OSC sets hearing over Sears complaints

Date: Thursday, June 15, 2006
Author: Marina Strauss, globeandmail.com

The Ontario Securities Commission has called a hearing into the U.S.-based Sears Holdings Corp.'s complaint that three dissident shareholders of its Canadian division worked in concert to try to thwart the parent company's takeover bid.

The commission said it will hear the matter on July 4, along with another hearing into complaints from the three U.S. shareholders, all hedge funds, about the role of Bank of Nova Scotia in the hostile takeover bid.

Sears Holdings Corp. is asking the OSC to reprimand the three hedge funds and to force them to sell their shares into the market by July 31, according to a letter from its lawyer.

The parent company is asking that the hedge funds be banned from acquiring further shares, or that their shares be excluded in the vote later this year on whether Sears Holdings can take the Canadian division private.

Pershing Square Capital Management LP, Hawkeye Capital Management LLC and Knott Partners Management LLC collectively own or control 7.7 per cent of Sears Canada shares, according to the parent.

The funds have been locked in a battle with Sears Holdings over the retailer's attempt to buy the minority of the Canadian division that it doesn't already own, and take it private.

Sears Holdings argues that the funds skirted disclosure requirements when they acquired the shares, resulting in the Sears Canada shares trading at "an artificial price."

In their complaint, filed in May, the three hedge funds alleged that the investment banking arm of Scotiabank acted as an adviser to Sears Holdings in the takeover, while another arm of the bank voted a pivotal share stake in Sears Canada in favour of the deal.

Sears Holdings, controlled by yet another U.S. hedge fund manager -- Edward Lampert -- bid $18 a share, or almost $900-million. The opposing investors rejected the offer as too low.

Scotiabank has said it may seek standing at the hearing even though it hasn't been named as a party. The bank has maintained that its employees acted properly and that its two arms acted independently.