In recent years, Jack Cockwell and his colleagues at Brascan have tried to keep things simple by cleaning up a too-complex corporate structure.
Hees, Pagurian, Edper -- all of these holding companies were public in the 1980s, then swallowed up by Brascan over the past decade. Mr. Cockwell, Brascan's chairman, and his team of owner/managers embraced an easy-on-the-eyes structure that features a single conglomerate holding stakes in real estate, power and financial services companies.
Bruce Flatt, who took the chief executive officer's reins at Brascan from Mr. Cockwell this year, explained yesterday that his three-legged holding company wants 100-per-cent ownership of its operating units where possible. In large part, the market has approved of these plans.
Trilon Financial is a remnant of the eighties Brascan vision. While the company takes on outside merchant banking assignments, and does them well, Trilon is perceived as Brascan's financial arm, and devotes a great deal of attention to companies within the conglomerate.
Against this background, bringing Trilon in-house is a logical next step for Brascan. But logical doesn't mean cheap or easy. In fact, the market's response to Brascan's $775-million bid yesterday for Trilon shows the pros plan to extort a high price for the move to a simple structure.
Brascan is offering a combination of its own shares and $338-million in cash for the 30 per cent of Trilon it doesn't already own. That values Trilon at $17 a share, a razor-thin premium to the $16.50 the stock closed at on Monday, prior to announcement of the bid.
In frenzied trading yesterday, Trilon closed at $17.33, with 15.3 million shares changing hands. This is 200 times the normal trading volume. There was also enormous interest in Brascan yesterday, with two million shares traded. Arbitrage funds could limit some of their risk on the Trilon takeover by purchasing that stock, and at the same time, they sold Brascan's shares short.
Professional investors piled in yesterday with a bet that Mr. Cockwell, Mr. Flatt and friends can be arm-twisted into sweetening their Trilon bid by at least 30 cents more; 50 cents would be real, real nice.
In making this wager, the arb funds have history on their side. Any number of these so-called going-private transactions, such as Toronto-Dominion Bank's buyout of TD Waterhouse's small public float, saw the deal on the table improved by 50 cents in order to close down the game.
However, a game of high-stakes chicken has now begun at Trilon. For recent history also holds examples of a strong management team that refused to knuckle under to minority shareholders, much to the dismay of those who bet on a better bid.
Rogers Communications tried to take its mobile phone unit, Rogers Wireless, private last year, but would not bump up what many investors perceived as an inadequate offer. When the bid fell short, the parent company walked away. Shares in Rogers Wireless promptly tanked.
For Trilon shareholders, all eyes now turn to two groups -- the independent members of the company's board and investment bankers at TD Securities.
The board committee will put its own valuation on the Trilon shares that Brascan says are worth $17. TD Securities has been hired by these directors to weigh in with its own fairness opinion on the Brascan offer, an exercise that will include its valuation on Trilon. All of these views will be mailed to Trilon shareholders in the next few weeks.
Don't assume these two hurdles are easy to clear. At both TD Waterhouse and Rogers Wireless, the independent directors and their financiers found the parent company's offer fell short.
Paying more money to arb funds will frustrate Mr. Cockwell and pals to no end. But with a prod from the independent Trilon directors, history says Brascan will find 50 cents worth of extra sugar to help its deal go down. Is Noranda on the block?
Any long-time follower of the Brascan empire gets used to a certain mantra about the conglomerate's holding.
The group used to say it was looking for a recession-proof blend of consumer products -- it owned beer maker John Labatt -- oil and mining plays, real estate, power, and financial services, which included London Life and Royal Trust in addition to Trilon Financial.
Then times got tough, or valuations rose. And Labatt, Royal Trust and London Life all got sold. So the Brascan mantra became resources, power, real estate and financial services. Yesterday, Mr. Flatt signalled another change in the tune.
The holding company stressed in a press release that "its operations are largely in real estate, financial and power generation sectors. In addition, Brascan holds investments in the resource sector."
Those "investments" are Noranda, the base metal giant, which in turn holds a control stake in Falconbridge. If Noranda isn't a core holding, it is for sale at the right price. There has been speculation on this front ever since Noranda passed on a chance to bulk up in a consolidating sector by dropping out of a bidding war for copper miner Rio Algom. awillis@globeandmail.ca
Andrew Willis