The pace of energy trust mergers is quickening, and the premiums being paid are proving surprisingly skinny, as demonstrated by this morning's $1.25-billion takeover offer for Shiningbank Energy Income Fund by PrimeWest Energy Trust. PrimeWest's all-paper bid for its rival is valued at $14.60 a unit, a thin 4.2-per-cent premium to the average price of Shiningbank units over the last month. In contrast, the recent run of business trust takeovers have played out at 20-per-cent plus premiums. There are simply fewer buyers of energy trusts than there are buyers of business trusts, and trusts such as Shiningbank with reserves that are weighted towards natural gas draw even fewer suitors. "This could signal the start of a wave of mergers and acquisitions among Canadian oil trusts," said a report this morning from RBC Dominion Securities. Last week, Capitol Energy Resources was snapped up by Provident Energy Trust for $508-million. Shiningbank's financial results have fallen off in step with a decline in the price of natural gas. In January, Shiningbank cut its cash distributions, which knocked back units. At the time, the company made it clear that the plan was to batten down the hatches in expectation of a prolonged storm, caused in part by the federal government's decision to shut down the trust sector by 2011. Shiningbank reduced its target payout ratio to 60 to 65 per cent of estimated 2007 cash flow from its three-year average of 84 per cent. By combining the two trusts, PrimeWest hopes to boost cash distributions by 3.3-per-cent. The merged companies' forecast reserve life, an all-important measure of its prospects, moves out to 11.5 years from 9.8 years at PrimeWest today. National Bank Financial is financial advisor to Shiningbank. Across the table, PrimeWest is using GMP Securities and Scotia Waterous, the Calgary arm of Scotia Capital. Shiningbank has agreed to pay a $35-million break fee if the deal falls apart. Donald Garner, the current president and chief executive officer of PrimeWest, will lead the combined companies; no other executive positions have been announced.
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