General Committee
November 11, 2015
Meeting
Number 30
Finance & Administrative Issues Community Services Issues
Chair: Deputy Mayor Jack
Heath Chair: Councillor Alan Ho
Vice Chair: Councillor Colin Campbell Vice
Chair: Councillor Alex Chiu
Environment
& Sustainability Issues Building,
Parks, & Construction Issues
Chair: Councillor
Valerie Burke Chair: Councillor Colin
Campbell
Vice Chair: Councillor Karen Rea Vice Chair: Regional Councillor Nirmala
Armstrong
Alternate formats are available
upon request.
Attendance
|
Andy
Taylor, Chief Administrative Officer
Trinela
Cane, Commissioner of Corporate Services
Brenda
Librecz, Commissioner of Community & Fire Services
Catherine
Conrad, City Solicitor
Joel
Lustig, Treasurer
Don
Taylor, Manager, Executive Operations
Graham
Seaman, Director, Sustainability
Mark
Visser, Senior Manager, Financial Strategy &
Investment
Alida
Tari, Council/Committee Coordinator
|
|
|
|
The General Committee meeting convened at the hour of 7:07 PM with
Deputy Mayor Jack Heath in the Chair.
DISCLOSURE
OF PECUNIARY INTEREST
None disclosed.
1. PROPOSED POWERSTREAM INC. MERGER
WITH HORIZON UTILITIES CORPORATION
AND ENERSOURCE HYDRO MISSISSAUGA INC.
AND PURCHASE OF HYDRO ONE BRAMPTON NETWORKS INC. (13.7)
1. Powerstream
Update - M&A Transaction
Presentation
Brian
Bentz, President & CEO of PowerStream addressed the Committee and provided
some background and history of PowerStream.
Mr. Bentz delivered a PowerPoint presentation providing an update
regarding the proposed PowerStream merger/acquisition transaction.
There was
discussion regarding rate harmonization. Brian Bentz advised that the rate
harmonization is for approximately 20% of the residential bill (the
“distribution” portion of the bill).
The
Committee briefly discussed the various synergies that the proposed merger are
expected to achieve.
Moved by
Regional Councillor Jim Jones
Seconded by
Regional Councillor Nirmala Armstrong
1) That
the presentation by Mr. Brian Bentz entitled "PowerStream Update – M&A
Transaction”, be received.
Carried
2. Navigant
Consulting Ltd.
-
Powerstream Merger & Acquisition: Decision Support
Presentation
Benjamin
Grunfeld, Navigant delivered a PowerPoint presentation providing a high level
overview of the proposed PowerStream merger/acquisition.
The
Committee briefly discussed some of the risks identified by Navigant
Consulting.
There was
discussion regarding the proposed customer savings and ways in which those
savings could be greater than what is being suggested.
The
Committee inquired about the due diligence completed for this transaction. It was noted that there was extensive and
adequate due diligence completed by third party consultants for the utility
companies.
Moved by
Regional Councillor Jim Jones
Seconded by
Regional Councillor Nirmala
1) That
the presentation by Mr. Benjamin Grunfeld of Navigant Consulting Ltd. entitled
“PowerStream Merger and Acquisition: Decision Support”, be received.
Carried
3. Staff Presentation - Proposed Merger of Powerstream,
Enersource and Horizon, and Acquisition of Brampton Hydro
Presentation
Andy
Taylor, Chief Administration Officer, delivered a PowerPoint presentation regarding
the proposed merger of PowerStream, Enersource and Horizon, and the acquisition
of Brampton Hydro.
The
Committee discussed rate rebasing and the estimated financial risks.
There was
brief discussion regarding the estimated savings to Markham-owned buildings if
this transaction proceeds.
The
Committee inquired about the facility and labour rationalization plans that
will assist in achieving the synergies.
Mr. Bentz indicated that he can review those plans with any Member of Council.
The Committee
discussed the proposed Board composition of MergeCo in comparison to the
current PowerStream Board.
There was
discussion relative to forecasted tangible and intangible customer benefits
with this proposed merger/acquisition.
Moved by
Regional Councillor Jim Jones
Seconded by
Regional Councillor Nirmala Armstrong
1) That
the presentation by Mr. Andy Taylor, Chief Administration Officer entitled
“Proposed Merger of PowerStream, Enersource and Horizon, and Acquisition of
Brampton Hydro”, be received.
