MCAN Mortgage Corporation To Acquire Xceed Mortgage Corporation
"We are pleased to announce this strategic acquisition that will add scale to our operating platform and expand our origination capability for single family residential mortgages," said William Jandrisits, MCAN's President and Chief Executive Officer. "We expect the addition of Xceed's CMHC origination and underwriting capabilities combined with MCAN's existing operations and superior access to capital will contribute to long-term, sustainable earnings. In addition, the acquisition of Xceed will allow MCAN to work more closely with MCAP Commercial LP to further lever MCAN's single family residential operations. MCAP is currently the sub-servicer of Xceed's mortgages."
Michael Misener, MCAN's Vice President and Chief Investment Officer, commented: "We are pleased to welcome Xceed's team of experienced underwriting professionals who will work with us through all phases of the origination, funding and portfolio management of the single family mortgage business."
Xceed is an attractive acquisition target as it has wound down its securitization vehicles in recent years, decreasing its exposure to capital markets. MCAN expects the acquisition to benefit the Company in the following key ways:
- Xceed's origination and underwriting infrastructure and technology will provide support to MCAN's existing growth plans.
- Xceed's database management and reporting capabilities will enhance MCAN's portfolio management.
- The acquisition of Xceed's CMHC approved lender status (subject to regulatory approval) will provide MCAN with the opportunity to expand the scope of its operations.
MCAN expects that the ongoing management of the Xceed business will be integrated quickly following completion of the Transaction, as renewal and underwriting services will continue to be provided by Xceed (as a wholly owned subsidiary of MCAN), and subservicing services will continue to be provided by MCAP.The Board of Directors of Xceed, acting on the unanimous recommendation of a special committee of independent directors and a fairness opinion provided by Canaccord Genuity Corp., has unanimously approved the Transaction and recommended that Xceed shareholders vote in favour of the Transaction. Xceed's directors, senior management and certain other major shareholders, representing, in aggregate, approximately 48.54% of Xceed's outstanding shares, have entered into customary lock-up agreements pursuant to which, among other things, they have agreed to vote their shares in favour of the Transaction. Pursuant to the Arrangement Agreement, the Transaction is subject to certain customary conditions, including: (i) court approval; (ii) the approval of not less than 66⅔% of the votes cast by Xceed shareholders at a meeting to consider the Transaction; (iii) stock exchange and regulatory approvals; and (iv) the satisfaction of certain other closing conditions customary for transactions of this nature. The Arrangement Agreement provides for, among other things, a non-solicitation covenant on the part of Xceed, subject to customary "fiduciary out" provisions and a right in favour of MCAN to match any superior proposal. The Arrangement Agreement also provides for a termination fee of $2 million payable by Xceed or MCAN in certain specified circumstances and reciprocal expense reimbursement payments of $750,000 in certain specified circumstances. Xceed shareholders are expected to vote on the Transaction at the end of May 2013. A material change report, which provides more details on the Transaction and the Arrangement Agreement will be filed with the Canadian securities regulators and will be available under MCAN's profile on SEDAR at www.sedar.com and on MCAN's website at www.mcanmortgage.com. The terms and conditions of the Arrangement Agreement will be summarized in Xceed's management information circular and proxy circular, which will be filed and mailed to Xceed shareholders and available under Xceed's profile on SEDAR at www.sedar.com. Forward-Looking Information This press release may contain forward-looking statements, including statements regarding the proposed acquisition by MCAN of all of the issued and outstanding shares of Xceed and certain strategic benefits and operational, competitive and cost efficiencies expected to result from the Transaction. These forward-looking statements can generally be identified as such because of the context of the statements and often include words such as MCAN "believes", "anticipates", "expects", "plans", "estimates" or words of a similar nature. These statements are based on current expectations, and are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. Some of the factors that could cause such differences include legislative or regulatory developments, competition, technology change, global market activity, interest rates, changes in government and economic policy and general economic conditions in geographic areas where MCAN operates. Reference is made to the risk factors disclosed in MCAN's Annual Information Form dated March 21, 2012 which are incorporated herein by reference. The completion of the Transaction is subject to customary closing conditions, termination rights and other risks and uncertainties including, without limitation, court, shareholder and regulatory approvals. Accordingly there can be no assurance that the Transaction will occur, or that it will occur on the terms and conditions contemplated in this press release. The Transaction could be modified, restructured or terminated. There can also be no assurance that the strategic benefits and operational, competitive and cost efficiencies expected to result from the Transaction will be fully realized. These and other factors should be considered carefully and undue reliance should not be placed on MCAN's forward-looking statements. Subject to applicable securities law requirements, MCAN does not undertake to update any forward-looking statements. About MCAN MCAN is a public company listed on the TSX under the symbol MKP and is a reporting issuer in all provinces and territories in Canada. MCAN also qualifies as a mortgage investment corporation ("MIC") under the Income Tax Act ( Canada) (the "Tax Act"). MCAN's primary objective is to generate a reliable stream of income by investing its corporate funds in a portfolio of mortgages (including single family residential, residential construction, non-residential construction and commercial loans), as well as other types of financial investments, loans and real estate investments. MCAN employs leverage by issuing term deposits eligible for Canada Deposit Insurance Corporation ("CDIC") deposit insurance up to a maximum of five times capital (on a non-consolidated tax basis) as permitted by the Tax Act. The term deposits are sourced through a network of independent financial agents. As a MIC, MCAN is entitled to deduct from income for tax purposes 100% of dividends, except for capital gains dividends, which are deducted at 50%. Such dividends are received by the shareholders as interest income and capital gains dividends, respectively.
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