Power Corp. of Canada and Power Financial Corp. announced a reorganization under which the dual-holding company structure will be eliminated.
Each Power Financial common share will be exchanged for 1.05 subordinate voting shares of Power Corp. and 1 Canadian cent in cash. Upon completion of the reorganization, Power Corp. will own all of the Power Financial common shares, while Power Financial preferred shares and debt securities will remain outstanding.
The reorganization will be effected by way of a court-approved plan of arrangement under the Canada Business Corporations Act. Power Financial minority shareholders will own in aggregate approximately 37% of Power Corp.'s voting shares after completion and issuance of participating preferred shares under the pre-emptive right.
The reorganization will put an emphasis on financial services, according to a joint statement. Power Corp. anticipates near-term cost reductions of approximately C$50 million per year within two years by eliminating "duplicative public company related expenses and rationalizing other general and administrative expenses."
The companies intend to redeem an aggregate of C$350 million of first preferred shares with available cash, resulting in reduced annual financing costs of approximately C$15 million per year.
Power Corp. intends to increase its quarterly dividend by 10% to 44.75 Canadian cents per share, commencing in the second quarter of 2020. The board declared a quarterly dividend of 40.5 Canadian cents per share on the participating preferred shares and the subordinate voting shares, payable March 31, 2020, to shareholders of record Feb. 5, 2020.
Pansolo Holding Inc., a holding company controlled by the Desmarais Family Residuary Trust, will retain control of Power Corp. following the reorganization. Pansolo Holding intends to purchase 5 million to 6 million of the approximately 30 million participating preferred shares of Power Corp. it is entitled to purchase, resulting in ownership of approximately 50.2% to 50.6% of the votes of Power Corp. pro forma the completion of the reorganization.
The co-CEOs of Power Corp., Paul Desmarais, Jr. and André Desmarais, will retire, but will remain chairman and deputy chairman, respectively, of the company's board of directors. The Power Corp. board expects to appoint R. Jeffrey Orr, president and CEO of Power Financial, as president and CEO of Power Corp. upon completion of the reorganization.
The implementation of the reorganization is subject to the approval of at least two-thirds of the votes cast by Power Financial shareholders present and by a majority of the votes cast by Power Financial shareholders other than Power Corp. and certain of its related parties.
The reorganization is expected to be completed in February 2020, subject to receipt of all required approvals. The Power Financial common shares are expected to be delisted from the Toronto Stock Exchange promptly following the completion of the reorganization. Power Financial's first preferred shares will remain shares of the company and listed on the TSX following the completion of the reorganization. Its 6.9% debentures due March 11, 2033, will remain outstanding as obligations of Power Financial. The company anticipates that it will remain a reporting issuer in each of the provinces and territories of Canada.
In accordance with the pre-emptive right in favor of holders of participating preferred shares included in Power Corp.'s articles, the company will make an offer to holders of participating preferred shares of record at 5 p.m. Montreal time Dec. 27 to acquire, on a pro rata basis, shares equal to 12.0% of the number of subordinate voting shares proposed to be issued in the reorganization for a consideration per share equal to the stated capital amount per share for which the subordinate voting shares are to be issued.
Completion of the reorganization will result in the issuance of up to, approximately, an additional 250.6 million subordinate voting shares, representing approximately 66.4% of the currently outstanding subordinate voting shares.
BMO Capital Markets and Goldman Sachs are acting as financial advisers to Power Corp. Blake Cassels & Graydon LLP and Goodmans LLP are acting as Power Corp.'s legal advisers.
RBC Capital Markets is acting as financial adviser to and was retained as independent valuator by the special committee of the Power Financial board. Osler Hoskin & Harcourt LLP is acting as legal adviser to the committee.
Scotiabank is acting as adviser to Pansolo Holding.