Trust takeover bid opens
new legal frontiers
For a while there, it looked as if Simon Romano's practice had gone up in smoke. When Finance Minister Ralph Goodale threw cold water on income trusts last month, he effectively doused four blazing years of initial public offerings that had been stoked by Mr. Romano and a handful of top trust deal makers. "I had three IPO deals in the pipeline and now I have nothing. I thought I would be reflecting and relaxing," the Stikeman Elliott partner mused a few weeks back.
But it wasn't to be. The IPO fires may have gone out, but Mr. Romano is busier than ever navigating the uncharted legal seas of the very trust world he helped invent. This week he helped Toronto customs broker Livingston International Income Fund launch an unsolicited takeover for rival PBB Global Logistics Income Fund, marking the trust sector's first hostile bid.
The reason Livingston needs Mr. Romano, his colleagues Donald Belovich, Stacey Hoisak and seven other Stikeman lawyers for a mere $180-million bid is that there is no there there when it comes to income trust takeover laws. In fact, there isn't much of anything when it comes to laws governing trusts. To be sure, income funds are subject to securities regulations. They are not, however, governed by federal or provincial corporations acts for the simple reason that they are not legal entities. These funds are little more than an obligation or promise to hold assets and provide benefits to unitholders.
Practically, this legal vacuum means that one trust is not supposed to buy another without the consent of the target's trustees. So how is a hostile takeover possible? This is where Mr. Romano and his team got creative. Inventively, Livingston's takeover circular says it has designed the offer so that PBB unitholders who tender their shares to the offer are also agreeing to certain amendments to PBB's governing declaration. In English, that means if more than two-thirds of PBB unitholders approve the offer, Livingston gains the legal right to amend PBB's trust declaration and gain control of its assets.
We haven't heard PBB's response, but we understand that Jamie Scarlett, Jim Turner and Matt Cockburn at Torys LLP are dissecting the novel takeover approach.
© The Globe and Mail
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