PrefBlog

Commerce Split Corp. has announced:

that it has filed and mailed the Management Information Circular to all holders of Priority Equity shares and Class A shares of record on December 14, 2009 in connection with a special meeting of shareholders to be held on Wednesday, February 3, 2010.

As previously reported, the purpose of the meeting is to consider and vote upon a proposal which would essentially offer all Priority Equity and Class A shareholders an alternative investment option from their current holdings in the Fund. The special resolution, if passed, would provide shareholders with the ability to elect to 1) maintain the current investment characteristics of their existing shares (a status quo option), through the Original Commerce Split Fund, or 2) choose to have their existing Priority Equity and/or Class A shares reorganized into a new series of shares (the New Commerce Split Fund) that would potentially provide greater distribution and capital growth potential, especially if the common shares of CIBC increase over the remaining 5 year term of the Company.

Management and the Board of Directors of the Company believes the reorganization proposal is in the best interest of all shareholders in light of the current status of the Company and accordingly recommends that shareholders vote for the special resolution.

The reorganization is hopelessly complex. If it proceeds, shareholders can convert into the “New” or “Status Quo” structures; the status quo retains the rights and – presumably – claim on underlying assets of the existing structure.

So let us assume that every Preferred Shareholder converts to “Status Quo” and every Capital Unitholder converts to “New”, which seems to me to be the most rational option. What happens then? The Information Circular explains (contingency 8):

All Priority Equity Shares tendered for conversion into the Original Commerce Split Fund will be so converted. Class A Shareholders electing to convert into the New Commerce Split will only be allowed to so convert their Class A Shares, and Class A Shareholders failing to file an election form will only have their Class A Shares converted, on a pro rata basis, such that, at the end of the conversion, there are at least 500,000 Class A Shares converted into Class A Shares of the Original Commerce Split Fund. Additional Class A Shares will be converted into Class A Shares of the Original Commerce Split Fund on a pro rata basis, such that an equal number of Class A Shares and Priority Equity Shares are converted into Class A Shares and Priority Equity Shares of the Original Commerce Split Fund.

That part is at least half-way reasonable, but it’s a lot more reasonable to vote against the reorganization and pound it into the Capital Unitholders’ heads that their shares are basically worthless. Then buy ’em up and tender for the October retraction. If you want exposure to CM, allocate your current holdings of XCM.PR.A to your short-term bond portfolio and buy CM directly for your stock portfolio.

Vote No!

XCM.PR.A was last discussed on PrefBlog when the meeting date was announced. XCM.PR.A is not tracked by HIMIPref™.

This entry was posted on Monday, January 11th, 2010 at 8:23 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.