The Ontario Securities Commission has halted a $900-million bid by Sears Holdings Corp. to buy out its Canadian subsidiary, Sears Canada Inc.
The OSC said Tuesday that the American retailing giant failed to disclose information related to support agreements struck with Scotiabank, its investment banking division Scotia Capital Inc. and Royal Bank.
These side agreements gave the banks a better deal than was offered to other minority shareholders, the OSC said in its 94-page judgment.
"The effect of the support agreements was to provide consideration of greater value to the banks than that offered to other Sears Canada shareholders," the OSC said.
The OSC has now ordered Sears Holdings to distribute another circular that excludes the banks from voting on the buy-out offer. The circular will also have to provide information about the support agreements and details of another side deal that it signed with Vornado Realty Ltd.
In its report, the OSC said the banks had negotiated side deals with Chicago-based Sears Holdings, even though they owned a significant voting block of 7.6-million shares of Sears Canada.
In Scotiabank's case, Scotia Capital was hired by Sears Holdings as an adviser on its takeover offer, while another arm of the bank tendered its block of Sears Canada shares to the bid.
The OSC also criticized Sears Holdings for its lack of adequate disclosure.
"Viewed as a whole, the panel is troubled by the approach taken by Sears Holdings to their disclosure obligations in the context of their offer," the OSC said.
"Insiders such as Sears Holdings must ensure that they treat minority shareholders fairly and comply fully with the spirit and intent of their disclosure and other obligations."
The decision follows a complaint last month by three dissident shareholders of Sears Canada: Hawkeye Capital Management LLC, Knott Partners Management LLC and Pershing Square Capital Management LP.
Sears Holdings has offered $18 a share for the 46 per cent of Sears Canada that it doesn't already own.