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Toronto’s Dufferin Mall is seen in this file photo. Dufferin is one of a number of high-profile malls in the Primaris portfolio.Ryan Enn Hughes/The Globe and Mail

The consortium that sparked a battle for Primaris Retail REIT by launching a hostile bid in December is not giving up, even though Primaris has struck a deal with a white knight.

A group led by KingSett Capital pushed Primaris, which owns dozens of malls and shopping centres in Canada, into play last month when it surprised it with an all-cash $26 per share takeover offer. Primaris rebuffed the offer, and then struck a deal with H&R Real Estate Investment Trust.

If another bidder tops H&R's cash-and-share offer, which is worth roughly $27 according to RBC analyst Neil Downey, then H&R could be entitled to a $106.6-million break fee that includes $70-million in cash as well as the chance to buy Toronto's Dufferin Mall and other downtown properties at a discount.

Analysts have characterized the break fee as steep and wondered whether it would cause the KingSett consortium to bow out. In an interview Thursday, KingSett managing partner Jon Love suggested that KingSett won't be raising its bid for now, because to do so could trigger the break fee, but it is exploring avenues to challenge the fee and is hoping that Primaris unitholders will vote down H&R's bid.

"We cannot increase our offer price at this time without potentially triggering what we feel is an abusive and preclusive break fee," Mr. Love said, adding that if Primaris unitholders vote against H&R's bid then Primaris's agreement with H&R – including the break fee – would no longer be an issue.

In the meantime, "we are considering our options with regards to challenging the break fee," he added. "There are a number of different options, and at the request of a number of shareholders we're giving careful consideration to those options."

KingSett disclosed Thursday that it intends to buy up to 5 per cent of Primaris's units – the maximum amount that it's currently allowed to buy under securities laws – on the Toronto Stock Exchange, a possible signal that it would be willing to pay more for Primaris if it could do so without triggering the break fee. Primaris units were trading at $27.24 Thursday morning.

KingSett, a large private equity firm that invests in real estate, teamed up with the Ontario Pension Board and RioCan REIT to make its offer, with the intention that Primaris's shopping malls and properties would be divided amongst them.

In a note to clients Thursday, Mr. Downey said he thinks Primaris unitholders should "hold tight" for the time being. He suggested that the break fee is higher than normal in these situations, and noted that "real estate M&A transactions are often 'won' by margins that, relative to many other sectors, are razor-thin."