An offeror in a recent Canadian take over bid demonstrated ingenuity in squeezing out dissenting offerees in a new second step transaction designed to take the target private.
L-3 Communications completed a C$230 million ($146 million) take over of Spar Aerospace through an innovative combination of a take over bid and a subsequent share consolidation which effectively squeezed out the minority shareholders of Spar.
After three extensions to its original bid, and with the assistance of lock-up agreements, L-3 had taken up 70.1% of the total shares outstanding. L-3 could not use the compulsory acquisition rules which, pursuant to corporate law in Canada, allow an offeror who acquires 90% or more of the securities of the class to which a bid relates (other than securities held at the date of the bid by or on behalf of the offeror or its affiliates or associates), to acquire the securities of dissenting offerees.
Left with majority control of Spar, but not enough shares to effect a compulsory acquisition, L-3 proposed a new going private transaction using a radical share consolidation. Under Ontario securities rules, the share consolidation required the approval of a majority of minority shareholders, and under those same rules L-3 was permitted to vote its 70.1% interest as a minority shareholder. At a special meeting of Spar shareholders held on January 23 2002, the consolidation of the 15.1 million outstanding shares of Spar, on the basis of 5.3 million to one, was approved. Fractional shares were not issued. L-3, being the only shareholder with enough shares to be issued a post-consolidation share, became the sole shareholder of Spar. The remaining shareholders were paid out at the original bid price.
Although second step transactions amounting to an amalgamation squeeze out have traditionally been utilized by offerors taking targets private, the L-3 consolidation squeeze out is a novel variant as a mopping-up, second step transaction.
Katherine Gurney and Nicholas Dietrich