Exploring Corporate Governance Around the World

By Allison Garrett, Senior Vice President for Academic Affairs at Oklahoma Christian University

Wednesday, August 16, 2006

Sears Suffers Setback in Canada

Sears wanted to take its Canadian subsidiary private and made an offer to the minority holders for the shares of the Canadian subsidiary. On August 8, the Ontario Securities Commission ruled that Sears Canada will not be allowed to buy the remaining minority interest in the Canadian division unless it makes significant changes to its offer. FYI, in Canada there is no single, national securities regulator. Each province has its own regulatory agency, but most follow closely what the OSC does.

The Reasons and Decision by the OSC are lengthy, but basically explain that Sears failed to disclose sufficient information about its agreements with certain investors. The OSC found that the actions by Sears were abusive under Canadian takeover law. For example, Sears Canada told shareholders that the company would cease to pay dividends and would become illiquid. Further, a committee of independent Sears Canada directors was not given sufficient information to consider the bid by the parent.

Perhaps the moral of the story is that you should always have an exit strategy when entering a new market. This is messy, embarassing and expensive for Sears.

Press reports are here, here and here.

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