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OMERS cleared for C$2bn Teranet takeover

Unable to find a superior offer amid ’the current turmoil in the capital markets‘, Teranet’s board withdrew its opposition to OMERS’ unsolicited bid for the provider of electronic land registry services. The offer was set to expire on 17 Oct.

Teranet Income fund’s board of trustees has withdrawn its recommendation that its unitholders reject an unsolicted C$2 billion ($1.8 billion; €1.3 billion) takeover offer by Borealis Infrastructure, the infrastructure investment division of the Ontario Municipal Employee Retirement System (OMERS).

“The Board has withdrawn its prior recommendation in light of the current turmoil in the capital markets,” the board’s statement read. “The board believes a superior offer is unlikely to emerge before the Borealis offer expires on Friday, October 17, 2008.”

The withdrawal of the rejection notice concludes a tense five week price discovery process for the fund, during which it tried to solicit a superior proposal from at least 10 different parties, including the Hospitals of Ontario Pension Plan, its largest shareholder. Meanwhile, OMERS gradually upped its stake in Toronto Stock Exchange-listed Teranet, doubling its share count to 1.3 percent of total units outstanding.

Borealis’ acquisition of the e-services provider would represent a diversification away from more traditional transport, energy, telecommunications and social infrastructure assets that have been its mainstay.

Teranet provides exclusive access to the Ontario Electronic Land Registration System, which enables customers to conduct electronic registrations as well as title and writ searches relating to property. The monopoly is effective through 2017 and thereafter the licenses extend on a non-exclusive basis until 2047.

The resulting cashflow stream, both predictable and protected, is coveted by pension funds like OMERS that typically look for investments with infrastructure or infrastructure-like cashflow characteristics.

At 20 percent, the C$52 billion pension has one of the highest long-term capital allocations to infrastructure among state pension LPs. It has been investing in infrastructure through Borealis since 2001, when it made a $375 million commitment to the fund.

A spokesman for Teranet did not immediately return calls seeking comment.

Teranet units ended the day down 4.8 percent, closing at $10 per share.