Tories’ tax plan guts trust sector
surge to $12.2B
August 31, 2007
Sales of income trusts, following last year’s surprise announcement of a tax on the once-popular investments by the Harper government, have surged to unprecedented levels, figures this week reveal.
“It’s probably the thin edge of the wedge,” Colin Walker, managing director of Crosbie and Company Inc., said Thursday.
The number of income trust sales and acquisitions in the spring quarter surged 94 per cent to 62 from 32 in the first quarter.
That drove the value of income trust deals up an even greater 300 per cent to $12.2 billion from $2.9 billion in the first quarter and from an average of $2.3 billion in each of the previous four quarters, according to a report by the investment banking firm, which tracks Canadian corporate merger and acquisition activity.
Although only 37 per cent of the transactions were income trusts being sold, those sales accounted for 94 per cent of the value of the transactions, it observed, noting that the other transactions were smaller acquisitions by trusts.
While the focus of the report was on the record high $202 billion in corporate acquisitions and mergers in the spring quarter, especially foreign takeovers of giant Canadian corporate icons, it also mentioned briefly that “income trusts represented another area of high activity.”
Walker suspects the jump in income trusts that were put on the block in the spring reflects the start of another phase of the fallout from the controversial decision last fall by Finance Minister Jim Flaherty to break a Conservative election promise not to tax trusts, which resulted in a plunge in the value of the investments.
“This is about the period that you would expect that people decided that it was wise to put themselves on the block and make something happen,” said Walker, noting that the surge in sales followed the announcement of the tax by about eight or nine months, enough time to assess their future and do the sales preparation.
“There are probably going to be more of those in the offing,” he added, noting that at the time of the government’s announcement there were about 200 business trusts, a lot of them relatively small ones that, unlike some of the larger trusts, would not be attractive to investors if converted into publicly owned companies.
The trading value of some of the income trusts had really plummeted in the wake of the tax announcement, he said.
Friday, February 5, 2010
Posted by Fillibluster at 11:19 AM