Hey, jams and jellies one day , the energy and telcom sectors the next. Sounds like a plan:
TreeHouse Foods' purchase is latest income fund sold to foreigners since Flaherty's Halloween announcement
by JOHN PARTRIDGE, June 26, 2007
If it had not been for Ottawa's surprise attack on income trusts last Halloween, E.D. Smith & Sons Ltd., the iconic Canadian jam and sauce maker, would almost certainly still be pursuing the aggressive strategy it launched two years ago - on its own.
Instead of continuing to expand into the United States and broadening its product line, the capital-strapped income trust that owns the 125-year-old Winona, Ont., firm is selling out to a U.S. company for $217-million or $9.15 a unit in cash. It is blaming federal Finance Minister Jim Flaherty's controversial decision for the move that will end its independence.
The announcement yesterday of the sale to TreeHouse Foods Inc. of Westchester, Ill. came just over six months after E.D. Smith slashed distributions to unitholders, parted company with then president and chief executive officer Michael Burrows and hired Toronto investment bank Genuity Capital Markets to conduct a strategic review.
"I would say it's highly unlikely this process would have taken place without the change in the legislation," Bruce Smith, the company's chief financial officer - but not a member of the founding family - said when reached at head office. "It created challenges for us to raise capital and was one of the leading reasons we got into this strategic review process."
Like any chief executive officer worth his or her salt, E.D. Smith's acting CEO Martin Thrasher would probably have preferred to keep the company forging ahead independently. But he diplomatically declined to say so when reached yesterday afternoon.
"It's really not a matter of preference," he said. "We have to deal with the realities of the marketplace. We have really transformed this company in the last two years, and, yes, we have some very aggressive growth ambitions.
"That's why we think this match-up with TreeHouse works so well."
Close to 20 publicly traded income trusts have been sold - mostly to foreigners and private equity firms - or put up for sale since Mr. Flaherty's controversial announcement, although he has rejected suggestions the decision to tax trusts down the road is to blame.
On Friday, the Senate approved Bill C-52, which includes the trust tax.
E.D. Smith was incorporated in 1882, but traces its roots to 1878, when its namesake founder, Ernest D'Israeli Smith, then a bachelor farmer, later a married MP and then Senator, began growing strawberries at his property in Ontario's Niagara Peninsula. It now produces jams, salad dressings and other sauces both under its own brand and for private labels.
The senator's great grandson, Llewellyn Smith, sold the family company to Imperial Capital Corp., a private equity firm in Toronto, in 2002, and in May, 2005, Imperial took the food processor public as an income trust in an initial offering that raised $110-million at $10 a unit.
TreeHouse, which bills itself as the largest maker of pickles and non-dairy powdered creamers in the United States, also will assume E.D. Smith's existing debt and the costs of the transaction. This will put the total value of the transaction at $313-million, Mr. Thrasher said during a conference call with analysts.
Assuming the TreeHouse deal is consummated, unitholders should receive up to $9.15 a unit, less a holdback of up to 60 cents to cover certain expenses, the fund said.
This is $1.71 or 23.3 per cent higher than the price of $7.34 at which the units closed on the Toronto Stock Exchange Friday, but is $3.04 below the all-time high of $12.19 they hit in August, 2005.
The takeover must be approved by two-thirds of the votes cast at a special meeting the fund will hold for unitholders and is expected to close by the end of August, E.D. Smith said.
TreeHouse, which is more than four times larger than E.D. Smith, has the right to match any competing offer and would be paid a termination fee of $8-million if the Canadian firm's board of trustees decides to accept another bid, the fund said.
However, the board is unanimously recommending acceptance of the U.S. firm's offer. "We have conducted an extensive review of the strategic alternatives available ... and believe this deal provides our unitholders with an attractive price for the business and a material premium to the recent trading level of the units," Jack Scott, the fund's chairman, said in the statement.
Tuesday, June 26, 2007
Posted by Fillibluster at 1:51 PM