Cara vows to press bid for Second Cup

Cara Operations Ltd. said yesterday it will move ahead with its all-cash bid for The Second Cup Ltd., after the Ontario Securities Commission forced the coffee merchant to abandon a poison pill defence aimed at thwarting the proposed $43-million takeover.

The Financial Post
January 10, 2002

Cara vows to press bid for Second Cup
$43M all-cash offer: OSC forces coffee chain to abandon poison pill defence
Sinclair Stewart

Cara Operations Ltd. said yesterday it will move ahead with its all-cash bid for The Second Cup Ltd., after the Ontario Securities Commission forced the coffee merchant to abandon a poison pill defence aimed at thwarting the proposed $43-million takeover.

The food service conglomerate, which owns 39% of the coffee company and operates the Swiss Chalet and Harvey's restaurant chains, had urged the securities regulator to quash a dilutive shareholder rights plan that would have allowed Second Cup shareholders to buy one additional share at half price for each share they held.

After hearing arguments from both sides on Tuesday, the OSC determined it would be "in the public interest to issue a cease-trade order, effective immediately, with respect to the shareholder rights plan," although it did not provide reasons for the decision.

Although the move enables Second Cup shareholders to vote on Cara's sweetened offer of $7.50 a share, which expires this afternoon, it appears the bid will encounter stiff resistance from a majority of investors.

Robert Haft, who is heading a Second Cup special committee to review the offer, said that despite the unfavourable ruling there are indications that investors representing more than half of Second Cup's outstanding shares are poised to reject the unsolicited bid because it is too low.

"We understand that shareholders with more than 50% of the shares do not intend to tender to Cara's offer," he said, referring to information gathered by RBC Dominion Securities, the committee's financial advisor.

Michael Bregman, whose family owns 24% of the company's shares, also issued a statement yesterday saying he would not tender any of his stock and insisting he was "fully confident" the Cara bid would fail.
He added that Mark Rarog of Investors Group Trust Co. Ltd., which has a 17.4% position in Second Cup, confirmed that his firm would also refuse the offer.

Cara, which would like to take Second Cup private, attempted to wrest control of the 400-shop chain in
August, but its offer to buy three million shares at $7 apiece was ultimately rebuffed.

Second Cup has argued that both bids fall well below an independent valuation by TD Securities that determined the stock was worth between $8.25 and $9.75 a share.

Indeed, the company told the OSC Tuesday it had fielded expressions of interest in that price range from a pair of potential bidders. Mr. Haft declined to comment on rumours that Counsel Corp., an acquisition firm, and Paul Phelan, a former Cara board member, are the interested parties, although he suggested any formal bids for Second Cup would likely occur in the next two to three weeks.

Ian Wilkie, senior vice-president and general counsel for Cara, described the OSC ruling as "appropriate," and promised that Cara would not improve its bid should the current offer fail. He maintained that $7.50 was a fair deal for investors and dismissed the TD Securities estimate as "an aggressive valuation."

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