Borealis Infrastructure, the infrastructure investment unit of the Ontario Municipal Employee Retirement System (OMERS), has bid C$2 billion ($1.9 billion, €1.3 billion) for Teranet Income Fund, a Toronto Stock Exchange-listed provider of e-services to the legal, real estate, government, financial and healthcare markets.
The offer of C$11.0 per unit, announced last Thursday, caused units of the income fund to rise C$1.88 to their highest-ever level, closing 2 percent above the offer price at C$11.24.
The units were trading at close to C$9.0 before takeover speculation began to circulate on 27 August. The offer price represents a 27 percent premium to the volume-weighted average trading price of the units in the 30 days prior to the offer date.
The company, which originated as a public-private partnership in 1991, 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. The monopoly is effective through 2017 and thereafter the licenses extend on a non-exclusive basis until 2047.
Borealis said in a statement that it would commit to continue its ownership of Teranet at least until 2017. It has previously made three proposals to Teranet to enter negotiations to acquire all the units or assets of the company, but has not been able to advance the discussions.
Teranet responded that its board will review the Borealis offer and further communicate in due course. However, the company indicated in a press release after takeover speculation began that it has retained RBC Dominion Securities and CIBC Word Markets as financial advisors to determine “whether a sale process would maximize shareholder value”. This has led some analysts to believe that the Borealis offer may spark a bidding war for the company.
“By announcing their intention to make an offer, it appears that Borealis has signaled its desire not to participate in the process that Teranet has established. The Board of Teranet will continue to explore all options to maximize unitholder value ,” the company said in a statement.
Teranet is not the only income fund exploring its sale options. Following the announcement of a policy change in tax treatment in October 2006, dozens of Canadian investment trusts have been sold and or announced “strategic reviews”. The new law will subject the trusts to an additional 34 percent tax starting in 2011.
For the second quarter of 2008, Teranet reported EBITDA of C$51.0 million on revenues of C$69.9 million, compared with EBITDA of C$49.3 on revenues of $66.0 for the year-prior period.
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.
In 2007, Borealis' return on infrastructure investments was 12.4 percent, according to the OMERS website.