Boralex Inc. is sweetening its bid for Boralex Power Income Fund in hopes of finally ending a three-month pursuit, but a big holder of the target says the fight is far from over.
Boralex Inc. has tried twice to improve its bid, and is inching toward victory. The power company now needs holders of just 2 per cent of the units of Boralex Power Income Fund to tender to reach its minimum condition of two-thirds of the units.
However Stanton Asset Management says the deal is in violation of civil law in Quebec, and it's willing to fight to stop it on that basis.
"I don't think this deal gets done for a while," said Stanton chief investment officer Connor O'Brien.
Montreal-based Boralex, owner of 29 power stations, is attempting to take over a trust that shares its name, and features the parent company as a 23 per cent equity holder. Boralex Power Income Fund owns 10 power stations in Quebec and the U.S., and both companies are active in wind, hydroelectric and thermal power.
After vowing not to, Boralex said Wednesday that it is sweetening its bid for Boralex Power Income Fund with a spoonful of cash. As a result, institutional shareholders with 9 per cent of Boralex Power have agreed to back the deal. That, added to the 55.6 per cent that Boralex had as of Wednesday morning, puts the two-thirds minimum tender condition tantalizingly within reach.
However, Mr. O'Brien is banking on the power of his argument to convince some of those shareholders to withdraw their support.
He argues the bid contravenes the indenture agreement between the income fund and its unitholders, which specifies a takeover offer must have 90 per cent support. Boralex has obtained a waiver from the Quebec Securities Commission but Mr. O'Brien argues that the securities commission can't change the contract. Mr. O'Brien has hired lawyers from Davies Ward Phillips and Vineberg to press the case.
A spokesperson from Boralex Inc. wasn't immediately available to comment on Mr. O'Brien's contentions.
Why did Stanton wait until this stage in the game to bring up the issue of the indenture?
"We took the diplomatic approach," Mr. O'Brien said, in hopes of getting a bid closer to what he believes Boralex Power is worth. What's that? He argues it's well above $6 a unit.
"If you actually sold these assets in a competitive bidding process it would be much higher."
Boralex launched its bid in May to swap what it said were $5 worth of the convertible debentures for each unit of the power fund. Investors battled back saying the coupon on the debentures was too low and the conversion price too high.
Boralex Inc. came back in July with a bid that raised the coupon to 6.75 per cent from 6.25 per cent and cut the conversion price to $12.50 a Boralex Inc. share from $17. The special committee of Boralex Power's trustees even recommended the bid. Still, no dice.
As of July 30 the improved bid had only garnered 58 per cent of Boralex Power Income Fund's units, even with the 23 per cent that Boralex Inc. held going into the bid.
At that point, Boralex Inc. was adamant that it wouldn't change its bid, saying "Boralex will not amend its offer" and that the offer was "final."
Until now, that is.
Boralex has added $90.6-million of cash to the bid, meaning that if all shareholders elect to take their share of the cash, they will get $2 per unit in cash and the remainder in convertible debentures.
The offer also looks a little sweeter in light of the fact that equity markets have come off significantly since the bid was launched. The S&P/TSX Composite Index is down 4.5 per cent since the takeover plan was announced.
TD Securities, which is advising the would-be buyer, is helping Boralex Inc. raise the cash. The firm is leading a syndicate of underwriters that will purchase $85-million of debentures.
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