Thomson Reuters -- summary under Share Offer

Overview

Prior to the s. 86 distribution of cash by Thomson Reuters described in a previous post, it made an issuer bid to purchase up to U.S.$9 billion of its shares for cash under a modified Dutch auction procedure. In fact, U.S.$6.5 billion in shares was tendered. Leaving aside s. 55(2), over ¾ of the purchase price was deemed to be a dividend.

The principal “modification” related to a desire of Woodridge, who held 62% of the Thomson Reuters shares, to not have its percentage interest change. Accordingly, there was added the concept of a “Proportionate Tender” under which a shareholder tendering its shares to Thomson Reuters under this alternative was deemed to have agreed to sell to Thomson Reuters, at the purchase price determined in accordance with the Dutch auction procedure, that number of shares that would result in its percentage shareholding remaining the same.

Shareholders also were offered a “Qualifying Holdco Alternative.” This entailed such a shareholder together with an affiliated “Preferred Holdco” transferring their Thomson Reuters shares to a Newco (potentially on a s. 85 rollover basis) in exchange for common and preferred shares of Newco. Newco (along with other Newcos) then amalgamating with a sub of Thomson Reuters under a triangular amalgamation in which the electing shareholder and Preferred Holdco received shares of Thomson Reuters. Such shares could then be tendered under the offer. Woodridge indicated that it would participate in the Qualifying Holdco Alternative.

Modified Dutch Auction

Thomson Reuters is making an offer, to purchase for cash up to US$9.0 billion in value of its common shares at a purchase price of not less than US$42.00 and not more than US$47.00 per common share, through a "modified Dutch Auction" procedure. This procedure allows a shareholder making an Auction Tender to select a price of not more than US$47.00 per share and not less than USS42.00 per share (in increments of US$0.25) at which that shareholder is willing to deposit all or part of its shares.

F&R Transaction

Thomson Reuters agreed om the F&R Transaction to sell a 55% interest in the business (now known as Refinitiv) for US$17 billion to private equity funds managed by Blackstone, Canada Pension Plan Investment Board and an affiliate of GIC and to retain a 45% interest. It committed to return US$10 billion of the proceeds to its shareholders.

Auction Tender

A shareholder who making an Auction Tender must specify the minimum price per share (of not more than US$47.00 and not less than US$42.00 per share and in increments of US$0.25) at which that shareholder is willing to sell its shares. Such shares] will only be taken up if the price specified in the Auction Tender is equal to or less than the Purchase Price determined by us.

Purchase Price Tender

If a shareholder does not wish to specify a minimum price, it should make a Purchase Price Tender, which is deemed to have been tendered at the minimum price of US$42.00 per share.

Proportionate Tender

A shareholder who makes a Proportionate Tender will be deemed to have agreed to sell to Thomson Reuters at the Purchase Price a number of shares that will result in the shareholder maintaining its proportionate equity ownership.

Background to Proportionate Tender

On July 24, 2018, in response to various proposals from management, Woodbridge indicated that it was willing to participate in an offer through a Proportionate Tender under which it would tender, at the purchase price determined pursuant to the offer, a number of shares that would maintain its proportionate equity ownership in Thomson Reuters following completion of the offer. Woodbridge has agreed with Thomson Reuters that it will make a Proportionate Tender pursuant to the Offer. Woodbridge has indicated that it will use the Qualifying Holdco Alternative (see below).

Determination of (single) Purchase Price

The Purchase Price will be the lowest price per share that will enable Thomson Reuters to purchase the maximum number of shares validly deposited pursuant to Auction Tenders and Purchase Price Tenders and not withdrawn having an aggregate purchase price not exceeding the Auction Tender Limit Amount (being US$ $9.0 billion, as proportionately reduced by the number of shares Proportionately Tendered). For purposes of determining the Purchase Price, shares deposited pursuant to Purchase Price Tenders will be deemed to have been deposited at a price of US$42.00 per share. The maximum number of shares that may be purchased ranges between 214,285,714 and 191,489,361 shares depending on where in the US$42.00 to US$47.00 range the Purchase Price falls. Thomson Reuters will publicly announce the Purchase Price and all shareholders who have validly deposited and not withdrawn their shares pursuant to Auction Tenders at prices equal to or less than the Purchase Price or pursuant to Purchase Price Tenders or Proportionate Tenders will receive the Purchase Price.

If the Aggregate Tender Purchase Amount is equal to or greater than the Auction Tender Limit Amount, Thomson Reuters will repurchase a total number of shares having an aggregate purchase price equal to US$9.0 billion. If the Aggregate Tender Purchase Amount (i.e., under Auction Tenders) is less than the Auction Tender Limit Amount, Thomson Reuters will repurchase a total number of shares having an aggregate purchase price equal to the product of (i) US$9.0 billion, and (ii) a fraction, the numerator of which is the Aggregate Tender Purchase Amount, and the denominator of which is the Auction Tender Limit Amount.

