Michael J. Knell
Securities regulators say Sears Holding’s behavior ‘abusive’
TORONTO — Sears Holdings’ effort to take full control of Sears Canada may have been derailed permanently this week,


by an Ontario Securities Commission ruling that the takeover offer fails to comply with the province’s securities laws.

The OSC ordered that Sears Canada’s offer for shares it doesn’t hole cease, until a new disclosure document is produced with more information.

The OSC said a number of factors contributed to its conclusion that Sears Holdings’ behavior during the process was abusive. One was Sears Holdings’ warning to shareholders earlier this year that if they did not tender to the offer, Sears Canada would stop paying dividends and become illiquid. The commission said this “could be construed as threatening in nature.”

It also criticized the Chicago-based retail giant for failure to provide complete information to the independent committee of Sears Canada directors who were considering the bid.

“We find that elements of the conduct of Sears Holdings in pursuing their offer were coercive and abusive of the minority shares of Sears Canada and the capital markets generally,” the commission said in its ruling.

The commission also rejected Sears Holdings’ allegations against a group of minority shareholders — including Hawkeye Capital Management LLC; Knott Partners Management LLC; and Pershing Square Capital Management L.P. — saying there was no proof they acted in collusion or failed to accurately disclose their share ownership.

The OSC also ruled that the shares acquired by Sears Holding from the Bank of Nova Scotia, the Royal Bank or Canada and Vornado Realty LP under lock-up or deposit agreements won’t be counted towards the required threshold, since these parties received special benefits not available to other shareholders.

This means Sears Holding will not allowed to vote them as part of the “majority of the minority” to force the remaining minority shareholders to tender their shares.

“Sears Holding is disappointed with the decision,” company spokesman Chris Brathwaite said in a statement. “We believe that we, as well as the Canadian banks who agreed to support the transaction, acted in fully compliance with Ontario securities laws and practise throughout this process.”

Sears Holding has also announced that it will appeal the commission’s ruling to the Ontario Divisional Court.

Earlier this year, Sears Holding offered C$18 per share for all shares of Sears Canada that it did not already own. However, an independent body placed the value of the multi-channel retailer at between C$19 and C$22 per share.

The financial community is speculating that Edward Lampert, chairman and controlling shareholder of Sears Holdings, will set aside the offer at least in the short term, leaving about 30% of Sears Canada in the hands of the minority shareholders. Analysts said that any raised offer would have to be extended to those major shareholders who have already sold at C$18 per share.