KCP Income Fund, the parent company of Ontario-based consumer products company KIK Custom Products, entered into a definitive agreement with an acquisition vehicle structured by the NY-based private equity firm, Caxton-Iseman Capital.
Caxton’s vehicle, the KIK Acquisition Company, will acquire the company for USD$695 million (€520 million). The units of KCP, listed on the Toronto Stock Exchange, will be redeemed at $10 per unit in cash, representing a 25 percent premium on the March 30, 2007 closing price.
The transaction grew out of recommendations from a special committee formed on word that Canada was planning to tax income trusts such as KCP. Last November, the country’s finance minister announced plans to tax the income trusts at a rate which could lob off up to 30 percent of the vehicles’ distributable income. However, the tax proposal has yet to be approved as legislation, and hurdles are expected given it was introduced by the current Conservative regime, with its minority hold of the government.
The special committee was commissioned to identify and explore strategic alternatives. James Arnett, chairman of the special committee, said the committee voted unanimously for the deal. “We feel that the present transaction ascribes full value to KCP’s unique platform,” said Arnett.
The board of trustees of KCP unanimously approved the deal as well, taking the special committee’s recommendation, along with fairness opinions from TD Securities, Inc and Genuity Capital Markets. The board also resolved to recommend that the Fund’s unitholders approve the deal as well.
The transaction is subject to the approval of the unitholders, representing two thirds of the majority and the majority of the minority. The unitholders will continue to receive distributions for all months ending prior to the month in which the transaction closes.
Frederick J. Iseman, managing partner of Caxton-Iseman, said “From its roots as an acquirer of bleach manufacturers, KCP has transformed itself into North America’s premier contract manufacturer. We look forward to working with KCP’s outstanding management team to continue to build the company.”