M-Split Corporation 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 to reorganize the share capital of the Fund. The special resolution, if passed, would provide shareholders with the ability to have their existing Priority Equity and/or Class A shares reorganized into a new series of shares that would potentially provide greater distribution and capital growth potential, especially if the common shares of Manulife 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 cover letter explains:
In summary, holders of the existing Priority Equity Shares would receive the following securities for each Priority Equity share held:
One $5 Class I Preferred share: paying fixed cumulative preferential monthly dividends to yield 7.5% per
annum and having a repayment objective on the Termination Date of $5One $5 Class II Preferred share: paying distributions to yield 7.5% per annum on the $5 notional issue
price if and when the net asset value per Unit of the New M Split Fund exceeds $12.50 and having a repayment objective on the Termination date of $5.00One 2011 Warrant: each Warrant can be used to purchase one Unit (consisting of one Class I Preferred share, one Class II Preferred share and one Capital share) for an exercise price of $10.00 at specified times until February 28, 2011
One 2012 Warrant: each Warrant can be used to purchase one Unit (consisting of one Class I Preferred share, one Class II Preferred share and one Capital share) for an exercise price of $12.50 at specified times until February 28, 2012
Holders of the existing Class A Shares would receive a Capital share for each Class A share held:
One Capital Share: Capital shares would continue to participate in any net asset value growth over $10.00 per Unit and dividends would only be reinstated if and when the net asset value per Unit exceeds $15.00. The increased exposure to the Manulife common shares would offer much greater capital appreciation potential, especially if the value of such common shares were to increase over the remaining life of the Fund.
The package offered to the Preferred shareholders is a nightmare to price, which may well be the whole point. Multiple options – which really just allow for the dilution of the capital unitholders, they’re not really priceable as options in the usual manner – differential dividend policies …. I would be much more inclined to look at a Monte Carlo simulation to price this muck rather than attempting a closed form solution.
Ultimately, though, preferred shareholders are offering capital unitholders a package with some value, as opposed to the value they have now, which is zero. If you want exposure to MFC, it’s a whole lot easier to consider the current preferreds as a short-term fixed income investment and simply buy MFC directly.
Vote No!
It’s much easier to buy up the extant capital units (quoted today at 0.36-38, 1×10, no volume) and tender for the annual October retraction.
XMF.PR.A was last discussed on PrefBlog when the meeting date for this proposal was announced. XMF.PR.A is not tracked by HIMIPref™.
[…] had previously recommended against the reorganization, but does anybody every listen to me? I believe the preferred shareholders have given up a […]