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OMERS completes C$2bn Teranet acquisition

After three prior attempts to initiate takeover discussions with the Toronto Stock Exchange-listed income fund, Borealis Infrastructure, the infrastructure investment arm of OMERS, has finally completed a long-coveted acquisition.

Nearly two months after launching its unsolicited offer for Teranet Income Fund, Borealis Infrastructure, the infrastructure investment arm of the Ontario Municipal Employee Retirement System (OMERS) has now completed the C$2 billion (€1.6 billion; $1.3 billion) acquisition.

As of this morning, units of the Toronto Stock Exchange-listed fund have halted trading and will be delisted later today following Borealis’ successful acquisition of all the trust units and series B units tendered to its offer.

The successful tender represents a long-coveted acquisition for Borealis, which had made three previous attempts to initiate takeover negotiations with the fund prior to launching its unsolicited offer in early September.

Teranet provides exclusive access to the Ontario Electronic Land Registration System, which enables customers to conduct electronic registrations as well as title and writ searches relating to property. It has about 80,000 clients. The monopoly, effective through 2017, gives the company the sort of stable and predictable cashflows that big pension investors such as OMERS have increasingly come to demand as they search for infrastructure and infrastructure-like acquisitions for their portfolios.

In Canada, OMERS wasn't the only one to note Teranet's infrastructure-like qualities.

“This is the ultimate infrastructure play: if you are a shareholder you get paid and paid and paid”, Teranet shareholder Kevin O'Leary, chairman of Toronto-based asset manager Gencap Funds, recently wrote in a letter to Canada's Globeinvestor Magazine.

O'Leary, who owned Teranet shares personally, not via Gencap, had tried to buy the company himself before it was taken public as an income trust. He said in his letter that the shares were worth at least C$12.50 but that he would nevertheless tender them at C$10.25 since he could not block the deal.

Borealis’ offer of C$10.25 per unit was successful despite being lowered from the initial C$11.0 per unit that Borealis offered for Teranet originally. It lowered the offer on 28 October, citing “deterioration in economic and financial market conditions and increases in the cost of capital”. The offer also overcame opposition from Teranet’s board, which originally spurned the offer and urged unitholders not to tender while it executed confidentiality and standstill agreements with ten other parties in hopes of securing a superior offer.

Borealis’ parent, OMERS, is one of Canada's largest public pension plans, with more than C$52 billion in net assets invested on behalf of approximately 380,000 active and retired municipal employees and more than 900 local government employees in Toronto. It has a long-term asset allocation target of 20 percent to infrastructure.

Borealis was advised by Genuity Capital Markets, Macquarie Capital Markets Canada and BMO Capital Markets. Financing for the acquisition is being provided by the Toronto-Dominion Bank and the Bank of Nova Scotia.