FirstService Corporation (TSX: FSV; NASDAQ: FSV)
(“
FirstService” or the “
Company”)
announced that it has entered into an agreement with Jay S.
Hennick, the Company’s Founder, Chairman and largest voting
shareholder, pursuant to which disinterested holders of
FirstService’s Subordinate Voting Shares will be given an
opportunity to approve a transaction (the
“
Transaction”) to settle the Restated Management
Services Agreement (the “
MSA”), including the
long-term incentive arrangement (the “
LTIA”),
entered into on February 1, 2004, between the Company, Mr. Hennick
and Jayset Management FSV Inc. (“
HennickCo”), a
corporation controlled by Mr. Hennick and to eliminate the dual
class voting structure of FirstService.
Over the past several years, the FirstService
Board of Directors has been considering the financial implications
of the MSA as the Company continues to grow. The LTIA included in
the MSA was established in 2004 in lieu of stock options and other
compensation entitlements and was consistent with similar
arrangements implemented at the time to motivate entrepreneurial
founders/CEOs to create long-term value for shareholders. The
arrangement achieved the desired result as the market value of
FirstService increased by more than US$3 billion since 2004,
representing an annualized return of over 24%. Given the growth of
the FirstService business and the seasoned management team in
place, which took on responsibility for the management and success
of FirstService since the completion of the spin-off transaction in
June 2015, Mr. Hennick indicated that he was prepared to receive a
proposal from FirstService to terminate the MSA and unwind the dual
class share structure, thereby relinquishing his effective control
of the Company. In February 2019, the Board of Directors empowered
the Executive Compensation Committee (the
“Compensation Committee”),
consisting of independent directors, Michael Stein (Chair), Bernard
I. Ghert and Brendan Calder to, among other things, evaluate, make
proposals, negotiate and consider the desirability, feasibility and
fairness of, and report to the Board of Directors on, a potential
transaction, including as to whether a potential transaction was in
the best interests of the Company.
As part of the Transaction:
- Henset Capital Inc., a corporation controlled by Mr. Hennick,
will convert 1,325,694 Multiple Voting Shares of the Company (being
100% of the outstanding Multiple Voting Shares) into Subordinate
Voting Shares on a one-for-one basis and for no consideration,
thereby eliminating FirstService’s dual class share structure;
- FirstService will acquire, directly or indirectly, all of the
shares of HennickCo, the recipient of all fees and other
entitlements under the MSA, for a purchase price determined with
reference to the LTIA formula provided in the MSA which would have
applied on a change of control transaction, and thereafter
FirstService will terminate the MSA thereby eliminating the LTIA
and all future fees and other entitlements owing thereafter;
- Mr. Hennick will retain his role as Chairman of FirstService,
at the discretion of the Board, with compensation commensurate with
that of a Non-Executive Chairman of a public company of similar
size to FirstService; and
- FirstService will: (a) pay US$62.9 million in cash; and (b)
issue a total of 2,918,860 Subordinate Voting Shares at a price of
Cdn$115.58 per share (which is the 20-trading day VWAP of the
Subordinate Voting Shares on the TSX determined on March 11, 2019,
the day prior to the announcement of the Transaction).
The Transaction is subject to, among other
conditions, the approval of a majority of the disinterested holders
of FirstService’s Subordinate Voting Shares at an Annual and
Special Meeting of Shareholders to be held on May 3, 2019 at 2:00
p.m. in Toronto, Ontario at The Design Exchange, 234 Bay Street,
Toronto-Dominion Centre (the “Meeting”). The Board
(with Mr. Hennick recusing himself) believes the Transaction is in
the best interests of FirstService and the holders of Subordinate
Voting Shares. All FirstService directors have advised FirstService
that they will vote for the Transaction at the Meeting. The Board
recommends that FirstService shareholders approve the
Transaction.
The Transaction will create alignment among all
FirstService shareholders, each of whom will own the same class of
voting shares. In addition, the Transaction will facilitate an
orderly transition by providing shareholders and the Board of
Directors with greater flexibility to determine the future
direction of the Company. The Transaction was structured to ensure
an appropriate mix of cash and share consideration to maintain the
Company’s conservative balance sheet, and Mr. Hennick’s continued
commitment to FirstService.
