TORONTO, June 29 /CNW/ - Marret Asset Management, on behalf of its
clients, owns 4,717,600 units of Resolve Business Outsourcing Income Fund
("RBO"). This represents approximately 14.5% of the total units outstanding
and 19.94% of the publicly traded units.
Davis + Henderson Income Fund ("D+H" or the "Company") has made an offer
to purchase all the outstanding units of RBO, by way of a unit exchange, at a
ratio of 0.285 D+H units per unit of RBO. At the time the deal was announced,
this equated to a price of $3.80 per RBO unit, as indicated by the Company. As
of close of business on June 26, 2009, the effective price to RBO unitholders
has declined to $3.53 or 7.1% below the initial offer price.
Our analysis suggests the price of $3.80 per RBO unit is at the lower end
of a range that could be considered fair. However, $3.53 is outside of that
Our concerns therefore are centered on the unit exchange mechanism and
the lack of cash consideration in the transaction. The bid clearly exposes RBO
unitholders to downside price movements in D+H units and offers them no
protection whatsoever in the face of such declines.
Our concerns are exacerbated by the fact that D+H is an income trust that
currently yields 14.85%. We do not believe this yield is sustainable and
certainly not after January 1, 2011 when the new tax rules relating to income
trust distributions become fully effective. We believe that the price of D+H
units is subject to significant decline over the next eighteen months as we
approach this event. This effectively lowers the price received by RBO
unitholders well below fair value.
We have worked hard with D+H management to restructure the offer to
provide some protection to the RBO unitholders from this downside price risk.
We have suggested: 1) converting to a cash bid; 2) providing some combination
of units and cash or; 3) committing to a material share buyback after the deal
funded by the issuance of a convertible debenture. The buy-back option would
be very accretive to D+H unitholders as it would be exchanging a 14.85%
distribution for a materially lower coupon and potentially reselling the
purchased equity at a significantly higher level than the current unit value.
We are extremely disappointed with the performance of the RBO Board of
Trustees. This Board, whose stewardship has lead to the distribution being
eliminated and the units trading as low as $1.07 from a 52 week high of $8.25,
is now supporting a transaction that could lead to a sale of RBO at a price
well below fair value due to the lack of downside price protection in the bid
We do not believe this transaction, as currently structured, is in the
best interests of RBO unitholders. We do not intend to tender to this bid and
strongly recommend that RBO unitholders reject the D+H offer.
About Marret Asset Management: Marret is Canada's largest specialty high
yield fixed income asset manager, with approximately $2.8 billion under
For further information:
For further information: Barry Allan, (416) 214-5800