On October 24, 2006, Judge J. Pepall of the Ontario Superior Court of Justice denied the application by Robert McEwen, former CEO and Chairman of Goldcorp Inc., for a declaration that Goldcorp has failed to comply with the requirements of the Ontario Business Corporations Act by failing to hold a shareholders' meeting to approve and adopt the acquisition by Goldcorp of all of the outstanding shares of Glamis Gold Ltd.

The Goldcorp acquisition of Glamis will be completed pursuant to a plan of arrangement proposed by Glamis to its shareholders under the provisions of the British Columbia Business Corporations Act, the corporate statute governing Glamis, and requires the approval of Glamis shareholders (but not Goldcorp shareholders) under that statute.  Pursuant to the terms of the agreement between Goldcorp and Glamis, Glamis shareholders will exchange each Glamis share for 1.69 common shares of Goldcorp plus nominal cash.  On the closing of the transaction, Glamis shareholders will own approximately 40% of Goldcorp and current Goldcorp shareholders will own approximately 60% of the company.  This will result in the issuance by Goldcorp of shares representing approximately 67% of its current issued share capital.  Following the share issuance, either Glamis and a British Columbia subsidiary of Goldcorp will amalgamate or Glamis will be continued into Ontario and amalgamate with Goldcorp directly.  Either amalgamation would not require Goldcorp shareholder approval under Ontario law.  The plan of arrangement was approved by 98% of the Glamis shares voted at its October 26, 2006 shareholders' meeting.

Mr. McEwen argued that the arrangement is an arrangement under Ontario law requiring Goldcorp shareholder approval and that the transaction is oppressive to shareholders because it was structured in a manner that did not allow Goldcorp shareholders to vote.

Judge Pepall rejected these arguments, finding that the transaction did not constitute an arrangement under the Ontario Business Corporations Act and therefore there was no legal requirement for Goldcorp to obtain shareholder approval.  Judge Pepall also denied Mr. McEwen's request for a declaration that the transaction is oppressive to, or unfairly disregards the interests of, Mr. McEwen as a shareholder. The Court found that there was no legal requirement to call a shareholder meeting and that the board properly exercised its business judgment in declining Mr. McEwen's request to seek shareholder approval and in negotiating and structuring the transaction without the need to obtain such approval.  The Judge also found that the transaction was consistent with the nature of Goldcorp's business, its history of growth through acquisition and its publicly announced strategy to continue to grow in this fashion.

In his application, Mr. McEwen also requested that the Court order a Goldcorp shareholders' meeting pursuant to section 106 of the Ontario Business Corporations Act. Recognizing that the Court should only exercise its discretion under section 106 in exceptional circumstances, Judge Pepall was not prepared to order a Goldcorp shareholders' meeting where the board had complied with the applicable statutory and regulatory requirements.

In refusing to grant Mr. McEwen the orders he requested, the Court showed substantial deference to the board's business judgment in negotiating and structuring transactions.  Judge Pepall suggested that stakeholders looking to change the law or regulatory regime in Ontario should be looking to the securities regulators and not the courts to do so.  Mr. McEwen has announced that he intends to appeal the decision.

The acquisition of a target company through the issuance of shares under a plan of arrangement of the target company pursuant to the target company's governing corporate statute is a commonly used structure in the Canadian public M&A market.  The approval by shareholders of the purchasing company for acquisitions that involve material share issuances is an issue that has recently received, and is likely to continue to receive, much attention.  On the date of the Goldcorp court hearing, a large institutional investor announced that it too would press Goldcorp to call a shareholders' vote. In response to the Court's decision, some institutional investors have announced their intention to pursue with the Toronto Stock Exchange and the Ontario Securities Commission the requirement for shareholder approval of dilutive transactions
 
If you have questions concerning this Flash, or Canadian securities laws generally, please do not hesitate to contact Kevin Thomson (416.863.5590), Vincent Mercier (416.863.5579) or Mindy Gilbert (416.367.6907). 
 
Davies Ward Phillips & Vineberg LLP, with over 235 lawyers, practises nationally and internationally from offices in Toronto, Montréal, New York and an affiliate in Paris and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its North American and overseas clients.

The information and comments herein are for the general information of the reader and are not intended as advice or opinions to be relied upon in relation to any particular circumstance. For particular applications of the law to specific situations, the reader should seek professional advice.