Brookfield spinout will distribute $525m to shareholders

Brookfield Asset Management will spin out about 35% of its private equity arm into Brookfield Business Partners in the first quarter.

Publicly-listed Brookfield Asset Management (BAM)’s spinout of its private equity arm into Brookfield Business Partners (BBP) will distribute about $525 million to shareholders, $25 million above its originally planned value.

A spokesperson for Brookfield confirmed with Private Equity International that BAM is distributing 21 million units in BBP, and the expected value per unit is $25. The value of the spinout is thus about $525 million, instead of the initially announced $500 million, in addition to about $2 billion of capital invested in existing businesses that will be used to seed BBP.

The spokesperson said the planned distribution is 25 cents per share annually, which will be paid on a quarterly basis. This accounts for 1 percent of the $25 price per unit.

Brookfield stated last October that it plans to spin out BBP. It expects the spin out to take place in the first half of 2016, pending regulatory approval, and to list the units on the New York Stock Exchange and the Toronto Stock Exchange.

After the spinout, BAM will retain 39 million units and an additional 32 million BBP redemption exchange units, which the spokesman said is a security that can be redeemed by BBP or exchanged for a regular BBP unit by BAM on a one-for-one basis.

Brookfield chief executive J. Bruce Flatt wrote in a November letter to shareholders that BBP will be the primary vehicle for private equity resembling the structure of other specialty listed issuers, like Property Partners, Renewable Energy Partners and Infrastructure Partners. BBP will focus on generating long-term capital appreciation.

Flatt also wrote that BBP will provide Brookfield with access to permanent capital to fund its operations other than property, renewable energy and infrastructure. It will also provide a certain flexibility as BBP doesn’t have a time limit to sell companies. Management and administrative fees will be collected through BBP.

The spokesperson said there is no timeline for BAM to reduce its ownership in BBP. With Brookfield Infrastructure Partners and Brookfield Renewable Energy Partners, BAM reduced its ownership as those spinouts issued units to fund their growth plans.

In BBP’s case, BAM’s proportionate share could fall from ownership dilution if BBP units are issued to finance acquisitions. The spokesperson added that, on secondary offerings, if BBP issues additional units to raise capital, BAM’s ownership could be reduced if it doesn’t participate in the issues.

Brookfield is currently fundraising its Brookfield Capital Partners IV, a 2015 vintage with a $3.5 billion target. Its limited partners include the Louisiana State Employees Retirement System, which committed $50 million, the Minnesota State Board of Investment, $100 million, the South Carolina Retirement System, $125 million, and the State Investment Council of New Jersey, which has a proposed investment of $150 million from its NJ Division of Investment.

Brookfield has over $200 billion in assets under management. At press time, its shares on the New York Stock Exchange were listed at $29.20 per share, up 65 cents or 2.28 percent from the previous close. Since its BBP announcement on 7 October, its shares have fallen 11 percent.