OceanaGold/Romarco -- summary under Share-for-Share
Overview
OceanaGold, which is a BC corporation based in Australia, is proposing to acquire all the shares of Romarco under a B.C. plan of Arrangement in consideration for OceanaGold shares (which in ASX trading, are represented by certificates of beneficial interest), so that s. 85.1 would apply. Although it is intended that the exchange qualify as a Code s. 368(a) reorganization, it is believed that Romarco may be a PFIC, and that OceanaGold is not, so that the PFIC rules may apply to the exchange. An exchange of Romarco options for OceanaGold options (rather than having such options converted into Romarco shares to be included in the exchange) has the effect of avoiding the Romarco shareholders becoming the majority owners of OceanaGold.
OceanaGold
A BCBCA corporation whose head office is in Melbourne, Victoria and which is listed on the ASX, NZX and TSX. It holds gold mining properties in a New Zealand subsidiary and a Phillipines subsidiary (held through a Singapore and B.V. structure). Van Eck Associates Corp. and Ingalls & Snyyder LLC hold or have direction of 13.19% and 10.74% of its shares.
Romarco
A BCBCA corporation listed on the TSX and with a South Carolina gold property held in a Delaware subsidiary. The directors and officers group beneficially owned or exercised direction over Romarco Shares and Options representing approximately 0.55% and 2.45%, respectively, of the Romarco Shares. The Baupost Group, LLC and BlackRock Investment Managemnt (U.K.) Ltd. hold or have direction of 13.27% and 12.07% of its shares.
OceanaGold CDIs
OceanaGold participates in the Clearing House Electronic Subregister System ("CHESS") in Australia. It is not presently possible for securities issued by OceanaGold to be settled electronically on CHESS. Accordingly, OceanaGold CDIs have been created and issued to enable OceanaGold Shareholders to trade on the ASX. CDIs are units of beneficial ownership in securities registered in the name of CDN, a wholly-owned subsidiary of the ASX.
Combined Company
Following completion of the Arrangement, the board of directors of the Combined Company will initially be comprised of one Romarco appointment and seven incumbent directors of OceanaGold. The Combined Company had a pro forma market capitalization of approximately C$1.35 billion.
Plan of Arrangement
- Romarco Shares held by dissenters will be transferred to Romarco for cancellation.
- Each Romarco Share will be transferred to OceanaGold in exchange for 0.241 of an OceanaGold Share.
- Each Romarco option will be exchanged for an option to acquire OceanaGold Shares with the intention that ITA s. 7(1.4) apply.
Consequences of Exchange
The maximum number of OceanaGold Shares issuable in exchange for Romarco Shares pursuant to the Arrangement is equal to approximately 98.6% of the 303,677,847 OceanaGold Shares that were issued and outstanding but does not include OceanaGold Shares issuable upon the exercise of the "Replacement Options" that are issuable on completion of the Arrangement. The maximum number of Replacement Options to be issued at closing is 9,759,489 being exercisable thereafter for 9,759,489 OceanaGold Shares, which is equal to 3.2% of the 303,677,847 outstanding OceanaGold Shares which, collectively with the OceanaGold Shares to be issued in exchange for Romarco Shares under the Arrangement, is 309,248,640 OceanaGold Shares or 101.8% of the 303,677,847 OceanaGold Shares that were issued and outstanding. Following completion of the Arrangement, current OceanaGold Shareholders will own approximately 51% of the OceanaGold Shares and current Romarco Shareholders will own approximately 49% of the OceanaGold Shares.
Canadian tax consequences
S. 85.1 rollover. The share exchange will occur on a tax-deferred basis under s. 85.1 unless the Romarco Shareholder chooses to recognize any portion of the capital gain or capital loss otherwise arising by taking the positive step of reporting the capital gain or capital loss in the Romarco Shareholder's tax return under the Tax Act for the Romarco Shareholder's taxation year in which the exchange occurs.
New 55(2) language
In certain circumstances, subsection 55(2) of the Tax Act (as proposed to be amended by Proposed Amendments released on July 31, 2015) will treat a taxable dividend received by a Resident Holder that is a corporation as proceeds of a disposition or a capital gain….
U.S. tax consequences
Reorganization. The Arrangement is intended to qualify as a tax-deferred reorganization under s. 368(a) of the Code. However, even if the Arrangement qualifies as a Reorganization, under the PFIC rules, U.S. Holders may be required to recognize gain (but not loss) on the exchange of Romarco Shares for OceanaGold Shares pursuant to the Arrangement if (a) Romarco was classified as a PFIC for any taxable year during which such U.S. Holder held Romarco Shares, and (b) OceanaGold is not a PFIC for its taxable year that includes the day after the Effective Date. In such instance, a U.S. Holder would generally recognize any gain on such exchange equal to the difference, if any, between (i) the fair market value of the OceanaGold Shares (determined as of the Effective Date) received in exchange for Romarco Shares pursuant to the Arrangement and (ii) the U.S. Holder's adjusted tax basis in the Romarco Shares exchanged therefor. Any gain realized on the exchange would be subject to the "excess distribution rules" unless such U.S. Holder has made a QEF election or a mark-to-market election. Romarco believes that it may have been a PFIC for prior taxable years and that it may be a PFIC during the current taxable year. Although not free from doubt, OceanaGold does not expect to be classified as a PFIC for its taxable year ending December 31, 2015.
NOLs
The Arrangement is expected to result in an ownership change under Section 382 of the Code for Romarco, potentially limiting the use of Romarco's NOL carryforwards in future taxable years.