Carried
4. Deputations
Michael
Gannon, on behalf of MCCRG addressed the Committee regarding the proposed
PowerStream merger/acquisition and spoke in opposition.
Marilyn
Ginsburg, Markham resident addressed the Committee with respect to the proposed
PowerStream merger/acquisition and spoke in opposition.
Robert Mok,
on behalf of Downtown Markham Ratepayers Association addressed the Committee
regarding the PowerStream merger/acquisition and spoke in opposition.
Wayne Chen,
Markham resident addressed the Committee with respect to the PowerStream
merger/acquisition and asked some questions and stated some concerns.
Mayrose
Gregorios, Markham resident addressed the Committee with respect to PowerStream
merger/acquisition and stated concerns.
Moved by
Regional Councillor Jim Jones
Seconded by
Regional Councillor Nirmala Armstrong
That the
deputations provided by Michael Gannon, Marilyn Ginsburg, Robert Mok, Wayne
Chen and Mayrose Gregorios be received.
Carried
5. Report
- Powerstream
Merger
Report Appendix
1 Appendix
2
Moved by Regional Councillor Jim Jones
Seconded by Regional Councillor Nirmala
Armstrong
That
the proposed recommendation be referred directly to the November 19, 2015
Special Council meeting:
Whereas Markham Enterprises Corporation
(“MEC”) and The Corporation of the City of Markham (the “City”), Vaughan
Holdings Inc. (“VHI”), The Corporation of The City of Vaughan, Barrie Hydro
Holdings Inc. (“BHHI”), and The Corporation of the City of Barrie, PowerStream
Holdings Inc. and PowerStream Inc. are parties to the Unanimous Shareholders’
Agreement for PowerStream Holdings Inc., dated November 1, 2013 (the
“PowerStream Shareholder Agreement”); and,
Whereas MEC owns 34.185% of the shares of
PowerStream Holdings Inc.; and,
Whereas
MEC is a wholly owned holding company of the City, incorporated under the
provisions of the Electricity Act, 1998
(Ontario); and,
Whereas the Board of Directors of PowerStream
has approved and has recommended to its shareholders the approval of a merger
of the local hydro distribution companies of PowerStream Holdings Inc.
(“PowerStream”), Horizon Holdings Inc. (“Horizon”),
and Enersource Holdings Inc., a holding company to be established by Enersource
Corporation (“Enersource”); and,
Whereas the Board of Directors of
PowerStream has approved and has recommended to its shareholders the purchase
of Hydro One Brampton Networks Inc. (“Brampton”), conditional upon the completion
of both the Merger Participation Agreement and the Share Purchase Agreement, in
accordance with the terms set out in both agreements; and,
Whereas the PowerStream Shareholders’
Agreement requires unanimous approval by its Shareholders for transactions including
the merger and the acquisition of Brampton; and,
Whereas the merger of PowerStream, Horizon,
Enersource and acquisition of Brampton will form a new organization currently
referred to as “MergeCo”;
Whereas MEC, together with VHI
and BHHI, retained independent consulting and legal services as follows:
·
Navigant Consulting Ltd., on the proposed
Transaction ;
·
BDR NorthAmerica Inc., on the proposed
Transaction;
·
Gowlings LLP, on the proposed governance
structure and the draft agreements:
o
Merger Participation Agreement;
o
Unanimous Shareholders’ Agreement; and
o
Share Purchase Agreement; and,
Whereas the City, at its General
Committee meeting on October 7, 2015, received presentations and reports from:
·
Navigant Consulting Ltd.
