Trust managers get $13.1M
PrimeWest external team employees effective today
Barry Critchley
Financial Post
Tuesday, October 01, 2002
Another week and another oil and gas royalty trust decides the right thing to do is internalize its management.
PrimeWest Energy Trust -- a fund with a market cap of $850-million and the country's fourth-largest gas royalty trust -- announced that effective today, it will eliminate its external management structure -- but the trust will be managed by the same set of managers who managed it yesterday.
Under the new plan, which requires regulatory and unitholder approval, the managers won't receive management fees. In the past, they received fees set at 2.5% of net production revenue, a 1.5% acquisition fee and a 1.25% disposition fee.
But the managers, who come together under the PrimeWest Management Inc. banner, won't walk away empty-handed when they become employees of the trust. Instead they will receive $13.1-million in cash, 491,000 units of the trust plus another $1.5-million payable in the form of exchangeable shares. (That $1.5-million payment will end a management incentive program.)
PrimeWest, which released details of its plan last week, hours after the markets closed, said the senior management team will all move and become trust employees.
The total consideration amounts to $26.1-million, or 3% of PrimeWest's market cap.
(In this way, the proposed transaction is not as rich as the scheme proposed by Shiningbank Energy Income Fund. Next week its unitholders will vote on a deal that has a $20-million termination fee, or 4% of its market cap. In Shiningbank's case, the bulk of the payment is in trust units. The cash payment is $2.9- million, or 15% of the deal.)
The $26-million in payments are in line with what was contained in PrimeWest's management contract, which indicated that if management was replaced it was entitled to a termination fee set at two years of fees. For 2001, management received almost 240,000 units plus $12.96- million in acquisition and disposition fees.
PrimeWest closed yesterday at $26.45.
PrimeWest says the transaction will be accretive to unitholders. That term means the cost of managing the trust in the future under the new structure will be lower than the cost under the old structure.
The transaction also includes another perk for senior management: $3.5-million has been set aside for long-term retention bonuses. That amount, payable in exchangeable shares, kicks in over four years after a one-year hold period.
- A recent report by Steve Larke, an analyst with TD Newcrest, indicates management at PrimeWest has one of the lowest ownership levels of all the oil and gas royalty trusts.
Larke, who assigned a "hold" rating to PrimeWest, indicated PrimeWest's management owns 0.9% of the outstanding float. But, at that level, PrimeWest's management is more financially committed than their counterparts at Shiningbank, where management owns a mere 0.2% of the fund's float.
After the internalization transaction, PrimeWest's managers will own 2.5% of the outstanding trust units; at Shiningbank, management will up its stake to 3.6% under the new proposed structure.
- Consolidation, combined with much better federal finances, seems to have reached its penultimate conclusion in the ranks of the firms that deal in treasury bills.
Freedom International Brokerage Inc. and Prebon Yamane (Canada) Ltd. now dominate the brokerage activities for the securities issued for a term of up to one year.
Until just recently, a third firm, Tullett & Tokyo Forex Ltd., was also a major player in the market, which sits between the money market desks operated by the major investment dealers.
Tullett's involvement scaled back when a group of its T-bill operatives moved to Prebon.
"There used to be three bill screens with good liquidity. Now the liquidity is concentrated on the Prebon and the Freedom screens," said one participant, who added it wasn't so long ago that at least five firms were active in providing brokerage services for T-bills.
The concern, of course, is that one firm may end up owning the business.
"You need two because you have to keep the other guy honest," added a market participant.
Adds another another: "There is a feeling that the accounts wanted to shrink the [number of firms] on the street."
For its part, Tullett said it is planning to remain in the T-bill market.
"We have been in the T-bill market for more than 15 years. We have every intention of remaining in the market [though] it's always a disruption when one loses staff," said Henry Ann, a Toronto-based senior managing director at Tullett & Tokyo.
Ann added that his firm "has replaced some of those that left. Our business plan includes short-term interest products."
The situation is far better for government bonds, a market in which three firms -- Freedom, Prebon and Shorcan Brokers Ltd. -- are active. |
