PE group to buy Canadian income trust for C$3.5bn(2)

The C$3.5 billion agreed take-private of CCS Income Trust, an oil-and-gas company, continues a trend triggered by an impending change in Canada’s tax laws.

CCS Income Trust has agreed to be taken private for C$3.5 billion ($3.3 billion) by a group of Canadian and American investors including CAI Capital Partners, Goldman Sachs Capital Partners, Kelso & Company, Vestar Capital Partners, British Columbia Investment Management Corporation and OSS Capital Management.

Unitholders in the trust, which provides services including waste management and remediation to the oil and gas industry, will receive C$46 per unit. The price is a 21.4 percent premium over the 28 June closing unit price on the Toronto Stock Exchange.

CCS founder and CEO David Werlund led the transaction, and under terms of the agreement will accept $45.50 per unit. He will contribute approximately 60 percent of his equity interest in the company for securities of the acquisition vehicle, valued at roughly C$500 million, and will sell the remaining equity, according to a statement. Post transaction he will be the company’s largest shareholder, and will continue to be president and CEO.

Goldman Sachs, Kelso and Vestar are US-based private equity firms. CAI Capital Partners is a Canada-focused buyout firm, while British Columbia provides investment management services for public Canadian entities and trusts. OSS Capital is a New York-based hedge fund.

Expected to close in the fourth quarter of 2007, the transaction is subject to shareholder approval. The deal has a break-up fee of 2 percent of the transaction’s total equity value. To date the consortium are the only bidders for the company, but other groups may still come forward.

Following the announcement of a policy change in tax treatment last October, 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.

A source close to the deal said Werlund found that “public ownership was a pain” and the impending tax change led him to be receptive to an approach by the private equity consortium.