The Ontario Securities Commission has ruled that a proposed corporate acquisition must be put to a shareholder vote, overruling the Toronto Stock Exchange, which was prepared to let the deal go ahead without requiring a vote.

The OSC handed down its decision in the proposed acquisition by HudBay Minerals Inc. of Lundin Mining Corp. on Friday.

The deal, announced back in November, was opposed by Jaguar Financial Inc. and other shareholders of HudBay. They requested that the TSX exercise its discretion to require that HudBay obtain shareholder approval for the transaction.

The TSX decided not to impose that condition, and earlier this month Jaguar appealed that decision to the OSC. On Friday, the commission handed down its decision, ruling that the TSX decision be set aside; imposing shareholder approval of the transaction as a condition; and barring HudBay from issuing any securities in connection with the transaction until it obtains that approval.

In its decision, the OSC panel notes that the commission generally defers to the judgment of the TSX, particularly in the areas of the TSX’s expertise. However in this case it concluded that it could not do so because the TSX didn’t provide reasons for its decision. “We have no basis upon which to determine whether the TSX’s conclusion not to require HudBay shareholder approval was within a range of reasonableness and whether it is appropriate for us to defer to the TSX’s judgment,” it says.

As a result, the panel concluded that it must determine whether the completion of the transaction without shareholder approval would adversely affect the quality of the marketplace or be contrary to the public interest. It finds that, “The economic consequences of the transaction on the shareholders of HudBay are extreme”; and, other considerations “raise serious concerns as to the appropriateness of HudBay’s governance practices and the fair treatment of HudBay shareholders”.

“We are satisfied that the public interest in ensuring the fair treatment of HudBay shareholders far outweighs any possible prejudice to HudBay or Lundin of requiring HudBay shareholder approval of the transaction,” the decision says, adding, “We have concluded, based on the cumulative effect of the foregoing considerations, that the quality of the marketplace would be significantly undermined by permitting the transaction to proceed without the approval of the shareholders of HudBay. Fair treatment of shareholders is a key consideration going to the integrity and quality of our capital markets. We have also concluded that permitting the transaction to proceed without the approval of the shareholders of HudBay would be contrary to the public interest.”

The decision was issued on an expedited basis, and the OSC will publish its full reasoning at a later date.

In response to the decision the TSX issued a statement indicating that it is “pleased the commission confirmed that the process followed by TSX in this matter was appropriate. TSX will reserve further comment on this matter until the commission’s full reasons have been issued and reviewed.”

HudBay said it is reviewing the OSC decision with its legal advisors. Lundin Mining also said that it is reviewing the decision, and that its shareholder meeting to consider the deal will proceed as scheduled on Jan. 26.

IE