Question
From: (redacted)
Sent: Thursday, August 12, 2004 4:02 PM
To: Verne, B. Michael
Cc: Johnson, Janice C. (redacted)
Subject: HSR questions
Mike,
This e-mail is a follow-up to a number of conversations/e-mail exchanges we had in early June regarding the Canada Pension Plan (the "Plan") and Canada Pension Plan Investment Board (the "Investment Board"), the company that invests funds not needed by the Plan to pay current pensions. We seek your advice in determining who "controls" the Investment Board for purposes of the Hart-Scott-Rodino Act of 1976, as amended ("HSR"). Janice Johnson suggested that we lay out our questions in an e-mail.
By way of background:
1. The Investment Board was incorporated as a Federal crown corporation by an Act of Parliament, pursuant to which, the Investment Board issued 10 shares of the Investment Board (the "Shares") to the Minister of Finance (the "Minister") to be held on behalf of Her Majesty in right of Canada, the Canadian government. There are no shares of the Investment Board other than the Shares. It is not clear whether the Shares are "voting securities" for HSR purposes. The Act of Parliament gives the Canadian government the right to appoint all the directors of the Investment Board (see #2 below), but it does not specifically link this right to the Shares.
2. Pursuant to the Act of Parliament, the Governor in Council (the equivalent of the U.S. Federal Cabinet) is empowered to appoint all of the directors of the Investment Board on the recommendation of the Minister. (We assume, for HSR purposes, that the Governor in Council is viewed as an extension of the Canadian government.)
3. The Investment Board invests in capital markets funds that are transferred to it from the Plan which are not needed by the Plan to pay current pensions. The Investment Board is required, on 30 days' notice from the Minister, to transfer funds to the Plan if the Minister considers the transfer is necessary to meet any payment obligation of the Plan. The Investment Board is not expected to be required to contribute funds to the Plan to help pay pensions until 2021.
4. The Investment Board's governing statute provides that no statute relating to the insolvency or winding-up of any corporation applies to the Investment Board and in no case shall the affairs of the Investment Board be wound up unless Parliament so provides.
5. We attach some further background information about the Investment Board and the Plan below which may be helpful in understanding the relationship between them. This information was downloaded from the Investment Board's website on August 11, 2004.
Backgound.pdf (refer to image file)
Based on the foregoing facts, it is unclear to us who "controls" the Investment Board for HSR purposes. Our HSR analysis is set forth below:
A. We believe that the Canadian government controls the Investment Board for purposes of HSR because (i) it holds 50% or more of all outstanding securities of the Investment Board and/or (ii) it has the sole right to appoint all of the directors of the Investment Board. (Staff Comment: Agree.)
B. However, if the Shares are not considered voting securities, then the Plan could "control" the Investment Board under HSR because it is entitled to all of the net profit of the Investment Board. (Staff Comment: No This is a corporation.)
If the Investment Board is determined to be controlled by the Canadian government, please confirm that acquisitions or sales by the Investment Board (or its subsidiaries) of assets located within Canada or voting securities of an issuer organized in Canada would be exempt under Section 802.52 of the HSR regulations. (Staff Comment: Yes.)
We also discussed the applicability of the "institutional investor" exemption under Section 802.64 and you advised me that Canada public pension plans qualify as institutional investors under 802.64(a)(10), however, the exemption would not be applicable because the Plan is not directly acquiring the voting securities. If it is determined that the Plan "controls" the Investment Board, would the exemption still be inapplicable because the Plan is not "directly" acquiring the voting securities?
(Staff Comment: No Both the investment bond and the plan are controlled by the Canadian Government, but the plan does not control the Board.)
If you have any questions please do not hesitate to contact (redacted) or me at (redacted). We look forward to hearing from you.