The proposed transaction will be structured as a plan of arrangement. The transaction is subject to the approval of 66 2/3 per cent of Primaris units voted at a special meeting of Primaris unitholders and a 50.1 per cent majority of H&R units voted at a special meeting of H&R unitholders.
It is expected that each of H&R and Primaris will prepare and mail meeting circulars to their respective investors within the next few weeks and that the special unitholder meetings will be held in March. The transaction is also subject to regulatory approvals (including under the Competition Act (Canada)), court approvals, required consents and other customary closing conditions. Assuming the requisite approvals and consents are received and other conditions are met or waived, the plan of arrangement is expected to be completed by late March.
Under the arrangement agreement, H&R is entitled to an effective $106.6 million break fee in certain circumstances, including the acceptance by Primaris of an unsolicited superior proposal from a third party. The break fee is structured as a cash payment of $70 million and an option to acquire Dufferin Mall and certain Yonge Street properties owned by Primaris, priced at an aggregate $36.6 million discount to the appraised values of the properties. H&R has also been granted other typical deal protection provisions including a right to match any superior proposal that is received by Primaris on an unsolicited basis.
Prior to closing, holders of Primaris convertible debentures will be entitled to convert their debentures in accordance with their terms and participate in the arrangement on the same basis as other unitholders. In accordance with the terms of these debentures, holders may also require that their convertible debentures be purchased at a price equal to 101% of the principal amount plus accrued and unpaid interest following closing. Following closing, holders of the convertible debentures will be entitled to receive stapled units of H&R upon conversion based on the exchange ratio contemplated by the transaction.
The Board of Trustees of Primaris appointed an Independent Committee in response to the hostile bid from the group led by KingSett Capital. The Independent Committee, together with management of Primaris and its financial and legal advisors, has undertaken a rigorous process designed to achieve a result that is financially superior to the hostile offer and delivers greater value for Primaris unitholders. Through the process, parties from across the globe were contacted, consisting of both potential strategic investors within the real estate industry and financial investors. Primaris signed confidentiality and standstill agreements with a number of those parties who were granted access to the confidential data room of Primaris in order to facilitate offers reflecting the fair value of Primaris and several of those parties submitted proposals. The terms of the arrangement agreement with H&R require Primaris to terminate those discussions and close its data room.
Canaccord Genuity, a financial advisor to the Independent Committee, has provided the Board of Trustees of Primaris with an opinion to the effect that, as of the date of the opinion and based upon and subject to the limitations and qualifications therein, the consideration to be received is fair, from a financial point of view, to Primaris unitholders other than KingSett Capital. The Independent Committee carefully considered a number of factors, including the terms of the transaction, the assets and business of H&R, the outcome of the process described above, including the Independent Committee's belief that it is very unlikely that a superior offer will emerge for all the outstanding units of Primaris, and the opinion of Canaccord Genuity in recommending the transaction to the Board of Trustees of Primaris. Based in part on the recommendation of the Independent Committee and the other factors noted herein, the Board of Trustees of Primaris determined that the consideration to be received by Primaris unitholders is fair, from a financial point of view, and it would be in the best interests of Primaris to enter into the arrangement agreement. The Board of Trustees of Primaris has unanimously agreed to recommend that unitholders of Primaris vote in favour of the transaction.
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