Morton Fox's journal

I guess I should comment on TAQA's acquisition of PrimeWest since I do own some PrimeWest and I just had to cast my shareholder vote on the acquisition deal this morning.

PrimeWest (NYSE:PWI) is an example of a Canadian royalty trust. These are like REITs here in the US in that royalty trusts don't pay taxes on their income but instead pass it through to investors in the form of dividends. In Canada though, income trusts are not restricted to one particular sector the way they are here in the US. The most well-known trusts are in the oil and gas industries but I've also heard of income trusts dealing with phonebook publishing, restaurants, and waste management. Back when I started looking at oil and gas royalty trusts, they sported dividend yields anywhere from 10% to 15%. I thought those were a good idea but I only managed to research and buy a few of them, of which PrimeWest was one, before the rest of the investment community caught on and bid the stocks up to levels where they were no longer worth purchasing for the yield alone.

Last year, Canada's Conservative ruling party delivered a Halloween surprise. Finance Minister Flaherty announced a plan to impose a 31.5% tax hike on income trusts by the year 2011. The odd thing is I thought Conservatives were for lower taxes, so either the term carries a different meaning in Canada or it's a case of "Read my lips, no new taxes". I can understand their reasons for doing so though: in the period leading up to the announcement, many major Canadian companies were announcing plans to restructure as income trusts for tax advantages and this change in tax law was supposed to put an end to that. Nevertheless, it was a big mistake. Nearly all royalty trust stocks were hit with a 30% or more slide in stock prices.

Since I was investing in royalty trusts for income, I wasn't overly concerned by the drop in stock prices. It will be a few more years before existing trusts are taxed at the new rate and, in the meantime, trust managers can either find ways to deal with the tax issue or restructure their trusts as traditional corporations. In fact, I took advantage of lower prices caused by overdone investor pessimism and bought a few more royalty trusts that I'd been eyeing. However, that same price drop turned royalty trusts into sitting ducks for foreign acquirers like TAQA. Although it makes no difference to me as an outside observer, there is some validity to the view that Flaherty's plan essentially put the country's energy crown jewels on the bargain table.

Anyway, I voted against the acquisition even though I expect that the majority of shareholders will be for it. Although it gives me a cool 34% premium over PrimeWest's Sept 21 stock price, I still harbor the hope that Canada's ruling party will come to its senses and rescind the tax plan or make an exclusion for energy trusts, which would be better in the long run than TAQA's offer.

60K miles service. (Actual mileage is around 60,610.) Dropped my car off this morning. The loaner car this time is a Toyota Corolla LE from 2001 or earlier. No, I can't tell the model year from the styling or anything like that. I got the year from an old registration sticker on the car's plates.

The big news yesterday, at least from my perspective, was TD Bank's acquisition of Commerce Bancorp. It affects me in two ways. Firstly, as a Commerce Bank shareholder, I'll get a bit of a premium over where CBH was trading earlier this year. However, it won't be much more than the recent stock price because there has been some takeover speculation since the CEO Vernon Hill left the company because of legal problems. (such as making questionable real estate deals with family members through the bank)

Secondly, as a Commerce Bank customer, I'll likely see some changes at the bank. So far, there has been no word on whether TD Bank will keep the Commerce Bank format but my guess is all Commerce Bank branches will become TD Banknorth branches. That would be a pity because Commerce Bank is known in this area for good service, long hours, and free coin-counting machines. I'll miss all of that.