Just three months ago jubilant executives of Gordon Capital Ltd., the brash Toronto brokerage house, and Unicorp Canada Corp., the upstart conglomerate created by financier George Mann, were hoisting glasses in Mann’s Toronto backyard to toast their latest coup. After a vicious six-week midwinter battle, the two firms had stunned Bay Street by winning control of Union Enterprises Ltd., a holding company built around Union Gas Ltd., a $1.4billion-a-year southwestern Ontario gas distributor. But last week Mann and his partners were stunned to learn there would be another round —the last and possibly most difficult—of the campaign. The reason: the Ontario Securities Commission (OSC), the organization that regulates stock trading in the province, announced that on Nov. 6 it will begin hearings into the takeover. And if the commission can prove its allegations of numerous breaches of securities law by Unicorp and Gordon during the bid, including use of insider information and unequal treatment of minority shareholders, the two firms could face some of the stiffest reprimands meted out to Canadian businesses in years.
Many Bay Street observers welcomed the OSC’s challenge of the tactics of Gordon and Unicorp in the takeover. Some business insiders said that the action was aimed more at Gordon than at Unicorp. Since assuming the presidency of the firm in the mid-1970s, company president James Connacher had transformed Gordon into the thirdlargest brokerage house in Canada by adopting a bareknuckled style more typical of Wall Street than Bay Street. Several competitors have since emulated the no-holds-barred tactics, prompting broker Robert Wyman, chairman of Vancouver-based broker Pemberton Houston Willoughby Inc., to complain that the stock market had come to resemble “the Spanish Main.”
But the OSC had shown little public inclination to crack down—until last
week. Among the charges that it will make in the hearings, according to an OSC press release and notice of hearing: that prior to the formal announcement of the takeover bid Gordon “improperly divulged to certain of its clients generally undisclosed information that was relevant to trading in Union shares”; and that it warned certain firms that Unicorp would soon withdraw an offer of $13 cash for each Union share and replace it with a “less attractive’’offer of a package of one preferred share and one-half of a warrant to purchase nonvoting common shares. The commission also alleges that Gordon and Unicorp embarked on “an improper course of conduct” by approaching other companies that subsequently bought large blocks of Union and later sold them to Unicorp; that Unicorp “misled” shareholders by failing to disclose in circulars announcing the takeover attempt the “nature and extent of the activities in which it and Gordon intended to engage.”
If the allegations are confirmed, the commission could order Unicorp to extend the same $13-a-share offer that it made early in the process to all Union shareo holders or an offer of g equal value. It could 9 also order that Unicorp be stopped from trading its Union shares, in effect freezing the assets. For its part, Gordon could lose its licence.
The announcement by the OSC took Gordon and Unicorp officials by surprise. They strongly denied the charges. Even though most of the business community assumed that the commission had abandoned its investigation of the takeover, the OSC was in fact quietly continuing a thorough inquiry. Gordon Capital issued a statement saying it “acted properly in all its activities.” For his part, Unicorp president James Leech said: “We are shocked and disappointed. We have already been through two hearings; the facts are crystal clear.”
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