TORONTO (Reuters) – Teranet Income Fund (TF_u.TO: Quote, Profile, Research, Stock Buzz) said on Friday it has formed a special committee to examine a hostile takeover bid by Borealis Infrastructure Management, worth more than more than C$2 billion ($1.9 billion).
Borealis, an investment unit of OMERS, one of Canada’s largest pension plans, said on Thursday it planned to offer C$11 a unit for Teranet, which provides a variety of e-commerce services, including access to Ontario’s property registration database.
Teranet said the special committee, together with its advisers, would evaluate the yet-to-be formalized Borealis proposal, as well as consider any other alternatives that would maximize unitholder value. It would then make a recommendation to Teranet’s board.
The fund has retained RBC Dominion Securities Inc and CIBC World Markets Inc as financial advisers.
“Until Teranet provides a formal response to the unsolicited bid, unitholders are advised to take no action with respect to the Borealis offer,” the fund said in a release.
It also said its board of trustees and the board of directors had approved the adoption of a unitholder rights plan “to encourage the fair and equal treatment of all unitholders in connection with any unsolicited takeover bid.”
Teranet said unitholders will be asked to confirm the plan at a special meeting to be held within six months.
STEADY CASH FLOW EYED
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.
Teranet’s annual earnings before interest, taxes, depreciation and amortization, a measure of cash flow, were C$183.6 million in 2007.
Borealis has said it is interested in tapping the steady cash flow generated by Teranet’s land-registry business.
It announced the bid on Thursday, saying it was making making a direct appeal to unitholders after three failed attempts to enter into negotiations with Teranet management over the past 14 months.
The bid of C$11 a unit for Teranet would represent a premium of about 27 percent over the volume-weighted average price for the 30 days to Aug. 27. The total price tag includes about C$470 million in assumed debt.
Units of Teranet Income Fund were up 8 Canadian cents at C$11.32 at midday on Friday on the Toronto Stock Exchange, after jumping 20 percent on Thursday.
Teranet is an income trust, an investment vehicle structured to pay little or no corporate tax, allowing it to distribute cash directly to unitholders. Ottawa said in October 2006 it would start taxing trusts as of 2011 and many are now making the transition to dividend-paying corporations, or are being picked up by private equity funds.
The proposed takeover would need, among other approvals, acceptance by two-thirds of Teranet unitholders and a green light from the province of Ontario.
($1=$1.06 Canadian) (Reporting by John McCrank; editing by Rob Wilson)