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TORONTO, Oct. 30, 2017 /CNW/ - Equity Financial Holdings Inc. (TSX: EQI) ("Equity" or the "Corporation"), which offers residential first mortgage loans through its wholly‐owned subsidiary, Equity Financial Trust Company ("Equity Trust"), and Smoothwater Capital Corporation ("Smoothwater") are pleased to announce that they have entered into a definitive arrangement agreement (the "Arrangement Agreement") pursuant to which Smoothwater will acquire all of the issued and outstanding shares of Equity (the "Shares"), other than Shares already owned or controlled by Smoothwater, its officers, and by certain other shareholders who have agreed to remain as continuing shareholders (collectively, the "Continuing Shareholders"), by way of a plan of arrangement (the "Arrangement").
Each Share will be acquired for $9.75 per share in cash (the "Consideration"). The price per Share implies a total equity value of approximately $93 million.
The Consideration offered to Equity shareholders (the "Shareholders") represents a premium of 29.6% to the volume weighted average price of the Shares on the Toronto Stock Exchange for the 20 trading days ending October 30, 2017.
The Arrangement was unanimously recommended by a special committee of the board of directors of Equity (the "Board") composed entirely of independent directors (the "Special Committee"): F. David Rounthwaite (chair), Peter Friedmann, Brad Kipp, Michèle McCarthy and Martin Ouellet. No member of the Special Committee will be a Continuing Shareholder and any Shares owned by members of the Special Committee will be exchanged for the Consideration pursuant to the Arrangement.
The Board (with interested, non-independent directors abstaining), following receipt of the unanimous recommendation by a Special Committee, has:
- unanimously determined that the Arrangement is in the best interests of Equity and that the Arrangement is fair to the Shareholders, other than the Continuing Shareholders,
- unanimously approved the Arrangement Agreement, the Arrangement and the transactions contemplated thereby, and
- resolved to recommend that Shareholders vote in favour of the Arrangement.
Subsequent to the completion of the privatization, Smoothwater will be joined by Hennick & Company, Freycinet Ventures and certain other investors who have committed to contribute capital and take an active role to help accelerate the growth of Equity's business in the years to come. Such investors will acquire a non-controlling interest in Equity from Smoothwater, with Smoothwater maintaining control of the privatized company.
Independent Valuation Process
The Special Committee retained Blair Franklin Capital Partners Inc. ("Blair Franklin") as independent valuator. In arriving at its unanimous recommendation in favour of the Arrangement, the Special Committee considered several factors which will be outlined in public filings to be made in connection therewith. Blair Franklin provided the Special Committee with a formal valuation, completed under the Special Committee's supervision, which reflected the determination that, as at October 30, 2017, subject to the assumptions, limitations and qualifications contained therein, the fair market value of the Shares was between $9.50 and $12.00 per Share. Blair Franklin also provided an opinion to the effect that, as at October 30, 2017, subject to the assumptions, limitations and qualifications contained therein, the Consideration to be received by the disinterested Shareholders pursuant to the Arrangement Agreement is fair, from a financial point of view, to such Shareholders. Copies of the Blair Franklin valuation and fairness opinion, which should be read carefully and in its entirety, and other relevant background information will be included in the management proxy circular that will be mailed to Shareholders for the special meeting of Shareholders anticipated to be held in December 2017 to approve the Arrangement (the "Meeting").
Stephen Griggs, CEO of Smoothwater, and Michael Jones, President & CEO of Equity, who are directors of Equity and also Continuing Shareholders, did not participate in the deliberations or directors' vote of the Board in relation to the evaluation and approval of the Arrangement. The Continuing Shareholders collectively currently hold approximately 42.2% of the issued and outstanding shares of Equity. Certain independent Shareholders, who collectively own or exercise control or direction over approximately 26.3% of the Shares, and all directors and officers, have entered into support and voting agreements pursuant to which they have agreed, subject to the terms thereof, to vote their Shares in favour of the Arrangement. The support and voting arrangements can be terminated in the event of a "superior proposal" (as defined in the Arrangement Agreement).
Additional Transaction Details
To be implemented, the Arrangement requires approval of at least 66 2/3% of the votes cast by all Shareholders. The proposed transaction will also require approval by a "majority of the minority" of the Shareholders, being a majority of the votes cast by Shareholders whose votes may be included in determining if minority approval is obtained pursuant to Multilateral Instrument 61-101 Protection of Minority Securityholders in Special Transactions. The plan of arrangement is also subject to court approval and the satisfaction of other customary closing conditions, including receipt of regulatory approvals. The Arrangement is not conditional on Smoothwater obtaining financing.
The Arrangement Agreement provides that, at any time prior to the date that is four business days before the Meeting (the "Go-Shop Expiry Date"), Equity may solicit inquiries or proposals regarding, constituting or which may reasonably be expected to constitute a superior proposal. Following the Go-Shop Expiry Date, Equity is still able to respond to unsolicited alternative proposals that could result in a superior proposal, however, Equity is not permitted to solicit any inquiries or proposals regarding, constituting or which may reasonably be expected to constitute an acquisition proposal during such time. Smoothwater has the right to match any competing superior proposal for Equity regardless of whether it arises before or after the Go-Shop Expiry Date. A termination fee equal to the reasonable expenses incurred by Smoothwater in connection with the Arrangement would be payable to Smoothwater in certain circumstances, including if the Arrangement Agreement is terminated in the context of a superior proposal supported by Equity.
