Power Corporation/Power Financial

Documents
(SEDAR filing: 13 January 2020) Circular of Power Financial Corporation (the “Company”) for acquisition of its commons shares by Power Corporation of Canada (“PCC”) (9385 K).
Summaries
Summary Under
Tax Topics - Public Transactions - Mergers & Acquisitions - Mergers (mostly Plans of Arrangement) - Privatizations
minority shareholders transferring their shares of Power Financial Corporation to Power Corporation of Canada, with ability to elect under s. 85

Overview

PCC, whose subordinate voting common shares trade on the TSX, holds approximately 2/3 of the common shares of the Company, with the balance of those common shares trading on the TSX. In order to eliminate the holding company discount for this structure and to effectively privatize the Company (thereby reducing costs) it is proposed that each of the minority’s common shares be exchanged under a CBCA Plan of Arrangement for 1.05 subordinate voting common shares of PCC and $0.01 of cash. The exchanging shareholders will thereby receive, as an economic matter, an incremental 0.7% interest in the assets and liabilities of the Company they already own, plus a 36.7% interest in the non-Company assets of PCC.

Eligible (i.e., taxable) minority shareholders may provide an s. 85 election form to PCC within 120 days of the Arrangement in order to secure rollover treatment. The exchange is taxable for U.S. purposes.

The Company

A CBCA corporation whose commons shares (the “Common Shares”) are listed on the TSX and that owns a controlling interest in each of Great-West Lifeco Inc. and IGM Financial Inc.

PCC

A CBCA corporation that controls 425,402,926 common shares (the “Common Shares”) of the Company, representing approximately 64.1% of the issued and outstanding Common Shares. The PCC Participating Preferred Shares entitle the holders to 10 votes per share, while the PCC Subordinate Voting Shares entitle the holder to one vote per share. The PCC Subordinate Voting Shares are listed on the TSX. While the PCC Subordinate Voting Shares to be received by the minority Common Shareholders (the “Minority Shareholders”) pursuant to the Reorganization will represent approximately 37% of the number of outstanding voting shares of PCC upon completion of the Reorganization (including the issuance of PCC Participating Preferred Shares to Pansolo and other holders of PCC Participating Preferred Shares pursuant to their Pre-emptive Right), such shares will represent approximately 21% of the voting power of the voting shares of PCC upon completion of the Reorganization.

Pansolo

Pansolo Holding Inc. a corporation incorporated under the CBCA and controlled by the Trust.

The Trust

The Desmarais Family Residuary Trust.

177

171263 Canada Inc., a wholly-owned subsidiary of PCC.

Reasons for the Reorganization

The Minority Shareholders will receive, as an economic matter, an incremental 0.7% interest in the assets and liabilities of the Company they already own, plus a 36.7% interest in PCC’s assets and liabilities excluding shares of the Company, without effectively paying any additional consideration for these assets and liabilities. The Reorganization will eliminate the current dual-holding company structure of PCC and the Company which, in turn, is expected to reduce the discount to NAV at which the PCC Subordinate Voting Shares have traded.

CBCA Plan of Arrangement
  1. Each Common Share of a validly dissenting holder (a “Dissenting Holder”) will be transferred to the Company for cancellation.
  2. Each Common Share (other than those held by PCC, 171 or any other wholly-owned subsidiary of PCC and the Dissent Shares transferred to the Company) will be transferred by the holder thereof to PCC for the consideration (the “Consideration”) of 1.05 PCC Subordinate Voting Shares and (ii) $0.01 in cash.
  3. PCC will assume the Company Option Plan and each Company Option outstanding immediately prior to the Effective Time will be exchanged for a Company Replacement Option which shall entitle the holder to purchase PCC Subordinate Voting Shares from PCC such number of PCC Subordinate Voting Shares as is equal to the product obtained when (i) 1.05, is multiplied by (ii) the number of Common Shares subject to such Company Option immediately prior to the Effective Time of the Arrangement.
Definition of Eligible Holder (for making of s. 85 election)

“Eligible Holder” means (i) a Canadian Resident or (ii) an Eligible Non-Resident.

“Canadian Resident” means a beneficial owner of Common Shares immediately prior to the Effective Time who is a resident of Canada for purposes of the Tax Act (other than a Tax Exempt Person), or a partnership any member of which is a resident of Canada for the purposes of the Tax Act (other than a Tax Exempt Person).

“Eligible Non-Resident” means a beneficial owner of Common Shares immediately prior to the Effective Time, who is not a resident of Canada for the purposes of the Tax Act, and whose Common Shares are “taxable Canadian property” and not “treaty-protected property”, in each case as defined in the Tax Act, or a partnership any member of which is not a resident of Canada for the purposes of the Tax Act, and whose Common Shares are “taxable Canadian property” and not “treaty protected property”.

Canadian tax consequences
Taxable exchange if no election

A Resident Holder whose Common Shares are exchanged for the Consideration pursuant to the Reorganization and who does not make a valid tax election referred to below (a “Tax Election”) with respect to the exchange in 2 above, will realize a capital gain (or capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the Resident Holder’s Common Shares immediately before the exchange.

Tax Election

In general, an Eligible Holder may select an elected amount so as to fully or partially defer realizing a capital gain for the purposes of the Tax Act on the exchange. A tax instruction letter (the “Tax Instruction Letter”) providing certain instructions for making a Tax Election may be obtained at PCC’s website. To make a Tax Election, an Eligible Holder must provide the necessary information in accordance with the procedures set out in the Tax Instruction Letter within 120 days after the Effective Date.

U.S. tax consequences
Taxable exchange

The exchange by a U.S. Holder of the Common Shares for PCC Subordinate Voting Shares and cash will be a taxable transaction for U.S. federal income tax purposes.

PFIC status

Based on the income, assets, and activities of the Company and its subsidiaries, including those of Great-West Lifeco Inc.’s subsidiaries engaged in the active conduct of an insurance business, the Company does not believe that it was a PFIC for the taxable year ending December 31, 2019, and it does not expect to be treated as a PFIC for the current taxable year.

Summary Under
Tax Topics - Public Transactions - Mergers & Acquisitions - Mergers (mostly Plans of Arrangement) - Shares for Shares and Nominal Cash
Overview

PCC, whose subordinate voting common shares trade on the TSX, holds approximately 2/3 of the common shares of the Company, with the balance of those common shares trading on the TSX. In order to eliminate the holding company discount for this structure and to effectively privatize the Company (thereby reducing costs) it is proposed that each of the minority’s common shares be exchanged under a CBCA Plan of Arrangement for 1.05 subordinate voting common shares of PCC and $0.01 of cash. The exchanging shareholders will thereby receive, as an economic matter, an incremental 0.7% interest in the assets and liabilities of the Company they already own, plus a 36.7% interest in the non-Company assets of PCC.

Eligible (i.e., taxable) minority shareholders may provide an s. 85 election form to PCC within 120 days of the Arrangement in order to secure rollover treatment. The exchange is taxable for U.S. purposes.

See full summary under Mergers & Acquisitions - Mergers (mostly Plans of Arrangement) - Privatizations.