Brookfield valuation ‘not disclosed’ in REIT deal
There have been many unusual steps on the way to the proposed merger between two REITs from the same stable: NorthWest Healthcare Properties REIT and NorthWest International Health
care Properties REIT. That merger proposal — being done by way of a plan of arrangement — is being put to unitholders at meetings next week. Later a court will — or won’t — give the final signoff.
The latest examples played out Tuesday when OSC staff ruled that a report prepared by Brookfield Financial Corp. last July — five months after it was retained — and presented to the then independent trustees of NWH did constitute a so-called “prior valuation.”
Because of that determination, the OSC ordered Brookfield’s work be filed on SEDAR (the System for Electronic Document Analysis and Retrieval), and that it be considered by NWH’s current independent trustees and NWH’s financial adviser, Canaccord Genuity.
What’s noteworthy about Brookfield’s 2014 work is that it “would not be able to support” a transaction between the same two entities proposed at that time. Brookfield stopped work on the assignment in September and was “formally terminated” in late November. Around this time two of NWI’s independent trustees resigned. They were quickly replaced.
“This is a related party transaction and a material piece of information was not disclosed,” is how one market participant described the situation.
The purpose behind making the work available to all the parties: to allow them to determine whether the current all-paper transaction is still fair. Certainly the market doesn’t: based on yesterday’s close, NWI is trading below that implied by the exchange ratio for the current transaction.
Guess what? Even with the new information all the parties involved signed off on that transaction, which will see an entity whose operations are outside of Canada combine with an entity whose operations are all in Canada.
Canaccord argued fair market value for NWH was $10.25 to $11.75 per unit; for NWI the comparable numbers were $2.15 to $2.40 per unit. (At $1.25 to $1.45, Brookfield’s numbers for NWI were much lower, with an implied exchange ratio of 0.1285. When a deal was proposed last year with an exchange ratio of 0.225, Brookfield determined that NWH was overpaying for NWI by a mere 75 per cent.)
Under the current plan — which BMO Capital Markets and National Bank Financial have said is fair — the exchange ratio is 0.208 NWH unit for each NWI unit.
The other example also played out Tuesday when NWI “advised NWH that it does not agree with certain statements relating to NWI in this press release and the Brookfield Report.” It’s not clear what statements were in dispute. NWI unitholders deserve better, given that they will be relinquishing their units for NWH units.
Tuesday’s news came on top of another key piece of information contained in the April 7 circular. To be effective, support must be obtained from 66-2/3 per cent of the votes cast. That goal seems readily attainable given that holders of about 65 per cent of NWI’s outstanding units have signed a lock-up.
That lock-up includes the units held by North West Value Partners (a private company controlled by Paul Dalla Lana, NWI’s chair — he is also chair at NWH — and NWI’s largest shareholder). NWVP will have a 34 per cent stake in the merged entity. But there is no majority of the minority test.