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Coalition warns of TSX conflict

JANET McFARLAND AND ANDY HOFFMAN

00:00 EST Tuesday, January 20, 2009

The Toronto Stock Exchange should not have the authority to set rules about shareholder votes on takeover deals because it has a regulatory conflict of interest, according to the head of Canada's most powerful shareholder group.

Stephen Griggs, managing director of the Canadian Coalition for Good Governance (CCGG), yesterday said his association of Canada's largest institutional shareholders is not taking sides on the controversial takeover of Lundin Mining Corp. by HudBay Minerals Inc., but wants to see the TSX give investors the right to vote on such highly dilutive deals.

"A number of our large members are very concerned about the lack of shareholder democracy in that transaction," Mr. Griggs said in an interview.

HudBay plans to double its number of shares outstanding to pay for its $500-million takeover of Lundin Mining. Shareholders of HudBay have asked both the Ontario Securities Commission and the Ontario courts to order a vote on the deal because it is so dilutive.

Vic Alboini, the head of Jaguar Financial Corp. - which says it owns 1.5-million HudBay shares - told an OSC hearing yesterday the TSX's approval process failed to consider a number of "material issues" related to the transaction, including the fact the companies share two common directors.

Mr. Alboini also told a three-member OSC panel that TSX procedure is opaque and does not provide a forum for shareholders to voice objections.

"The TSX process was a very dark, black hole," Mr. Alboini testified at a packed hearing.

Jaguar wants the OSC to throw out the TSX approval and force HudBay to hold a shareholder meeting to vote on the deal.

"It was a total disaster," Mr. Alboini said of the TSX ruling.

The public was banned yesterday from hearing testimony from HudBay chief executive officer Phil Wright and director Peter Gillin because lawyers from HudBay and Lundin Mining argued confidential corporate information would be discussed.

Mr. Griggs, meanwhile, said the CCGG has tried for over 18 months to lobby the TSX to change its rules and grant investors the right to vote on highly dilutive deals, but said the TSX has taken no action.

He suggested the TSX has a conflict of interest because its business is built on attracting companies to pay fees to list their shares. The exchange, therefore, has little interest in creating rules that impose a burden on the companies, even if they would protect shareholders, he said.

"The CCGG seriously questions why the TSX has this rule-making power," he said. "They have a fundamental conflict of interest."

He said regulators could modify business legislation or securities laws to make rules giving shareholders the right to vote on highly dilutive deals, taking the issue out of the hands of the TSX.

The TSX launched a review of the voting issue in 2007 but has not since issued a report or announced how it will address the issue.

"We are very critical of the TSX for not moving forward," Mr. Griggs said.

The TSX has refused to comment on the voting issue, but has previously said it may be a tactical advantage to Canadian firms if they can make an unconditional takeover offer because they do not have to hold a shareholder vote. Both the New York Stock Exchange and the London Stock Exchange require companies to hold votes on highly dilutive deals.