BE.PR.A and DGS.PR.A to Merge?

Brompton Equity Split Corp. (“BE”) and Dividend Growth Split Corp. (“DGS”) have announced they:

will be holding shareholder meetings on April 8, 2011 to consider and vote upon special resolutions to merge BE and DGS by way of amalgamation (the “merger”). If the merger is approved, the merged entity will be named Dividend Growth Split Corp. and it will have the same investment objectives, strategies and restrictions as DGS as well as substantially the same preferred share and class A share attributes.

DGS invests on an equally weighted basis in a portfolio of 20 large capitalization Canadian equities that have among the highest dividend growth rates on the TSX. As both the BE and DGS portfolios are primarily invested in common shares of major Canadian issuers, under the merger BE will be able to smoothly transition its assets into a larger continuing fund with the ability to grow in size with lower administrative costs and increased trading liquidity for shareholders.

Shareholders of BE will also be provided with an opportunity to redeem their shares on April 28, 2011 which is earlier than the scheduled final redemption date of BE of May 31, 2011, provided that BE shareholders tender their shares for redemption by April 15, 2011 and the merger is approved by BE and DGS shareholders.

Details regarding the proposed merger will be contained in the joint management information circular which is expected to be mailed to BE and DGS shareholders on or before March 18, 2011. The circular will also be available on and posted at In addition to the approval of the BE and DGS shareholders, the merger is subject to applicable regulatory approvals. Under the merger proposal, each issued and outstanding preferred share of BE will become one preferred share of DGS. Each issued and outstanding class A share of BE will become the number of class A shares of DGS determined by dividing the net asset value per class A share of BE by the net asset value per class A share of DGS, each calculated on April 28, 2011. In order to maintain the same number of class A and preferred shares outstanding, class A shares or preferred shares may be redeemed by BE on a pro-rata basis prior to the merger as outlined in the joint management information circular.

BE.PR.A is not tracked by HIMIPref™ and this is its first mention on PrefBlog. DGS.PR.A is tracked by HIMIPref™ and was last mentioned on PrefBlog when it got bigger last December.

Readers will note that not only is the term extension entirely reasonable (DGS.PR.A has Asset Coverage of 1.9-:1), but that BE.PR.A holders who don’t like the idea are being offered the opportunity to redeem. This should not be noteworthy, but is in light of Manulife’s recent abusive behaviour.

It is not clear to me whether approval of the merger is required from all four sets of shareholders voting separately. I am endeavoring to find out.

Update: Brompton Group has confirmed that each of the four classes of shareholder involved will vote separately; each class has veto power over the deal.

Update, 2011-3-28: As noted in the comments section, I have read the information circular and recommend that preferred shareholders vote in favour of the merger.

3 Responses to “BE.PR.A and DGS.PR.A to Merge?”

  1. realboomer says:

    I just received the Notice for the merger of DGS and BE. The merger appears to be good news for existing holders of DGS.PR.A, as BE.PR.A is rated Pfd-2, which is better than DGS.PR.A at Pfd-3. Also BE.PR.A has better downside protection than DGS.PR.A. I noticed one change – the term of the new DGS shares can be extended for successive periods of up to 5 years, however existing shareholders will have the option to redeem their shares prior to an extension. Is there any downside to the merger for existing holders of DGS.PR.A?

  2. jiHymas says:

    The companies have published the Information Circular.

    I think it’s a fine plan and recommend that all preferred shareholders vote in favour. The automatic extension is not a problem as long as the right of redemption is maintained; and the circular makes it quite clear that it will be.

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