Associated Brands Income Fund

Associated Brands Income Fund

March 18, 2007 18:48 ET

TorQuest to Acquire Operating Business of Associated Brands Income Fund

TORONTO, ONTARIO--(CCNMatthews - March 18, 2007) - Associated Brands Income Fund (the "Fund")(TSX:ABF.UN) announced today that it has entered into an agreement to sell the Fund's operating subsidiaries to a wholly-owned subsidiary of a fund managed by TorQuest Partners.

Under the agreement, the purchaser will acquire from the Fund and its wholly-owned subsidiary, Associated Brands Operating Trust ("ABOT"), their debt and equity interests in all of ABOT's subsidiaries, which operate the Associated Brands' business. The proceeds of the sale will be paid to the Fund's unitholders by way of the redemption of the outstanding Fund units at a cash redemption price between $0.80 and $0.82 per unit, which represents a premium of approximately 43% to 46% to the volume weighted average trading price of the units on the Toronto Stock Exchange for the 30 days ended on March 5, 2007, the last full trading day before the Fund announced that it was in negotiations with TorQuest Partners. The date for the redemption will be announced following the closing of the sale transaction and is anticipated to occur in early May 2007.

This transaction is the outcome of a review of strategic alternatives conducted by a special committee of trustees of the Fund and ABOT who are independent of TorQuest. The special committee has determined, based on the advice of its financial advisor, that the proposed transaction is in the best interests of the Fund and its unitholders. The members of the special committee and the Board of Trustees of the Fund have unanimously approved the transaction and recommend that unitholders of the Fund vote in favour of the transaction.

Blair Franklin Capital Partners Inc., financial advisor to the Special Committee, has provided an opinion that the consideration to be received by the unitholders under the transaction is fair, from a financial point of view, to the unitholders of the Fund other than the TorQuest Funds (as defined below).

"This transaction represents an opportunity for the Fund's unitholders to realize liquidity for their Fund units at an attractive premium to the trading price in the days prior to the announcement of negotiations", said David Williams, the lead trustee of the board of trustees of ABOT, a member of the board of trustees of the Fund and a member of the special committee. "Considering the Fund's disappointing performance over the past several years, the current very high levels of indebtedness and a review of the business' current and expected challenges and the Fund's available alternatives, we believe this transaction best serves the interests of our unitholders."

Based on information provided from TorQuest Partners, funds (the "TorQuest Funds") managed by TorQuest Partners currently hold $10.0 million aggregate principal amount of exchangeable debentures of Associated Brands Holdings Limited Partnership (one of the ABOT subsidiaries to be acquired by the purchaser under the transaction), which are exchangeable for Fund units at various exercise prices, and 892,912 Fund units. The TorQuest Funds are also party to a securityholders agreement dated November 14, 2005, as amended as of September 19, 2006, with the Fund, ABOT and ABHLP providing TorQuest with certain rights with respect to the business and affairs of ABHLP. In addition, one of the trustees of ABOT is a managing partner of the TorQuest Funds' general partner.

All holders of Class B units and exchangeable debentures (including the Torquest Funds), expected to hold an aggregate approximately 19.57% of the issued and outstanding Fund units at the time of the special meeting of unitholders, have agreed to support the transaction. Each holder of Class B units in ABHLP has agreed with the purchaser to exchange such holder's Class B units into Fund units immediately, resulting in the Fund's issuance of 778,619 units. Each holder of exchangeable debentures of ABHLP (which are exchangeable into Fund units) has agreed with the purchaser to convert such holder's in-the-money debentures into Fund units following the special meeting of unitholders (resulting in the Fund's issuance of 5,133,333 units) and to exercise such holder's pre-existing right to require ABHLP to purchase such holder's out-of-the-money debentures immediately following closing at a price equal to 101% of the principal amount of such debentures plus accrued and unpaid interest.