Further details regarding the applicable voting requirements and court and regulatory approvals to be obtained will be contained in the management proxy circular to be mailed to Shareholders in connection with the proposed transaction. The management proxy circular as well as the Arrangement Agreement will be made available under the profile of Equity at www.sedar.com.
Blair Franklin acts as financial advisor and McCarthy Tétrault LLP serves as legal counsel to the Special Committee. Cassels Brock & Blackwell LLP serves as legal counsel to Equity. CIBC Capital Markets acts as financial advisor and Norton Rose Fulbright Canada LLP serves as legal counsel to Smoothwater.
Forward Looking Information
Certain portions of this press release as well as other public statements by Equity contain "forward-looking information" within the meaning of applicable Canadian securities legislation, which is also referred to as "forward-looking statements", which may not be based on historical fact. Wherever possible, words such as "will", "plans," "expects," "targets," "continues", "estimates," "scheduled," "anticipates," "believes," "intends," "may," "could," "would" or might, and the negative of such expressions or statements that certain actions, events or results "may," "could," "would," "might" or "will" be taken, occur or be achieved, have been used to identify forward looking information. Such forward-looking statements include, without limitation, the ability of the parties to satisfy of all conditions precedent of the Arrangement Agreement and complete the Arrangement, the receipt of the requisite regulatory, court and Shareholder approvals, the Arrangement Agreement not being terminated, modified or amended, the anticipated benefits of the Arrangement, the timing of the meeting of Shareholders and other factors. Forward looking statements should not be read as guarantees of future events, future performance or results, and will not necessarily be accurate indicators of the times at, or by which, such events, performance or results will be achieved, if achieved at all.
All material assumptions used in making forward-looking statements are based on management's knowledge of current business conditions and expectations of future business conditions and trends, including their knowledge of the current credit, interest rate and liquidity conditions affecting Equity and the Canadian economy, retail mortgage markets, housing sales and capital markets. Certain material factors or assumptions are applied by Equity in making forward-looking statements, including without limitation, assumptions as to the parties' ability to satisfy the conditions the precedent of the Arrangement Agreement and complete the Arrangement, the anticipated receipt of required regulatory, court and Shareholder approvals, the Arrangement Agreement, the Arrangement Agreement not being terminated, modified or amended, the anticipated benefits of the Arrangement remaining the same, and the timely preparation of materials necessary for the meeting of the Shareholders.
Forward-looking statements reflect Equity's current views with respect to future events and are subject to a number of risks and uncertainties. Actual results may differ materially from results contemplated by the forward-looking statements. Readers should not place undue reliance on such forward-looking statements, as they reflect Equity's current views with respect to future events and are subject to risks and uncertainties and are necessarily based upon a number of estimates and assumptions that, while considered reasonable by Equity, are inherently subject to significant business, economic, regulatory, competitive, political and social uncertainties and contingencies. Many factors could cause Equity's actual results, performance or achievements to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements, including among others, failure to satisfy one of more of the conditions precedent of the Arrangement Agreement or to complete the Arrangement, failure to obtain any of the required regulatory, court or Shareholder approvals, the Arrangement Agreement being terminated, modified or amended, the anticipated benefits of the Arrangement changing, the meeting of the Shareholders not being held at the anticipated time, a significant downturn in capital markets or the economy as a whole, errors or omissions by Equity in providing services to its customers, significant increases in the cost of complying with applicable regulatory requirements, civil unrest, economic recession, pandemics, war and acts of terrorism which may adversely impact the North American and global economic and financial markets, significant changes in interest rates, failure by Equity Trust to meet ongoing regulatory requirements, the failure of borrowers or counterparties to honour their financial or contractual obligations to Equity Trust, failure by Equity Trust to adequately monitor and/or adjust its mortgage portfolio management practices for changing circumstances, failure by Equity Trust to adequately monitor the services provided by third party service providers or to establish alternative arrangements if required or the risks detailed from time-to-time in Equity's quarterly filings, annual information forms, annual reports and annual filings with securities regulators. The preceding list is not exhaustive of possible factors. The Corporation disclaims any intent or obligation to update or revise publicly any forward-looking statements whether as a result of new information, estimates, future events or results, or otherwise, unless required to do so by applicable laws. The forward looking statements contained herein are expressly qualified in their entirety by this cautionary statement.
About Equity Financial Holdings Inc.
Equity is a financial services company operating through its wholly‐owned subsidiary, Equity Trust, a federally regulated deposit‐taking trust company. Equity Trust serves the Canadian mortgage market by offering residential first mortgage loans to non‐prime and near‐prime customers who do not meet the conventional underwriting standards of the major Canadian banks. Learn more at www.equityfinancialtrust.com.
About Smoothwater Capital Corporation
Smoothwater focuses on investing its own capital in small to midcap Canadian public companies where there is an identifiable path to significantly improve the share value. Learn more at www.smoothwatercapital.com.
SOURCE Equity Financial Holdings Inc.
For further information: Equity Financial Holdings Inc., Michael R. Jones, President & CEO, 647.277.0106, www.equityfinancialtrust.com; Smoothwater Capital Corporation, Stephen J. Griggs, Chief Executive Officer, 416.986.2207, firstname.lastname@example.org
Equity Financial Holdings Inc. (TSX: EQI) is a Canadian financial services company serving the alternative retail mortgage market through its wholly-owned subsidiary Equity Financial Trust Company. Equity Financial Trust offers residential mortgage loans on single family homes in Ontario through a network of independent mortgage brokers. Equity Financial Trust Company is regulated by the Office...