Borealis launches $2B bid for Teranet
Borealis Infrastructure Management Inc. launched a $2-billion takeover bid for Teranet Income Fund on Thursday, the fourth time the infrastructure heavyweight has taken a run at Teranet.
Borealis, part of the Ontario Municipal Employees Retirement System, is offering $11 for each unit of Teranet, which provides access to the province's electronic land registration system.
"We are prepared to make this premium offer to unitholders because Teranet is a unique, well-managed enterprise with attractive potential cash flows that make it a logical addition to our investment portfolio," said Borealis president Michael Rolland.
"Borealis Infrastructure would be the ideal owner for Teranet."
Teranet shares jumped more than 20 per cent to close the session at $11.24.
Borealis's $11 cash offer represented a 36 per cent premium over Teranet's 52-week stock low of $8.06.
Three-month stock chart for Teranet Income FundIn many cases, investors are willing to pay more per-share for a stock facing a takeover because those buyers believe the suitor will be forced to sweeten its offer for the company or the appearance of one bid might attract other, richer offers.
Borealis finances and invests in various infrastructure projects, such as schools and hospitals in Ontario and a company that owns 21 British ports.
For its part, Teranet, a former provincial Crown corporation, said it had already started talking to various parties, including Borealis, about a possible buyout and had retained RBC Dominion Securities Inc. and CIBC World Markets Inc. as advisers.
"By announcing their intention to make an offer, it appears that Borealis has signalled its desire not to participate in the process that Teranet has established," the company said in a release.
Teranet said it will give a recommendation to its unitholders regarding the Borealis offer at some point.
Real estate monopoly expires in 2017Teranet gets 40 per cent of its revenue from the land registration system. The rest comes from a variety of other electronic transaction services for health-care and other institutions.
Currently, Teranet has a monopoly on its real estate services in Ontario, which runs out in 2017. The company has been trying to diversify its revenue streams in other areas.
Teranet's revenue continues to grow, inching up six per cent for the first six months of fiscal 2008. And the company, which is arranged as an income trust, posted a net profit, up five per cent in the same half-year period.
But a flagging home sale sector and the requirement that Teranet ask the provincial government's permission for rate increases might be placing a ceiling on Teranet's financial prospects.
For instance, in the company's most recent financial quarter, Teranet's net income dipped 7.5 per cent, with the company touting its financial stability rather than growth characteristics in its report to shareholders.
In addition, Teranet's stock price has languished between $8.10 and $9.05 for most of the summer. The shares only began to rise after media reports surfaced of takeover interest in the company.
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