There’s much fuss about the break fee that Primaris Retail Real Estate Investment Trust has agreed to pay white knight bidder H&R REIT if their almost $3-billion acquisition agreement falls through because somebody else offers more.
There’s griping among shareholders of Primaris about the size of the fee, which works out to about 3.8 per cent of the equity value of the bid, but also the structure, which includes an option to buy two Toronto properties at a discount, with the discount being calculated as part of the value of the fee. One Toronto commentator, Mark McQueen, went so far as to call on the Ontario Securities Commission to strike down the fee (though it may well be that it’s more a matter for courts than securities regulators, some lawyers say.) The fact is, there are precedents for what Primaris and H&R have done, though not too many lately. Such asset options as part of termination fees are rare, but not unheard of.