More foreign takeovers of trusts predicted, like Korea acquiring Harvest Energy

Illustration: CAITI Billboard from March 2007


We have the NDP and fools in the media to thank for this, who naively, don’t know when they are being totally gamed by Canada's Big Lifecos, who had a commercial interest in killing income trusts in order to kill their competition for Canadians investment savings. The fact that income trust were killed on the false pretense of "tax leakage" mattered not a whit to these people in the life insurance game. Imagine trying to collect on a life insurance policy using false pretenses. You'd be thrown in jail.


Income trusts, pension plans to figure in Canada M&A
Wed Nov 11, 2009 9:12am EST

By Pav Jordan

TORONTO (Reuters) - Canada pension funds and private equity are eyeing income trusts with steady earnings and resource companies as homes for cash held over during the economic crisis as acquisitions bubble up again after a recession-induced deep freeze.

"There are a fair number of deals in the works," said Richard Steinberg, who heads mergers and acquisitions at Fasken Martineau, the Canadian law firm that helped put together China's biggest ever overseas acquisition in June, when oil refiner Sinopec bought oil explorer Addax Petroleum Corp for $7.24 billion. "2010 could be a big year."

Pension funds are cautiously opening their wallets, and last week U.S. private equity firm TPG TPG.UL and the Canada Pension Plan (CPPIB) struck the biggest leveraged buyout deal of the year, the $4 billion purchase of prescription drug sales data provider IMS Health Inc (RX.N ).

And CPPIB and the Ontario Teachers' Pension Plan Board took a run at Australian toll road operator Transurban Group, which spurned their $4.4 billion bid.

"The pension plans are starting to get quite active now in M&A," Steinberg said in an interview from his offices overlooking Toronto's financial district.

Steinberg, Fasken Martineau's chief M&A lawyer, said strategic players are seeing opportunities to take over or merge with competitors.

He said Canadian companies came out of the economic downturn quite strong, so many are better positioned as buyers than counterparts in the United States and elsewhere as countries emerge from recession.

TARGET THE TRUSTS

Potential targets could be Canadian income trusts, which mushroomed in the 1990s as corporations took advantages of tax advantages that will be phased out in 2011.

The changing tax rules mean the trusts must now become corporations again, or be acquired.

"We've seen that some have been converted (to corporations) and some have been acquired now," said Steinberg. "It's percolating. There are still close to 200 that haven't converted and haven't been acquired. So I think that, for the right model, they could be an attractive acquisition target."

Just a few weeks ago South Korea struck a C$1.8 billion ($1.7 billion) friendly deal to buy Canada's Harvest Energy Trust , securing oil and gas reserves as well as a refinery that Harvest could not afford to expand.

It was the latest in a series of acquisitions of Canadian assets by Asian state companies.

Steinberg said other deals will follow transactions like Toronto-listed Addax and Harvest Energy, as immensely wealthy sovereign wealth funds set their sights on Canada's resource wealth.

Private equity players are also moving in, although more cautiously than in the past because potential returns will likely be lower than they were before the credit crunch took easy leverage out of the market.

"I think you are seeing some nascent recovery," said Steinberg. "I think they are still struggling with the new normal, which is a lot less leverage and a lot more equity."

A survey of global executives in July and August and conducted by the Economist Intelligence Unit for Canada's Royal Bank of Canada, said historic levels of economic uncertainty have changed the rules for capital markets.

The survey, published last month, said mergers and acquisitions are likely to lead activity next year, but deal volumes will be lower or stay the same in IPOs, secondary market offerings and investment grade- and high-yield debt.

($1=$1.04 Canadian)