Premium Brands Income Fund
TSX : PBI.UN

Premium Brands Income Fund

June 03, 2009 07:00 ET

Premium Brands Income Fund Announces Proposed Conversion to a Corporation With a 29.4 Cent Per Share Quarterly Dividend

VANCOUVER, BRITISH COLUMBIA--(Marketwire - June 3, 2009) - Premium Brands Income Fund (TSX:PBI.UN) ("Premium Brands"), a leading producer, marketer and distributor of branded specialty food products, announced today that it has entered into an agreement (the "Arrangement Agreement") with Thallion Pharmaceuticals Inc. ("Thallion") pursuant to which it will convert from an income trust structure to a corporation (the "Conversion").

Following the Conversion, the new Premium Brands corporate entity expects to pay a quarterly dividend of 29.4 cents per share, which is the quarterly equivalent of Premium Brands' current monthly distribution of 9.8 cents per unit.

"As discussed in our last two quarterly conference calls, we have been assessing a variety of options to address the impact of the trust taxation rules legislated by the Federal Government in June 2007. We believe that the transaction we are announcing is the most efficient method of effecting our conversion and are pleased that we will be positioned to maintain our current cash distribution rate," said Mr. Will Kalutycz, CFO.

"Since our conversion to an income trust in July 2005, we have grown our annual revenues from approximately $200 million to $450 million, our EBITDA from $19.4 million to $40.6 million and our distributable cash per unit from $1.176 to $1.692," said Mr. George Paleologou, President and CEO. "Looking forward, we are very pleased to be addressing any uncertainties associated with our current ownership structure and its potential negative impact on our ability to continue to execute our unique specialty food and differentiated distribution based growth strategies."

The Conversion will occur pursuant to a statutory plan of arrangement (the "Plan of Arrangement') under Section 192 of the Canada Business Corporations Act ("CBCA") and is expected to be effective in July 2009.

Rationale and Benefits of the Conversion

On October 31, 2006, the Department of Finance announced the Specified Investment Flow-Through rules ("SIFT Rules") which, through subsequent legislation, changed the manner in which publicly traded income trusts and their distributions are taxed. The SIFT Rules will become applicable to Premium Brands in 2011 or earlier if it exceeds certain growth restrictions set out under the SIFT Rules. Recent further amendments to the SIFT Rules allow for a trust's conversion to a corporation to be effected on a tax deferred basis if completed in 2012 or sooner.

Having regard to these legislative changes, as well as the opportunities to advance its long-term strategic plan, Premium Brands believes that it is in its best interests to proceed with the Conversion at this time. Additional benefits associated with proceeding with the Conversion include:

- The Plan of Arrangement provides for an effective and efficient method to convert from an income trust to a corporation under existing legislation;

- The Premium Brands corporate entity expects to be able to pay a quarterly dividend that will, on a quarterly basis, equal Premium Brands' current cash distribution;

- Canadian taxable unitholders will, in many cases, benefit from lower income tax rates on dividends paid post the Conversion relative to the income tax rates associated with current cash distributions;

- Elimination of the normal growth restrictions imposed under the SIFT Rules which could potentially impact Premium Brands' core business acquisition strategy;

- Possible improved access to the Canadian capital markets and improved liquidity in the trading of its shares given the diminishing significance of the public business income trust market;

- The Conversion is tax deferred such that no income tax will be payable by Premium Brands or its unitholders (other than those who exercise a dissent right) as a result of the Conversion;

- The Premium Brands corporate entity will have an estimated aggregate tax shield in excess of $260 million following the Conversion; and

- A simplified corporate structure.

Details of the Conversion

Under the Plan of Arrangement, Premium Brands' unitholders will receive one common share of Thallion in exchange for every trust unit of Premium Brands held on the effective date of the Conversion, and Thallion will change its name to Premium Brands Holdings Corporation ("New Premium Brands").

Upon the completion of the Conversion, New Premium Brands will own and operate the existing businesses of Premium Brands and its subsidiaries, and the existing trustees and management of Premium Brands will become the board and management of New Premium Brands.

