Fairness at What Price? An Analysis of the Regulation of Going-Private Transactions in Osc Policy 9.1
22 Pages Posted: 27 May 2008
Ensuring that minority shareholders receive fair treatment appears to have been the original motivation for the Ontario Securities Commission's efforts to regulate going private transactions. In light of recent proposed revisions to Policy 9.1, it is important to revisit the question of what, exactly, is meant by "fairness" in the context of going-private transactions. The author favours a conception of fairness that is directly related to the price that minority shareholders ultimately receive on a going-private transaction.
The author argues that two of the obligations imposed on corporations by Policy 9.1 in its current form, namely disclosure of information and majority of the minority voting, further the objective of price-based fairness to minority shareholders. It is highly questionable, however, whether independent valuation and the formation of independent committees to select a valuer promote price-based fairness. If it is accepted that Canadian markets are not strong-form efficient, then disclosure of any information which would lead shareholders to demand a higher price for their shares would guard against unfairness by preventing the exploitation of non-public information by majority shareholders. Since access to such information would be meaningless without an accompanying power to reject an unfair share price, the majority of the minority approval requirement of Policy 9.1 is similarly justified.
By contrast, assessments of minority share value done by independent valuers as well as the establishment of independent committees to oversee the valuation process are more problematic. Social acquaintances between valuers, members of the independent committee and management make the independence of valuers questionable. Moreover, determining the true value of a share can be a difficult, if not impossible, task.
The author concludes that in the absence of empirical evidence, it is difficult to assess whether regulation is effective or necessary.
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