February 12, 2007
Ever since the federal government sideswiped income trusts by announcing at the end of October that trusts would be taxed like regular corporations in 2011, investors have been waiting for the next big move. Exactly how would trusts react to their new, not-so-friendly operating environment?
Over the past couple of weeks, they have been given a glimpse of what's to come--and it points to a flurry of dealmaking activity in the coming year as the trust universe starts to shrink dramatically.
"There are a lot of deals in the pipeline, more than there was back in November or December," said Phil Brown. "It's hard for me to predict if they're going to go through or not."
Many trusts and potential buyers are waiting on the sidelines for final legislation that will spell out the rules on how much trusts can grow and whether their tax benefits will pass on to buyers for the next four years. A release date for the legislation has not been announced.
"Once the legislation comes out, if it's worse than people think it will be, there might be some drop in values that will make trusts more likely takeover targets," Phil said. "If you're a growth story, you'll have different investors, but it's most likely you will likely convert into a corporation. If you're not a growth story, you'll likely be sold ... and the most likely buyers are private equity."
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