more proxies than those that come with the shares it actually buys.
Still, the OSC clearly had some issues with the idea. Orange said this week that after what it called "constructive discussions" with the regulator the tender could go ahead. What resulted from the discussions was clearly a demand for more disclosure, as the Orange release laid out "important procedural clarifications." So the OSC seems onside with the idea, so long as its implications are well explained to shareholders.
Key among them is ensuring that shareholders are clearly reminded that they have the ability to revoke any proxies that they hand over to Orange for shares that Orange doesn't actually buy.