Equisure and Brokerlink bare teeth

More shots have been fired in the hostile takeover bid by Equisure Financial Network of fellow consolidator Canada Brokerlink. Equisure, a holder of 700,000 shares in Brokerlink, has appealed to the Ontario Securities Council to set aside a shareholder rights plan enacted by Brokerlink just days before Equisure’s takeover bid went public. The rights plan allows shareholders to purchase extra stock at a 50% market discount in the event an acquiring company gives less than 45 days before bid closing.

At issue though are Brokerlink’s merger plans with Alberta Stock Exchange-listed Vector Intermediaries, a stock for stock transaction set to be voted upon at a shareholder’s meeting later this month. Equisure has disclosed it opposes the merger and set the close date on its Brokerlink takeover bid at February 10, before the Vector close.

Brokerlink insists its shareholder plan is not intended to prevent takeover bids, but Equisure president George Hutchison counters the plan’s timing indicates it was specifically formulated to block his company’s acquisition. “If the poison pill was to get better value for shareholders, why didn’t the company enact the plan between August to December when they knew we were looking to acquire them?” At the time of Equisure’s $1.08 bid, Brokerlink stock was trading between 42 and 52 cents. Its price has rallied since the takeover announcement to the $1 mark. Hutchison believes the shareholder rights plan is intended to thwart attempts by Equisure to disrupt the Vector/Brokerlink merger.

Mike Santiago, Brokerlink chief executive officer, says specific clauses in the rights plan was not engineered with Equisure in mind. “The Securities Act was recently amended to raise the standard bid period to 35 days, so regulators obviously realize 21 days is not enough time,” he says. The rights plan, he insists, was created before the company was aware Equisure opposed the Vector deal.

Market observers suggest Brokerlink is especially fixated on the Vector transaction and enacted the shareholder rights plan to defend against its disruption. “Brokerlink is eyeing the $10 million acquisitional war chest, that Vector is sitting on, to alleviate some of its debts,” says one insider. Brokerlink shareholders have expressed some resistance to the Vector move, especially suspicious of a transaction agreement that includes an over $200,000 consultancy fee to be paid to current Brokerlink chairman Charles Loewen. “The appearance of impropriety could work against them both in front of regulators and shareholders,” the insider says.

For his part, Vector president Gordon Campbell – expected to be president and chairman of the new entity – insists the merger benefits both companies greatly. Despite the critics’ notion that it merely brings two unprofitable companies together, Campbell says the deal would introduce the critical mass necessary for cost efficiency. “The critics are missing the point. You’ve got two companies with very similar branch systems. Put them all on the same software and the same management, you get enough critical mass that the bottom line will be profitable.”