Home / Financial News / A primer on issuer bid exemption orders: They are bigger than you might think

A primer on issuer bid exemption orders: They are bigger than you might think

In 2015, there were 35 issuer bid exemption orders, including Dollarama Inc.

The issuer bid exemption order business C an arrangement approved with a regulator, in this instance the Ontario Securities Commission, allowing a business to purchase back its stock through private agreements for a cheap price to promote C is greater than originally anticipated.

We know that since the Ontario Securities Commission, the entity that approves such arrangements, told us so.

In 2015, for instance, it issued 35 separate orders, though some of them were for the same issuer.

Indeed the 35 orders were issued to 13 different companies: Canadian National Railway Co; TELUS Corporation; Metro Inc; Onex Corp; CGI Group Inc; Canadian Pacific Railway Ltd; Dollarama Inc; Agrium Inc; Saputo Inc.; Thomson Reuters Corp. Magna International Inc; Loblaw Companies Ltd. and TransCanada Corp.

The exemption orders are attractive for the issuer simply because they let it buy back one-third of what it’s allowed to buy under its normal course issuer bid through a private purchase with typically one investor. Those arrangements are negotiated between the two parties and are done for a cheap price to the prevailing market price. In other words buying back blocks of shares cheaper, either in one shot or over some time, generates benefits because of its shareholders.

Investors presumably such as the arrangements because they allow it to sell a great chunk of its position C even when it does not secure the entire selling price.

There may be an additional advantage: one issuer which has such a program said that banks (or their asset management arms) tend to be the sellers and that through some mechanism they get a tax benefit.

Exemption orders are required to be put in place due to the interplay between your Securities Act (Ontario) and the TSX’s regulations.

Indeed any purchase by an issuer of their own securities is susceptible to the formal issuer bid requirements put down in the Securities Act (Ontario) unless an exemption can be obtained. One such exemption is that if the bid is created in the normal course with the facilities of the “designated exchange”, such as the Toronto Stock Exchange depending on the by-laws, rules, regulations and policies of that exchange.

However because under an exemption order the value reaches a discount to the then-applicable selling price of the shares on the TSX, the issuer is not able to purchase the shares depending on the TSX’s rules governing normal course issuer bids. In this way, says the OSC, “the issuer therefore cannot rely on the statutory Designated Exchange Exemption to make the purchase.”

So the issuer has to go elsewhere C and gain an exemption. Indeed the specific issuer added that “occasionally, we have an chance to buy back some shares via a pre-arranged, private agreement with a Schedule 1 bank.

But there’s one slight problem, noted the issuer. Since such purchases are pre-arranged and also at a price reduction, “they cannot be made through the TSX and wish an OSC exemption order.”

Accordingly the issuer applies to the OSC which considers the problem. When it’s approved the issuer makes the news of the buy back public on SEDAR. When the buyback occurs, the details need to be published on SEDI. Based on a filing around the latter site, CIBC, which announced that it had received an order on Jan. 5, may have already completed one buy back. Inside a Jan. 6 filing, the financial institution indicated that it tried one transaction for 1.4 million shares at a cost of $86.4492 a share. On that day CIBC closed at $91.28.

Under its order CIBC is limited to one transaction each week.

 

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