Equicom’s Q3 2010 Canadian Healthcare Review, published earlier this week, took a look at financings and major industry events in the sector over the last three months.

Imagine coming into the office one day and learning that someone has mailed all your shareholders an unsolicited offer to buy their shares – at a price below the current trading price.  It’s called a “mini-tender”, and it can and does happen with some regularity.  Manulife Financial is the latest target in a long line of Canadian issuers that has included the likes of RioCan REIT, EnCana, Canadian Tire, Goldcorp, Yamana Gold, Quebecor, Saputo, and Research in Motion.

 

Here’s how it works.  An offeror makes an unsolicited offer to buy a limited number of shares (typically less than 5% of outstanding shares) directly from existing shareholders, at a price that is less than the current market price (typically a discount of around 5%).  Because the offeror ends up with less than 5% of the outstanding shares, they never need to disclose how many shares they’ve actually acquired.  It’s a safe bet that they flip them back into the market for a quick profit – that’s why they target large cap, liquid stocks.  The offer is structured so that the offeror can back out if the market price drops too low.

 

Regulators in both Canada and the U.S. have expressed serious concerns about mini-tenders because of the potential for investors to be misled.  (See the CSA’s Staff Notice 61-301, and the SEC’s Tips for Investors.) 

 

What can issuers do if they are targeted? 

 

The most important step is to issue a news release laying out the facts as clearly as possible.  Manulife’s release follows a well established template: restate the key points of the offer, including the fact that the price is below market levels; state the issuer’s official position (in Manulife’s case, no recommendation is made); and reference the concerns expressed by the regulators.

 

Investor relations officers should also be prepared for a flurry of questions from their shareholders.  Presumably they’re happy to have the opportunity to explain the situation to shareholders, rather than risk anyone making a decision under false assumptions.

 

Mini-tenders don’t seem to get a lot of media coverage, although the Globe & Mail’s Streetwise Blog recently covered the Manulife offer, and a lengthier story about one of the more prolific purveyors of mini-tender offers appeared in Canadian Business back in 2003.

 

The entire world shared in the joy and triumph as the 33 men trapped 700 metres beneath the ground emerged one by one from the “Phoenix” capsule.  As I, along with the rest of the world watched the very moving news footage of the miners being reunited with their loved ones, one phrase uttered by one of the many journalists covering the story stuck in my head:  “Freedom…less than two months after they were discovered alive.”  Less than two months?  Wasn’t it supposed to take much longer than that? Initial estimates were that it would take up to 90, even 120 days, to  bring them to the surface.

Canadian companies with operations in the U.S. are bracing for a new accounting rule put forward by the Financial Accountings Standards Board (FASB). Scheduled to go into effect before year’s end, the new rule requires companies with U.S. operations to disclose all pending lawsuits. Regardless of the suit’s merits, companies must estimate both the amount and timing of potential settlements.

 

According to this article in the Globe and Mail, public issuers have criticized the change over concerns that the additional disclosure could potentially provide plaintiffs with unfair insights into their expectations around any pending litigation.

Did you know that one in every two Canadians owns a publicly-traded stock? That amounts to over 16 million retail investors.