Borealis Bids for Teranet

TORONTO (Reuters) – Units of Teranet Income Fund (TF_u.TO: Quote, Profile, Research, Stock Buzz) soared as much as 20 percent on Thursday, after an investment unit of one of Canada’s largest pension plans said it will offer more than C$2 billion ($1.9 billion) in cash for for the e-commerce firm.

Borealis Infrastructure said it plans to offer C$11 a unit for Teranet, which would be a premium of about 27 percent over the volume-weighted average price for the 30 days to Aug. 27, the day before media speculation of the takeover surfaced.

Borealis said it was making the direct appeal to unitholders after several failed attempts to enter into negotiations with Teranet management.

“The management has built a great company here and that’s why we’re interested in it,” said Rick Byers, executive vice-president at Borealis, an investment arm of OMERS pension plan.

“We just thought that this was the best way to ensure that our offer got out directly to unitholders.”

Toronto-based Teranet provides a variety of e-commerce services to the government, legal and financial sectors.

Most notably, it has the license to access the province of Ontario’s Electronic Land Registration System until 2017 and collects a fee every time registration activity takes place, such as when homes change hands or mortgages are refinanced.

Whenever the title needs to be registered for a home owner, there is a C$60 fee, which means a very steady income. Byers said that is why Teranet would fit well with the long-term investment strategy of OMERS.

Teranet’s annual earnings before interest, taxes, depreciation and amortization, a measure of cash flow, were C$183.6 million in 2007.

Units of Teranet were up C$1.79 at C$11.15 on the Toronto Stock Exchange on Thursday morning.

Borealis also said it plans to commit close to C$90 million over a period of several years to fund Teranet’s growth.

“We also plan to redeem Teranet’s existing bonds upon successful completion of the transaction,” Michael Rolland, chief executive of Borealis, said in a statement.

A spokeswoman for Teranet was not immediately available for comment.

The fund put out a statement on Aug. 28 saying it was looking at a variety of options to maximize unitholder value, but said no decision had been made as to which option, if any, it would pursue.

Borealis said it plans to distribute a takeover bid circular as soon as possible.

The deal is conditional on, among other things, acceptance by two-thirds of unitholders, and approval by the province of Ontario. ($1=$1.06 Canadian) (Reporting by John McCrank, additional reporting by Frank Pingue; editing by Rob Wilson)