·
PowerStream
·
City Staff; and,
Whereas the merger and the acquisition (the
“Transaction”) require a significant equity contribution of $43-47.3M,
depending on the amount of closing costs and adjustments; and,
Whereas the City holds a promissory note in
the amount of $67.9M and the interest rate approved by the OEB for shareholder
promissory notes will be reduced from 5.58% to approximately 4.54%; and,
Whereas the dividends forecasted for the
core business, are expected to increase; and,
Whereas the MergeCo dividend policy carries
incremental uncertainty as compared to the PowerStream dividend policy; and,
Whereas under the proposed terms of the
merger, dividend income and equity return from PowerStream’s solar assets are
segregated for the benefit of the shareholders of PowerStream, as set out in
the draft PowerStream Solar Business Services and Indemnity Agreement
Indicative Term Sheet; and,
Whereas the Net Present Value of the solar
dividends in MergeCo will be decreased by approximately $1M; and,
Whereas the financial modeling and the
analysis indicate a return on the incremental investment greater than 5%; and,
Whereas, although staff have negotiated
significant amendments to the Transaction to reduce associated risks , the
investment is not financially compelling
given the remaining risk and the investment criteria of both MEC and the City
of Markham; and,
Whereas the Transaction can not be
recommended by City staff solely on an investment basis; and further,
Whereas the Transaction will deliver
meaningful benefits to PowerStream customers beginning in year six after the
merger, estimated at an average of $40/year for all customers and $25-$30 on
the average residential utility bill (representing approximately 5% to 9% of
the distribution portion of the utility bill), in the form of reductions in the
cost increases on the distribution portion of such bills;
Now therefore be it resolved:
1) That subject
to conditions set out in clauses 1 and 2 hereof, The Corporation of the City of
Markham, in its capacity as a shareholder of MEC, approves:
a. the merger of PowerStream, Horizon and
Enersource, substantially in accordance with the draft Merger Participation
Agreement dated October 9, 2015 and the Unanimous Shareholders’ Agreement dated
October 9, 2015;
b. The purchase of Hydro One Brampton Networks
Inc., substantially in accordance with the terms of the Share Purchase
Agreement dated October 8, 2015, between Her Majesty the Queen in Right of
Ontario as represented by the Minister of Energy (the “Province”) and Brampton
Distribution Holdco Inc. as the vendor, and Horizon, Enersource and PowerStream
as purchaser; and,
2) That the completion of the merger and the purchase of
Brampton be conditional on the following:
a. The terms of the Transaction being
substantially as set out in the Merger Participation Agreement dated October 9,
2015, the Share Purchase Agreement dated October 8, 2015, the Unanimous
Shareholders’ Agreement dated October 9, 2015 and the draft PowerStream Solar
Business Services and Indemnity Agreement dated October 5, 2015.
b. Amendments to the agreements in a form
satisfactory to the Chief Administrative Officer as follows:
i. Unanimous shareholder approval required for mergers
and acquisitions until 75% of the targeted synergy savings have been achieved;
ii. Extension of the term of the Shareholder
promissory notes for 20 years from 2016 with right to extend for a further 20
years, at the interest rate approved by the Ontario Energy Board;
iii. Improvements to section 8.3 of the Unanimous
Shareholders’ Agreement to achieve clarity on the tax mitigation strategies for
first and subsequent sales of shares in MergeCo that trigger departure and
transfer taxes;
c. That a financial back stop be negotiated with
one or more of the municipal partners participating in this Transaction, on
terms satisfactory to the Chief Administrative Officer;
d. That the equity investment required to
complete the merger and acquisition be no greater than $47.3M;
e. Approval of the Strategic Plan by the Board
of Directors of MEC; and,
3) That the City work with MEC staff and other shareholders, to
reduce the equity contribution required for the Transaction to occur, including
but not limited to a formal, municipally led sale of 10% of MEC’s shareholding
in PowerStream with consideration for MergeCo’s value; and,
4) That in the event that the sale is not successful, staff
shall report back with alternate funding options, including funding options
that will not require funding from the City of Markham; and,
5) That the Mayor and Clerk be authorized and directed to
execute the Merger Participation Agreement, the Unanimous Shareholders’
Agreement and the PowerStream Solar Business Services and Indemnity Agreement
based on the draft Indicative Term Sheet, subject to any modifications or amendments
approved by the Chief Administrative Officer; and,
6) That the Mayor and Clerk be authorized and directed to
execute and deliver all other documents, notices, articles, certificates to be
signed and or delivered under or in connection with the Merger Participation
Agreement, the Unanimous Shareholders’ Agreement or Share Purchase Agreement or
to take any action(s) required to give effect to the foregoing resolutions; and
further,
7) That staff be authorized to do and to take any action
necessary to give effect to these resolutions, including the execution of any
documents.
ADJOURNMENT
Moved by Councillor Amanda Collucci
Seconded by Councillor Colin Campbell
That the Special General Committee meeting
adjourn at 11:11 PM
Carried