Case: Re Bison Acquisition Corp., 2021 ABASC 188
– Novel Approach: Brookfield Infrastructure Corporation’s hostile takeover bid of Inter Pipeline Ltd. (IPL) utilized total return swaps, a groundbreaking and innovative tactic in a hostile bid context.
– Abusive Practice: The Alberta Securities Commission (ASC) deemed the use of total return swaps abusive to the capital markets and IPL shareholders.
– Raised Issues: The case highlighted three critical issues with total return swaps: their impact on the early warning system, concerns about influence on voting shares, and the concept of “empty voting.”
– ASC Remedy: The ASC issued a groundbreaking remedy, increasing the minimum take-up condition and limiting Brookfield’s offer for the remaining shares to address the risks of empty voting.
– Acceptable Measures: The ASC found a $350-million break fee and IPL’s amendment to its shareholder rights plan acceptable and proper responses to the use of total return swaps in a hostile bid.
– Landmark Decision: This landmark ruling addressed a previously debated issue and set an important precedent in North America, drawing attention to novel financial instruments in corporate transactions.
Case Details:
The case of Re Bison Acquisition Corp., 2021 ABASC 188, centered around Brookfield Infrastructure Corporation’s hostile takeover bid of Inter Pipeline Ltd. (IPL). In an innovative approach, Brookfield utilized total return swaps, granting it an economic interest of nearly 20 percent in IPL. This tactic was a first of its kind in a hostile bid, prompting intense legal scrutiny.
During the proceedings, three critical issues emerged regarding the total return swaps. Firstly, there were concerns that they subverted the “early warning system” in securities law. Brookfield argued that since it owned less than 10 percent of IPL shares outright, it had not triggered the early warning system, a signal that could impact share prices during a hostile bid.
The second concern involved the influence that swap counterparties might have on voting shares. Parties entering swaps often purchased equivalent shares to cover potential increases in value, potentially influencing voting decisions to favor their swap partners.
The third issue was “empty voting.” Swap counterparties, such as financial institutions, might choose not to vote the shares they accumulate in the market. This could amplify the influence of remaining voting shares, leading to potential manipulation.
In a groundbreaking decision, the Alberta Securities Commission (ASC) ruled that total return swaps should not be used in hostile bids, asserting their public interest power to issue a novel remedy. The ASC increased the minimum take-up condition and limited Brookfield’s offer for the remaining shares to address the risks of empty voting.
The ASC’s decision also endorsed a $350-million break fee and IPL’s amendment to its shareholder rights plan as acceptable and proper measures in response to the use of total return swaps in a hostile bid.
This landmark ruling addressed a long-debated issue in North America, setting a significant precedent and drawing attention to the complexities of hostile takeovers and novel financial instruments in corporate transactions.
