After five years as an income trust, Vancouver's Premium Brands Income Fund (TSX:PBI.UN) is converting back to a corporation.
The move is in response to federal government income trust legislation introduced in 2006 that requires trusts to have their distributions taxed the same as corporate dividends starting in 2011. The legislation also limits the growth of income trusts.
Premium Brands spent six months exploring its options. Its reconversion to a corporation involves buying the corporate shell of Montreal-based Thallion Pharmaceuticals Inc.
Premium Brands' CFO Will Kalutycz said, "We believe the transaction we are announcing is the most efficient method of effecting our conversion."
Under a plan of arrangement, Premium Brand unitholders will receive one common share of Thallion in exchange for each trust unit. Thallion will be renamed Premium Brands Holding Corp. and will own and operate Premium Brands' businesses and subsidiaries. The income trust's board of trustees and management will be the corporation's board of directors.
Thallion's businesses will be transferred to a new Thallion subsidiary that will receive an $8.85 million payment from Premium Brands for the conversion.
Following the conversion, Premium Brand shareholders will receive a $0.294 quarterly dividend to replace the trust's monthly distribution.
The deal, which is subject to two-thirds shareholder approval, is expected to close in July.
Premium Brand's unit price range during the past week: between $8.95 and $9.11; 52-week high: $13.20; 52-week low: $6.55.