The Fund has set April 3, 2007 as the record date for a special meeting of unitholders to approve the terms of the transaction and, among other things, certain changes to the Fund's governing instrument to provide for the redemption of Fund units. The special meeting of unitholders is expected to be held on May 4, 2007. The transaction and related arrangements will require the approval of 66 2/3% of the votes cast at the meeting, as well as the approval of the majority of "minority" holders for purposes of Ontario Securities Commission Rule 61-501 and Regulation Q-27 of the Autorite des marches financiers du Quebec. Units held by TorQuest and its related parties will be excluded from such minority vote. The transaction is subject to customary closing conditions, including approval by the Fund's unitholders, and the receipt of specified third party consents, including the lender under the Associated Brands' credit facility.

In connection with the transaction, TorQuest has agreed to fund up to $1,925,000 of the Fund's transaction expenses. If the Fund's transaction expenses do not exceed this amount, the redemption price per unit will be $0.82. If the Fund's transaction expenses exceed $1,925,000, any excess expenses (to a maximum amount equal to $0.02 multiplied by the number of Fund units outstanding at closing) will be paid by the Fund from the proceeds of the sale, with a corresponding reduction in the per unit redemption price of up to $0.02 per unit. If the Fund's transaction expenses exceed this additional amount, TorQuest will have a right to terminate the purchase agreement or pay any such excess expenses and complete the transaction. Management and the special committee of trustees of the Fund and ABOT estimate that the Fund's transaction expenses will be approximately $1,925,000.

The transaction agreement provides for a non-solicitation covenant on the part of the Fund, subject to customary "fiduciary out" provisions which entitle the Fund to consider and accept a superior proposal, subject to the right of the purchaser to match the superior proposal and to the payment by the Fund of a termination fee in the amount of $500,000 under certain circumstances.

Genuity Capital Markets is acting as financial advisor to TorQuest in connection with the transaction.

About Associated Brands Income Fund

Associated Brands Income Fund (TSX:ABF.UN), through its operating subsidiaries, is a leading North American manufacturer and supplier of private-label dry-blend food products and household products. Since beginning operations in 1985, Associated Brands has grown to become one of the three largest suppliers of a diverse range of private-label dry-blend food products in North America, producing over eleven million cases annually across multiple product categories currently sold to 45 of the 50 largest North American food retailers. Associated Brands plans to build unitholder value by leveraging its solid presence in the U.S. private-label market, expanding its product offerings to current and new customers and adding additional contract manufacturing business, and through accretive acquisitions that meet its strict operating and strategic criteria. More information can be obtained at

This press release contains certain forward-looking information and statements. Forward-looking information typically contains statements with words such as "consider", "anticipate", "believe", "expect", "plan", "intend", "may", "likely" or similar words suggesting future outcomes or statements regarding an outlook for, or future changes in, the proposed sale of the operating subsidiaries of the Fund and related arrangements, the Fund's financial performance, results of operations or distributions or other expectations, future events or performance. Readers should not place undue reliance on forward-looking information and should be aware that forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the completion of the proposed sale of the operating subsidiaries of the Fund or actual results, performance or achievements of the Fund to differ materially from those suggested by the forward-looking statements. These factors include, but are not limited to, the possibility that any conditions to closing under the agreement relating to the proposed sale of the operating subsidiaries of the Fund and related arrangements may not be satisfied or waived, the possible failure to successfully plan and execute business improvement strategies; restrictions and covenants contained in the Fund's credit agreement and under the terms of its exchangeable debentures; the absence of long term sales contracts; possible failure to develop new product offerings; operating hazards; sensitivity of sales to weather conditions; product liability; compliance with or changes in environmental, health and safety and other regulations and guidelines; changes to income tax legislation; possible declines in vertical industry markets (grocery, foodservice, industrial and contract manufacturing); competition; reliance on key personnel; possible labour action; volatility in commodity prices and other input materials; prices; foreign exchange exposure; exposure to floating interest rates; exposures under derivative financial instruments; the possible failure to expand into the United States; changes in consumer preferences; and capital expenditures.

The above list of important factors affecting forward-looking information is not exhaustive, and reference should be made to the other risks discussed in the Fund's filings with Canadian securities regulatory authorities. The Fund undertakes no obligation, except as required by law, to update publicly or otherwise any forward-looking information, whether as a result of new information, future events or otherwise, or the above list of factors affecting this information.

Contact Information

  • Associated Brands Income Fund
    Morris Perlis
    Executive Chairman
    (416) 503-7111