Board Recommends Unitholders Vote FOR Remaining LLC Acquisition; Provides Transaction Update; Discussion of Background to Tender Offer, Business Objectives and Milestones, Purchase Price Calculation and Purchase Price Protection
/NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES/
TORONTO, June 2, 2016 /CNW/ - Crius Energy Trust ("Crius" or the "Trust") (TSX: KWH.UN) announces that it has filed a final short form prospectus in each of the provinces and territories of Canada other than Québec and has obtained a receipt from the Ontario Securities Commission (the "Receipt") to qualify the distribution of 7,462,000 subscription receipts of the Trust ("Subscription Receipts"). The Subscription Receipts are being issued pursuant to the previously announced bought deal offering of Subscription Receipts at a price of C$8.45 per Subscription Receipt (the "Offering Price") for aggregate gross proceeds of C$63,053,900 (the "Offering"). Each Subscription Receipt will entitle the holder thereof to receive, without payment of additional consideration or further action on the part of such holder, one unit of the Trust (each a "Unit") upon closing of the Tender Offer (as defined below).
The Trust has also granted the underwriters an option (the "Over-Allotment Option") to purchase up to an additional 1,119,300 Subscription Receipts (the "Additional Subscription Receipts") at a price of C$8.45 per Additional Subscription Receipt. If the Over-Allotment Option is exercised in whole or in part following the closing of the tender offer, the option will entitle the underwriters to purchase, in lieu of Additional Subscription Receipts, an equal number of Units at the Offering Price.
"With the recent achievement of this milestone, we are continuing to successfully move through the various stages of the transaction to take the Trust's ownership in Crius Energy LLC to 100%", commented David Kerr, Chairman of the Board. "The transaction is expected to provide significant benefits to Trust investors, including increased trading liquidity, a simplified structure that has both governance and financial reporting benefits, as well as lower overall administrative costs following the successful completion of the transaction. We encourage our investors to vote in favour of the transaction for the upcoming meeting on June 20, 2016, so we may proceed with the realization of these benefits and further enhance value for our investors".
The Offering is expected to occur on or about June 7, 2016, subject to satisfying certain closing conditions. Copies of the final short form prospectus and documents incorporated therein can be obtained on request from the Chief Executive Officer of the Trust by sending a written request to One First Canadian Place, Suite 3400, P.O. Box 130, Toronto, Ontario, Canada, M5X 1A4 (telephone: (203) 663-7545), and are available electronically under the Trust's issuer profile on SEDAR at www.sedar.com.
Tender Offer Initiated
On May 18, 2016, the Trust and Crius Energy Corporation ("US Holdco"), an indirect wholly-owned subsidiary of the Trust, initiated a tender offer (the "Tender Offer") to purchase all of the memberships units (the "LLC Units") of Crius Energy, LLC (the "Company") not already owned, directly or indirectly, by the Trust (the "Remaining LLC Acquisition"). The Tender Offer expires at 5:00 p.m. (Toronto time) on June 20, 2016, unless extended up to 60 additional days or earlier terminated by the Trust or US Holdco. The Remaining LLC Acquisition is expected to close on or about June 23, 2016 subject to the satisfaction of the condition precedents in the Tender Offer, including the approval of the Remaining LLC Acquisition Resolution (as defined below) by the holders of Units ("Unitholders") at the Meeting (as defined below).
Unitholder Meeting Scheduled
On May 20, 2016, the Trust filed a management information circular (the "Circular") and related proxy materials in advance of its annual and special meeting of Unitholders (the "Meeting") to be held on June 20, 2016. The Meeting will be held for the purpose of, among other things, to approve the issuance of up to 14,905,540 Units in partial consideration for the Remaining LLC Acquisition.
Unitholders will be asked at the Meeting to pass, with or without modification, an ordinary resolution (the "Remaining LLC Acquisition Resolution") approving the issuance of up to an additional 14,905,540 Units in connection with the Remaining LLC Acquisition.
The independent directors of Crius Energy Administrator Inc. (the "Administrator"), in its role as administrator for and on behalf of the Trust, has unanimously approved the Remaining LLC Acquisition and recommends that Unitholders vote in favour of the issuance of Units in connection with the Remaining LLC Acquisition. The Remaining LLC Acquisition Resolution must be passed by ordinary resolution, being more than 50% of the votes cast by those Unitholders entitled to vote, whether cast in person or by proxy. In the absence of contrary instructions, the persons named in the form of proxy intend to vote FOR the Remaining LLC Acquisition Resolution.