T. Rowe Price Associates, Inc., the largest
holder of Subordinate Voting Shares, has advised FirstService that,
based on the information provided by the Company, it supports the
Transaction. T. Rowe Price Associates, Inc., on behalf of accounts
over which it exercises discretionary investment authority, owns or
controls approximately 17.6% of the outstanding Subordinate Voting
Shares and is considered a disinterested holder of Subordinate
Voting Shares for purposes of the Transaction. T. Rowe Price
Associates, Inc.’s beneficial ownership could change between the
date hereof and the date of the Meeting.
Immediately following the completion of the
Transaction, Mr. Hennick is expected to have control and direction
over 5,767,080 Subordinate Voting Shares, representing 14.8% of the
then expected outstanding shares. FirstService anticipates having
39,026,207 Subordinate Voting Shares outstanding immediately
following completion of the Transaction.
“I am delighted to see FirstService, the company
I founded 30 years ago, mature to the point where I feel
comfortable taking a more hands-off role with respect to the
operations of the business,” said Jay S. Hennick. “Agreeing to give
up effective voting control and ongoing contractual entitlements
under the MSA, which has been in place for 15 years, was a
difficult decision. I have great confidence in Scott Patterson and
the rest of the leadership team, and am very excited about the
Company’s prospects for the future. Retaining a significant equity
investment in the Company going forward was a pre-condition and
retaining strategic oversight as Chairman of the Company has always
been a privilege.”
“Working closely with Jay for more than 24 years
has been rewarding,” said D. Scott Patterson, President and Chief
Executive Officer of FirstService. “His vision and the culture he
created were critical to our success and in delivering substantial
returns for shareholders over many years. This transition of
control demonstrates Jay’s confidence in our management team and
his desire to remain our founding shareholder and Chairman shows
his commitment to our Company’s future.”
At the Meeting, the Company also intends to seek
approval to eliminate the Multiple Voting Shares as part of the
authorized capital of the Company and to re-designate its
Subordinate Voting Shares as Common Shares.
The cash payment under the Transaction is
expected to be funded via the Company’s revolving credit facility.
After giving effect to the Transaction, FirstService’s leverage is
expected to increase by 0.3x Net Debt to Trailing 12 Months
EBITDA.
In February 2019, the Compensation Committee and
its advisors proceeded to engage in negotiations with Mr. Hennick
and his advisors culminating in the Transaction. Following a
rigorous independent review process, including receipt of advice
from the Compensation Committee’s independent legal and
compensation consultant advisors, the Compensation Committee
unanimously recommended the Transaction to the Board of Directors,
who then unanimously (with Mr. Hennick recusing himself) approved
it. In support of its recommendation in favour of approving the
Transaction, the Compensation Committee received a written opinion
from its independent compensation consultant, Hugessen Consulting,
that the Transaction is desirable from a compensation perspective
as it would stem the ongoing dilutive effect of the LTIA, as well
as better suit the current stage of the Company’s development and
Mr. Hennick’s current role. Mr. Hennick and the Company believe
that it was reasonable and appropriate that disinterested
shareholders be given the opportunity to vote on the Transaction.
The Compensation Committee also received independent legal advice
from Miller Thomson LLP. The Transaction remains subject to
customary closing conditions, including disinterested shareholder
approval, lender approval and receipt of all other third party and
regulatory consents and approvals, including from the Toronto Stock
Exchange and NASDAQ.
The Compensation Committee and the Board of
Directors of the Company identified, among others, the following
material considerations which it took into account with respect to,
and material benefits expected to be achieved on completion of, the
Transaction:
- the Transaction will result in the
elimination of FirstService’s dual class voting structure for no
consideration, the result of which:– Allows shareholders and
the Board of Directors to consider a broad range of corporate
decisions and strategic alternatives without a possible veto by Mr.
Hennick– Provides all shareholders with the same vote in
proportion to their relative equity stake in the
Company– Allows investors who may not wish to invest, or whose
investment policies prevent them from investing in shares of
companies with dual class share structures to purchase Subordinate
Voting Shares, thereby potentially enhancing liquidity,
and– Allows the Company to use the Subordinate Voting Shares
for purposes of raising additional capital, effecting an
acquisition or merger transaction or issuing additional equity
without further dilution resulting from the MSA.
