Assiduous Reader BL writes in and says:
First, congratulations on your blog, an excellent read!
That’s the spirit, BL! You know how to get me to respond to eMail!
I’ve been looking at the George Weston common shares recently and there has been some speculation of a possible management buyout. If that ever were to happen, I’d like to know what you think would happen to the prefs? Do you think they would fall in value (like BCEs) because the company would probably have to take massive leverage to proceed to the MBO or do you think they would be taken out with the common stock at at least face value? Just curious to understand if there is any way to play this possible deal with the prefs.
The answer to that question depends on the structure of the deal.
The BCE deal was structured as a Plan of Arrangement under the Corporations Act. It is my understanding – as a layman in matters of law and tax – that this was done in order to make the deal simpler.
Since it was a Plan of Arrangement, each class of shareholder voted separately; since the preferred shareholders would have seen a marked decline in credit quality if their shares had remained outstanding, they needed to be placated with a redemption offer in order to obtain their assent.
If it had been a regular take-over, with XYZ making a normal offer for the common shares, the preferred shareholders would not have got a vote and would have been squashed by the weight of new debt; this would have been the case had the earlier intention to become an Income Trust come to fruition.
In the case of Weston and its possible MBO – you can rest assured that an army of expensive lawyers and accountants will be making the decisions based on what’s good for the guy paying them. Without expertise in such matters or access to the talks regarding financing of a possible deal, an outsider is simply guessing.
Interestingly WN rose 5% in the last hour on Friday. This question is well timed!
Thanks for your very interesting answer and insight! Will continue to be an assiduous reader!
BL