TSX Conditional Listing Approval Received
The Trust has applied to, and received conditional approval from, the Toronto Stock Exchange (the "TSX") to list the Subscription Receipts and the Units issuable upon the conversion of the Subscription Receipts (including the Over-Allotment Option) on the TSX. Such listing will be subject to the Trust fulfilling all of the listing requirements of the TSX on or before August 19, 2016.
Background to Tender Offer, Business Objectives and Milestones
From time to time, the Administrator evaluates potential alternatives for acquisitions by the Trust. As part of such evaluations, the Administrator has considered the potential benefits associated with increasing the Trust's indirect ownership interest in the Company to 100%.
The Tender Offer is intended to permit the Trust to acquire, directly or indirectly, 100% of the ownership of the Company on a non-dilutive basis. Management believes that the Tender Offer provides Unitholders with significant potential benefits, including increased liquidity through a larger market capitalization of the Trust, a simplified governance structure relating to the Trust's indirect ownership of the Company, and lower administrative costs associated with the current structure.
In November 2015, on the instructions of the independent directors of the Administrator, the Trust entered into a letter of intent with each of (i) GF Power I, LLC, GRM Family Limited Partnership and GF Factoring, LP (collectively, the "Gries Entities"), (ii) Michael Fallquist, and (iii) Macquarie Americas Corp. (collectively, the "Group"), pursuant to which such members agreed to sell a specified number of LLC Units if the trading price of the Units reached C$10.00 per Unit or more. The Trust intended to purchase such LLC Units with cash only. The trading price of the Units did not reach C$10.00 prior to the expiry of the letter of intent on December 31, 2015.
In late 2015, the Administrator retained financial and legal advisors to recommend a transaction structure for the potential acquisition by the Trust of the LLC Units not already directly or indirectly owned by it. In late March 2016, on the instructions of the independent directors of the Administrator, the Trust again informally approached Mr. Robert Gries, on behalf of the Gries Entities, and representatives of Macquarie Americas Corp. to advise them of a transaction that the Trust intended to propose, upon finalization of the advisors' recommendations, and to discuss an appropriate formula for determining the Buy-Out Payment for the LLC Units, including the portion to be paid in cash and the portion to be paid in Units. In late April 2016, representatives of the Trust initiated negotiations with members of the Group which culminated in the entering into of irrevocable agreements by the Trust and US Holdco with each member of the Group (collectively, the "Sale of Interest Agreements") in May 2016.
The terms of the Sale of Interest Agreements, including the Buy-Out Payment, were determined based on arm's length negotiations between the Group and the Trust under the direct supervision and direction of the independent directors of the Administrator after receiving advice from its financial and legal advisors. In the course of the negotiations, the independent directors insisted that the Buy-Out Payment be non-dilutive to existing Unitholders and, as such, all costs associated with the Remaining LLC Acquisition had to be borne by the Sellers, including the discount implied by the Offering Price to the 20-Day VWAP, the underwriting fees and all other transaction fees and expenses related to the Offering and the Remaining LLC Acquisition. On the advice of its financial advisors, the Trust determined that a 5% discount to the implied value of the LLC Units (based on the 20-Day VWAP) would be sufficient to cover all transaction expenses with a reasonable margin for any unexpected additional fees. This 5% discount to the implied value of the LLC Units is approximately C$10 million (based on the aggregate Buy-Out Payment of approximately $189.4 million calculated as of the Announcement Time (as defined below)).
In determining the appropriateness of the Buy-Out Payment, the independent directors of the Administrator considered a number of factors, including the advice of the Administrator's financial advisors, the recent trading price history of the Units on the TSX as a strong indication of the fair market value of the LLC Units and the benefits to the Trust of the Remaining LLC Acquisition as described under the heading "Purposes of the Meeting – Acquisition of Membership Units of the Company – Reasons for Recommendation" in the Circular.
