The issuer bid exemption order business – an arrangement approved by a regulator, in this case the Ontario Securities Commission, allowing a company to buy back its stock through private agreements at a discount to market – is larger than originally anticipated.
We know that because the Ontario Securities Commission, the entity that approves such arrangements, told us so.
In 2015, for example, 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 because they allow it to 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 at a discount to the prevailing market price. In other words buying back blocks of shares at a lower cost, either in one shot or over a period of time, generates benefits for its shareholders.
Investors presumably like the arrangements because they allow it to sell a good chunk of its position – even if it doesn’t secure the full market price.
There may be another advantage: one issuer which has such a program said that the banks (or their asset management arms) tend to be the sellers and that through some mechanism they receive a tax benefit.
Exemption orders are required to be put in place because of the interplay between the Securities Act (Ontario) and the TSX’s rules and regulations.
Indeed any purchase by an issuer of its own securities is subject to the formal issuer bid requirements set out in the Securities Act (Ontario) unless an exemption is available. One such exemption is if the bid is made in the normal course through the facilities of a “designated exchange”, such as the Toronto Stock Exchange in accordance with the by-laws, rules, regulations and policies of that exchange.
However because under an exemption order the purchase price is at a discount to the then-applicable market price of the shares on the TSX, the issuer is unable to purchase the shares in accordance with 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 – and gain an exemption. Indeed the particular issuer added that “occasionally, we have an opportunity to buy back some shares through 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 at a discount, “they cannot be made through the TSX and require an OSC exemption order.”
Accordingly the issuer applies to the OSC which considers the matter. When it’s approved the issuer makes the news of the buy back public on SEDAR. When the buyback occurs, the details have to be published on SEDI. Based on a filing on the latter site, CIBC, which announced that it had received the order on Jan. 5, may have already completed one buy back. In a Jan. 6 filing, the bank indicated that it had done one transaction for 1.4 million shares at a price of $86.4492 a share. On that day CIBC closed at $91.28.
Under its order CIBC is limited to one transaction per week.