New Premium Brands will not retain any of the businesses carried on by Thallion. Pursuant to the Plan of Arrangement, Thallion will transfer substantially all of its assets and all of its liabilities to a new subsidiary of its parent corporation ("New Thallion") and consideration of $8.85 million, subject to certain post-closing adjustments, will be received by New Thallion. The number of New Premium Brands common shares outstanding at the time of the Conversion will equal the present 17,580,294 in combined Premium Brands outstanding units and exchangeable units.

The Conversion is subject to customary commercial conditions, including the receipt of regulatory approvals from various entities such as The Toronto Stock Exchange. It is also subject to the approval of the courts, pursuant to the CBCA, and of not less than 66 2/3% of the votes cast at a meeting (the "Meeting") of the Premium Brands unitholders to be held to consider the Conversion. The mailing to the unitholders of an information circular in respect of the Meeting is expected to be in June 2009 and the Conversion, subject to receipt of all necessary approvals, is expected to be completed in July 2009.

Complete details of the terms of the Plan of Arrangement are set out in the Arrangement Agreement that will be filed by Premium Brands on SEDAR (www.sedar.com).

Conference Call

Premium Brands will hold a conference call on Wednesday June 3, 2009 at 1:30 P.M. EST to discuss the Conversion.

Access to the call may be obtained by calling the operator at 1-866-226-1793 (local access 416-340-2216) up to fifteen minutes prior to the scheduled start time. For those who are unable to participate, a digital playback of the conference call will be available through to June 10, 2009 by dialing 1-800-408-3053 (local access 416-695-5800) (passcode: 5843355).

About Premium Brands

Premium Brands owns a broad range of leading branded specialty food businesses with manufacturing and distribution facilities located in British Columbia, Alberta, Saskatchewan, Manitoba and Washington State. In addition, the Fund owns proprietary food distribution and wholesale networks through which it sells both its own products and those of third parties to approximately 25,000 customers. The Fund's family of brands includes Grimm's, Harvest, McSweeney's, Bread Garden, Hygaard, Hempler's, Quality Fast Foods, Gloria's Best of Fresh, Harlan's, Centennial Foodservice and B&C Foods.

FORWARD LOOKING STATEMENTS

This press release includes forward looking statements with respect to Premium Brands, including its business operations strategy and financial performance and condition. These statements generally can be identified by the use of forward looking words such as "may", "could", "should", "would", "will", "expect", "intend", "plan", "estimate", "project", "anticipate", "believe" or "continue", or the negative thereof or similar variations. Although management believes that the expectations reflected in such forward looking statements are reasonable and represent Premium Brands' internal expectations and belief as of June 3, 2009, such statements involve unknown risks and uncertainties beyond Premium Brands control which may cause its actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward looking statements.

Important factors that could cause actual results to differ materially from Premium Brands' expectations include, among other things: (i) seasonal and/or weather related fluctuations in its sales; (ii) changes in consumer discretionary spending resulting from changes in economic conditions and/or general consumer confidence levels; (iii) changes in the cost of raw materials used for its products; (iv) changes in the cost of products sourced from third party manufacturers and sold through its proprietary distribution networks; (v) changes in Canadian income tax laws; (vi) changes in consumer preferences for food products; (vii) competition from other food manufacturers and distributors; (viii) new government regulations affecting its business and operations; and (ix) other factors as discussed in Premium Brands Annual Information Form, which is filed electronically through SEDAR and is available online at www.sedar.com. It should be noted that this list of important factors affecting forward looking information may not be exhaustive.

Unless otherwise indicated, the forward looking information in this document is made as of June 3, 2009 and, except as required by applicable law, will not be publicly updated or revised. This cautionary statement expressly qualifies the forward looking information in this document.

Contact Information

  • Premium Brands Income Fund
    George Paleologou
    President and CEO
    (604) 656-3100
    or
    Premium Brands Income Fund
    Will Kalutycz
    CFO
    (604) 656-3100
    www.premiumbrandsincomefund.com