The independent directors of the Administrator also considered the terms of the Trust's acquisition of an additional 16.3% interest in the Company in July 2015, which was completed at a discount of approximately 20% to the implied value of LLC Units (based on the five day volume weighted average price of the Units on the TSX) before the announcement of that transaction. This 20% discount was intended to approximate the costs associated with the transaction in addition to a relatively small margin for a potential discount to account for the lack of liquidity of the LLC Units (such liquidity discount was minimal after taking into account final transaction costs). The payment made to holders of LLC Units for the July 2015 transaction consisted solely of cash raised pursuant to an offering of Units under a short form prospectus. Accordingly, the transaction costs (nearly 20% of the acquisition price) relative to the size of the July 2015 transaction were significantly higher than those for the Offering and the Remaining LLC Acquisition as the Unit Portion accounts for 70% of the Buy-Out Payment in respect of which much lower transaction costs will be incurred. Upon being first approached by the Trust, the Group expressed a strong preference for the Buy-Out Payment to consist solely of Units with no Cash Portion as the Group believed that the trading price of the Units on the TSX did not reflect the full value of the Trust. However, after considerable analysis, the advisors to the Trust recommended that the consideration payable to the Sellers in cash represent a minimum of 30% of the Buy-Out Payment for the Trust to maintain its status as a "foreign private issuer" under U.S. securities laws and to achieve certain significant tax efficiencies. After further negotiations, the Group agreed to proceed with the Remaining LLC Acquisition at a 5% discount to the implied value of the LLC Units on the basis that the discount would cover all transaction fees and allow the Trust to complete the transaction on a non-dilutive basis to the Unitholders, similar to the approach taken for the July 2015 transaction.
In addition, the independent directors of the Administrator considered the entitlements of holders of LLC Units under the Company LLC Agreement, including (i) the right to receive distributions equivalent to those of the public holders of Units, and (ii) beginning in 2019, the right to receive an offer to redeem the LLC Units with "Excess Cash" (as defined in the governance documents) of the Trust at a price per LLC Unit that is currently higher than the Buy-Out Payment. Accordingly, exchanging LLC Units into Units is not a matter of "if" but a matter of "when" based on the rights of holders of LLC Units under the governance documents.
Purchase Price Calculation
Pursuant to the Tender Offer, each holder of LLC Units (each, a "Seller") who validly tenders all, but not less than all, of their LLC Units to the Tender Offer will receive, in exchange for each LLC Unit, a buy-out payment (the "Buy-Out Payment") comprised of (i) 0.766 Units (the "Unit Portion"), and (ii) C$2.93 (the "Cash Portion"), representing an implied value of C$9.74 per LLC Unit and a total implied transaction value of C$189.4 million (as of May 17, 2016 immediately prior to the announcement of the Remaining LLC Acquisition/Offering (the "Announcement Time") and assuming all Sellers validly tender their LLC Units to the Tender Offer).
The Buy-Out Payment of C$2.93 and 0.766 Units per LLC Unit corresponds to an agreed upon formula and is based on a 5% discount to the volume weighted average price of Units on the TSX for twenty trading days (the "20-Day VWAP") immediately preceding the Announcement Time of C$8.887 multiplied by the Conversion Ratio (as defined below) of 1.1531. In calculating the Buy-Out Payment, the purpose of the Conversion Ratio is to adjust the 20-Day VWAP of Units to reflect that each LLC Unit represents a proportionately greater percentage interest in the Company than a Unit does (as described in the paragraphs below). The 5% discount is intended to approximate the estimated transaction costs incurred by the Trust and its affiliates in connection with the Offering and the Remaining LLC Acquisition. The Buy-Out Payment had an implied value of C$9.74 per LLC Unit as of the Announcement Time, calculated by adding the Cash Portion (of C$2.93) and the Canadian dollar value of the Unit Portion (of 0.766 Units, based on the 20-Day VWAP of C$8.887). Based on these figures, the aggregate Buy-Out Payment to acquire all 19,458,942 LLC Units subject to the Tender Offer, which represents a 56.9% interest in the Company, had an implied value of approximately of C$189.4 million as of the Announcement Time.