- the Transaction will facilitate an
orderly transition of effective control by FirstService’s Founder
to its shareholders, the Board of Directors and its professional
management team and provides shareholders with greater flexibility
to determine the future direction of the Company;
- Mr. Hennick agreed to forgo all
future fees and other entitlements to which he would otherwise be
permitted under the MSA, and is accepting a substantial portion of
the consideration under the Transaction in Subordinate Voting
Shares; and
- Mr. Hennick remains committed to
the future direction of FirstService, and is expected to own or
control 5,767,080 Subordinate Voting Shares representing 14.8% of
the outstanding shares of the Company at the time of the completion
of the Transaction. He will also continue to serve as non-executive
Chairman of the Board of Directors.
The required information for FirstService
shareholders to consider in relation to their vote on the
resolution to approve the Transaction will be contained in the
management information circular to be mailed to shareholders in
respect of the Meeting. This management information circular will
also be available at that time on SEDAR (www.sedar.com) and on the
Company’s website at www.firstservice.com. A copy of the definitive
transaction agreement will also be filed on SEDAR and accessible at
www.sedar.com.
About FirstService
Corporation
FirstService Corporation is a North American
leader in the property services sector, serving its customers
through two industry-leading service platforms:
FirstService Residential, North America’s largest
manager of residential communities; and FirstService
Brands, one of North America’s largest providers of
essential property services delivered through individually branded
franchise systems and company-owned operations.
FirstService generates more than US$1.9 billion
in annual revenues and has more than 20,000 employees across North
America. With significant insider ownership and an experienced
management team, FirstService has a long-term track record of
creating value and superior returns for shareholders. The
Subordinate Voting Shares of FirstService trade on the NASDAQ and
the Toronto Stock Exchange under the symbol “FSV”.
For the latest news from FirstService
Corporation, visit www.firstservice.com.
Forward-looking Statements
This press release contains statements that
constitute “forward-looking statements” within the meaning of
applicable securities legislation, including, but not limited to,
statements relating to the potential benefits expected to be
achieved on the completion of the Transaction, the expected
continued commitment of Mr. Hennick to FirstService, the expected
voting at the Meeting to approve the Transaction by FirstService
directors, contemplated changes to the articles and option plan of
FirstService and future filings to be made under securities laws.
Much of this information can be identified by words such as “expect
to,” “expected,” “will,” “estimated” or similar expressions
suggesting future outcomes or events. FirstService believes the
expectations reflected in such forward-looking statements are
reasonable but no assurance can be given that these expectations
will prove to be correct and such forward-looking statements should
not be unduly relied upon.
Forward-looking statements are based on current
information and expectations that involve a number of risks and
uncertainties, which could cause actual results or events to differ
materially from those anticipated. These risks include, but are not
limited to, risks associated with the ability to satisfy
shareholder, regulatory, third party and stock exchange approvals
and conditions to consummate the Transaction or for any related
changes to the articles and option plan of FirstService, the market
value and trading price of the Subordinate Voting Shares of
FirstService and other risks related to FirstService’s business,
including those identified in FirstService’s annual information
form for the year ended December 31, 2018 under the heading “Risk
factors” (a copy of which may be obtained at www.sedar.com) and
Annual Report on Form 40-F filed with the United States Securities
and Exchange Commission (a copy of which may be obtained at
www.sec.gov), and subsequent filings. Forward-looking statements
contained in this press release are made as of the date hereof and
are subject to change. All forward-looking statements in this press
release are qualified by these cautionary statements. Unless
otherwise required by applicable securities laws, we do not intend,
nor do we undertake any obligation, to update or revise any
forward-looking statements contained in this press release to
reflect subsequent information, events, results or circumstances or
otherwise.
COMPANY CONTACTS:
D. Scott
PattersonPresident & CEO(416)
960-9500
Jeremy RakusinChief
Financial Officer(416) 960-9500
FirstService (NASDAQ:FSV)
Historical Stock Chart
From Jun 2024 to Jul 2024
FirstService (NASDAQ:FSV)
Historical Stock Chart
From Jul 2023 to Jul 2024