Element Financial butterfly spin-off of ECN Capital will be followed by a merger of ECN Capital with a 3rd (cash-rich) public company

Element Financial will be spinning off its commercial finance business as ECN Capital pursuant to a butterfly for which it did not apply for a ruling. It is contemplated that following the butterfly, ECN Capital will then acquire all the shares of a cash-rich recent IPO (IAC) in exchange for about 13% of its shares.

Holders of the Element stock options will exchange a portion of their options on the shares of the “Subco,” into which the to-be-distributed business has been dropped and then, immediately following the butterfly, exchange their Subco options for options on ECN Capital shares. The old exercise price will be prorated between the options on the post-spin-off Element (“Element Fleet”) and ECN Capital based on the relative 5-day VWAP for their share prices after giving effect to the butterfly.

Holders of about $534M of Element preferred shares will not participate in the butterfly exchange. Unlike the difficulties this would create on a cross-border butterfly (see Desjardins and Diksic), this is possible in a Canadian public-company butterfly spin-off.

Neal Armstrong. Summary of Element Circular under Spin-Offs & Distributions – Butterfly spin-offs.