Each Unit represents a proportionately smaller indirect interest in the Company (through the Trust's indirect 43.1% interest in the Company) than each LLC Unit represents. Based on the number of issued and outstanding Units and LLC Units at the Announcement Time, each LLC Unit represents a 15.31% greater undivided interest in the Company than each Unit. Accordingly, a Conversion Ratio of 1.1531 was used to determine the Buy-Out Payment. Thus the Buy-Out Payment of C$9.74 per LLC Unit is calculated as the 20-Day VWAP of C$8.887, less a 5% discount of C$0.44, multiplied by the Conversion Ratio (of 1.1531). As a result, the Buy-Out Payment effectively corresponds to C$8.44 for a proportional interest of the Company represented by a Unit, which is equivalent to C$9.74 divided by the Conversion Ratio of 1.1531. Set out below is a more detailed calculation of the Conversion Ratio.
The "Conversion Ratio" is 1.1531, which is equal to the quotient (to four decimal places) obtained when (i) the aggregate number of Diluted Trust Units (as defined below) outstanding immediately prior to the Announcement Time (16,969,383), is divided by (ii) the aggregate number of LLC Units indirectly owned by the Trust immediately prior to the Announcement Time (14,716,582). The aggregate number of "Diluted Trust Units" is 16,969,383, which is equal to the sum of (i) the aggregate number of Units outstanding immediately prior to the Announcement Time (16,745,151), and (ii) the difference (224,232) between the number of Unit purchase warrants held by Macquarie Energy LLC immediately prior to the Announcement Time and the quotient obtained when (A) the number of Unit purchase warrants held by Macquarie Energy LLC immediately prior to the Announcement Time (750,000) multiplied by C$6.23 (being the exercise price of such warrants), is divided by (B) the 20-Day VWAP (C$8.887) immediately prior to the Announcement Time.
Purchase Price Protection
If at any time on or prior to September 30, 2016 (the "Price Protection Period") a person that is party to a non-disclosure agreement with the Trust or any of its affiliates as of the Announcement Time (any such person, a "Third-Party Offeror") makes an offer or proposal to the Trust, or publicly announces an intention to undertake, (i) an amalgamation or merger with the Trust (or other similar transaction, including without limitation a plan of arrangement), pursuant to which the Third-Party Offeror will directly, or indirectly through an affiliate or any person acting jointly or in concert with the Third-Party Offeror, combine its business with the business of the Trust or directly or indirectly acquire (or combine their assets or businesses or a material portion thereof with) all or a majority portion of the business or assets of the Trust; or (ii) a take-over bid by take-over bid circular in compliance with applicable Canadian securities laws, after giving effect to which the Third-Party Offeror, if successful, would beneficially own, directly or indirectly, through an affiliate, and together with any person acting jointly or in concert with the Third-Party Offeror, more than 50% of the Units (any such transaction, a "Price Protection Transaction"), then within five business days following the completion of the Price Protection Transaction, the Trust (or an affiliate thereof) is required to pay to a Seller, as additional consideration for each LLC Unit acquired by the Trust (or an affiliate thereof) from the Seller pursuant to the Tender Offer, an Adjustment Payment as described below.
The "Adjustment Payment", if any, to be received by a Seller on account of each LLC Unit purchased by the Trust (or an affiliate thereof) from such Seller pursuant to the Tender Offer is equal to the product (rounded down to two decimal places) obtained when (i) the amount, if any, by which (A) the consideration per Unit, expressed in Canadian dollars, received by the holders of Units pursuant to the Price Protection Transaction multiplied by 1.1531 (which is the Conversion Ratio), exceeds (B) C$9.74 (all as adjusted for any Unit split or consolidation, Unit dividend-in-kind, reorganization or similar event after the closing date), is multiplied by (ii) 30.10%, being the percentage of the Buy-Out Payment represented by the Cash Portion. The Adjustment Payment, if any, to be received by a Seller shall be paid in United States dollars based on the exchange rate that the Trust (or an affiliate thereof) can secure, using commercially reasonable efforts.
Unitholders are cautioned that certain provisions of the Sale of Interest Agreements and Tender Offer may inhibit change of control transactions of the Trust or may result in higher or lower consideration being paid for the Units than the LLC Units or require an offer to be made to owners of LLC Units when there are no payments being made to the Unitholders.