Qualifying Holdco Alternative

Instead of selling its shares directly to our company pursuant to the Offer, a registered shareholder (the "Electing Shareholder") who complies with the specified conditions may elect to sell all or a portion of the shares that it wishes to tender (whether such tender is an Auction Tender, a Purchase Price Tender or a Proportionate Tender) by completing the following corporate reorganization steps with Thomson Reuters after the Expiration Date for its Offer and prior to the take-up of shares tendered pursuant to the Offer (the “Qualifying Holdco Alternative”):

(a) the Electing Shareholder will transfer a number of shares (the "Elected Shares") to an affiliated holding corporation that will be incorporated under the CBCA ("Amalgamating Holdco") and (i) the only shareholders of Amalgamating Holdco will be (A) the Electing Shareholder, who will hold all of its common shares, and (B) another corporate subsidiary or affiliate of the Electing Shareholder (referred to as "Preferred Holdco"), who will hold all of its preferred shares, and (ii) Amalgamating Holdco will have no assets (apart from a nominal amount of cash not to exceed US$5.00) other than the Elected Shares, and no liabilities;

(b) one or more Amalgamating Holdco(s) will be amalgamated with a wholly-owned subsidiary of Thomson Reuters (referred to as "Subco") to form an amalgamated entity ("Amalco") that will own all of the Elected Shares of each Electing Shareholder of an Amalgamating Holdco involved in the amalgamation, and on the amalgamation, (i) the shares of Subco will be converted into a number of shares of Amalco, and (ii) the common and preferred shares of each Amalgamating Holdco involved in the amalgamation will be cancelled, and in consideration therefor, Thomson Reuters will issue to each Electing Shareholder and each Preferred Holdco a number of shares (the “Qualifying Alternative Shares”) having a fair market value equaling that of the Elected Shares held by their respective Amalgamating Holdco. Amalco will be liquidated into Thomson Reuters; and

(c) a number of the Qualifying Alternative Shares held by the Electing Shareholder or the applicable Preferred Holdco and identified by the Electing Shareholder (or, in the event of the pro-ration, such lesser number of shares as indicated by us to the Electing Shareholder) will be taken up and paid for by Thomson Reuters at the Purchase Price alongside all other shares to be purchased pursuant to the Offer.

If a joint election under s. 85 of the Tax Act and any provincial equivalent is desired by the Electing Shareholder on the transfer of Elected Shares, it must execute (and cause Amalgamating Holdco to execute), and subject to Thomson Reuters’s prior review, file with the appropriate government authority the election as promptly as practicable after the transfer date and in any case no later than five business days following announcement of the preliminary results of the Offer.

Canadian tax consequences

Residents

A Canadian Resident Shareholder who sells shares to Thomson Reuters pursuant to the Offer will be deemed to receive a taxable dividend equal to the excess, if any, of the amount paid by Thomson Reuters for the shares over their paid-up capital, estimated to be C$13.28 per share. The amount paid by Thomson Reuters pursuant to the Offer for the shares less any amount deemed to be received by the Canadian Resident Shareholder as a dividend (after the application of subsection 55(2) in the case of a corporate Canadian Resident Shareholder) will be treated as net proceeds of disposition of the shares.

Non-residents

In view of the deemed dividend tax treatment described above on a sale of shares pursuant to the Offer and the resulting Canadian withholding tax, Non-Canadian Resident Shareholders should consult their own tax advisors regarding selling their shares in the market as an alternative to selling shares pursuant to the Offer.

U.S. tax considerations

Purchase treated as sale or distribution

Thomson Reuters’s purchase of shares from a U.S. Holder pursuant to the Offer will be treated either as a sale of the shares or as a distribution by Thomson Reuters, depending upon the circumstances at the time the shares are purchased. The purchase of shares from a U.S. Holder will be treated as a sale if (a) the purchase results in a "complete redemption" of the U.S. Holder's equity interest in our company, (b) the receipt of cash by the U.S. Holder is "not essentially equivalent to a dividend", or (c) as a result of the purchase there is a "substantially disproportionate" reduction in the U.S. Holder's equity interest in our company, each within the meaning of Section 302(b) of the Code, as described below (the "Section 302 Tests"). The purchase of shares from a particular U.S. Holder will be treated as a distribution if none of the Section 302 Tests is satisfied with respect to such holder.

S. 302 tests

In applying the Section 302 Tests, the constructive ownership rules of Section 318 apply. Thus, a U.S. Holder is treated as owning not only shares actually owned by the U.S. Holder but also shares actually (and in some cases constructively) owned by others.

A purchase of shares pursuant to the Offer will result in a "complete redemption" of the U.S. Holder's interest in our company if, immediately after the sale, either (1) the U.S. Holder owns, actually and constructively, no shares; or (2) the U.S. Holder actually owns no shares and effectively waives constructive ownership of any constructively owned shares under the procedures described in Section 302(c)(2).

A purchase of shares pursuant to the Offer will be treated as “not essentially equivalent to a dividend” if it results in a “meaningful reduction in the selling U.S. Holder’s proportionate interest in our company.

A purchase of shares pursuant to the Offer will be "substantially disproportionate” as to a U.S. Holder if the percentage of the then outstanding shares actually and constructively owned by such U.S. Holder immediately after the purchase is less than 80% of the percentage of the outstanding shares actually and constructively owned by such U.S. Holder immediately before the purchase.

Sale

If any of the Section 302 Tests is satisfied by a U.S. Holder, then such holder generally will recognize taxable gain or loss equal to the difference between the amount received pursuant to the Offer (without reduction for withholding tax, if any) and such holder's adjusted tax basis in the tendered shares.

Distribution

If none of the Section 302 tests is satisfied by a U.S. Holder, then the full amount received pursuant to the Offer (without reduction for withholding tax, if any) will be treated as a distribution with respect to such holder's shares.