Background
Pubco, a public corporation with one class of shares (the “Pubco Shares”) and which (directly and through subsidiaries) had been carrying on a business with different segments, now holds cash proceeds (the “Financial Assets”) from the sale of two sub-segments of one of the segments. The “Continuing Shareholders” (being three Holdcos”) have now delivered a non-binding proposal to purchase for cash all of the Pubco Shares not already owned or controlled by them (other than Pubco Shares held by key employees).
Proposed transactions
- The Continuing Shareholders and key employees will transfer their Pubco Shares to newly-incorporated Newco under s. 85(1) in consideration for common shares (or common shares and notes, in the case of the key employees).
- Under a Plan of Arrangement, after Pubco has repurchased outstanding stock options for a cash payment equalling their in-the-money value and repurchased the shares of those validly exercising dissent rights for an obligation to pay the shares’ fair value, Newco will use the proceeds of a bank loan to purchase the remaining Pubco Shares for cash.
- Newco and Puboc will amalgamate.
- Amalco will repay the bank loan with the Financial Assets and continue to carry on the business.
Ruling
S. 84(2) will apply to the sale in 2 "such that Pubco will be deemed to have paid, and each holder of Public Shares having such shares purchased by Newco will be deemed to have received, a dividend to the extent that the amount paid by Newco to each such holder on the Public Share Sale exceeds the amount of PUC attributable to such holder’s shares."