In the case of a Price Protection Transaction by a qualified third party offeror during the Price Protection Period, the Sale of Interest Agreements and the Tender Offer require the Trust (or an affiliate thereof) to make an Adjustment Payment to the Sellers. If the Adjustment Payment for the LLC Units is higher than the price that a potential acquirer is prepared to pay for the Units, it could discourage potential acquirers from making a take-over bid for the Units or make it difficult for any bid to be completed. Canadian securities regulatory authorities may also consider the payment to be non-identical consideration for the purpose of applicable take-over bid rules, in which case the Canadian securities regulatory authorities may intervene in the public interest to prevent the Tender Offer, the US Holdco Offer or the offer being made or completed, as may be the case (either on application by an interested party or by staff or a Canadian securities regulatory authority). The Company, US Holdco and the holders of LLC Units other than US Holdco have filed undertakings, Non-Issuer Forms of Submission to Jurisdiction and Appointment of Agent for Service of Process and the Company LLC Agreement (as defined in the Circular) provides and ensures that Canadian securities regulatory authorities have the requisite authority to cease, halt or rescind any purchase of LLC Units by the Company, or sale of LLC Units by the holders of LLC Units other than US Holdco, following certain change of control transactions should they determine it appropriate to intervene in the public interest.
The Trust was established to provide investors with a distribution-producing investment through its indirect ownership interest (currently 43.1%) in the Company. With over 900,000 residential customer equivalents, the Company is a comprehensive energy solutions partner that provides electricity, natural gas and solar products to residential and commercial customers. The Company connects with energy customers through an innovative family-of-brands strategy and multi-channel marketing approach. This unique combination creates multiple access points to a broad suite of energy products and services that make it easier for consumers to make informed decisions about their energy needs. The Company currently sells energy products in 17 states and the District of Columbia with plans to continue expanding its geographic reach.
The Trust intends to continue to qualify as a "mutual fund trust" under the Income Tax Act (Canada) (the "Tax Act"). The Trust will not be a "SIFT trust" (as defined in the Tax Act), provided that the Trust complies at all times with its investment restriction which precludes the Trust from holding any "non-portfolio property" (as defined in the Tax Act). Material information pertaining to the Crius may be found on SEDAR under the Trust's issuer profile at www.sedar.com or on the Trust's website at www.criusenergytrust.ca.
Caution Regarding Forward-Looking Statements
This news release contains forward-looking statements and forward-looking information (collectively, "Forward-Looking Statements") that involve substantial known and unknown risks and uncertainties, most of which are beyond the control of Crius, including, without limitation, those risks described in the annual information form of the Trust for the fiscal year ended December 31, 2015, dated March 15, 2016 (under the heading "Risk Factors") and in the MD&A of the Trust for the three month period ended March 31, 2016. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words of phrases such as "will likely result", "are expected to", "expects", "will continue", "is anticipated", "anticipates", "believes", "estimated", "intends", "plans", "forecast", "projection" and "outlook") are not historical facts and may be Forward-Looking Statements which involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such Forward-Looking Statements. Forward-Looking Statements in this news release include, but are not limited to, the anticipated benefits of the Remaining LLC Acquisition to the Trust, Unitholders and Sellers; the Buy-Out Payment and value of the Unit Portion being delivered to the Sellers upon the closing, if at all, of the Remaining LLC Acquisition; the timing and ability of the Trust to satisfy the conditions precedent to the conversion of the Subscription Receipts into Units, if at all; the timing and ability of the Trust to complete the Remaining LLC Acquisition or the Offering; the timing and receipt of required approvals for the Remaining LLC Acquisition and the Offering; the anticipated date to hold the Meeting; and the Trust's objectives and status as a "mutual fund trust" and not a "SIFT trust". These Forward-Looking Statements are based on reasonable assumptions and estimates of management of the Trust at the time such statements were made. Actual future results may differ materially as Forward-Looking Statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Trust to materially differ from any future results, performance or achievements expressed or implied by such Forward-Looking Statements. Crius cautions investors of the Trust's securities about important factors that could cause Crius' actual results to differ materially from those projected in any Forward-Looking Statements included in this news release. No assurance can be given that the expectations set out in this news release will prove to be correct and accordingly, prospective investors should not place undue reliance on these Forward-Looking Statements. These statements speak only as of the date of this news release and Crius does not assume any obligation to update or revise them to reflect new events or circumstances, except as required by law.
SOURCE Crius Energy Trust
For further information: Michael Fallquist, Chief Executive Officer, [email protected], (203) 663-7545; Roop Bhullar, Chief Financial Officer, [email protected], (203) 883-9900; Kelly Castledine, Investor Relations, [email protected], (416) 644-1753