Thomson Reuters distributed US$2.3 billion in cash pursuant to a s. 86 reorg with opt-out rights
On November 27, 2018, Thomson Reuters distributed US$2.3 billion to its shareholders (being a portion of the US$17 billion realized earlier in the year on an asset sale), using a s. 86 distribution. In order to avoid potentially adverse tax consequences for some shareholders in foreign jurisdictions, Thomson Reuters gave non-exempt shareholders in non-Canadian jurisdictions the right to opt out of the cash distribution so that, rather than receiving such cash, their percentage equity interest in the Corporation would increase by an appropriate amount.
To accomplish this result, the “Participating Shareholders” (i.e., those who did not elect to be “Opting Out Shareholders”) had each of their old common shares exchanged under a s. 86 reorg for US$4.45 of cash and 0.9070 of a new common share, whose attributes were the same as for an old common share, except that it was convertible on a one-for-one basis for an old common share. All their new common shares were then converted into old common shares. The Opting Out Shareholders continued to hold the same number of old common shares as before. Given the paid-up capital per old common share of C$13.36 per share, no deemed dividend arose.
This “Return of Capital Transaction” was effected pursuant to on Ontario Plan of Arrangement, whose terms effectively indicate that the Corporation is potentially willing to entertain letting Participating Shareholders elect under s. 85(1) or (2) respecting the above exchange.
Neal Armstrong. Summary of Thomson Reuters Circular and Press Release under Spin-offs & Distributions – S. 86 cash distributions.