Fairfax Financial Holdings has signed a letter of intent to acquire all outstanding units of the Keg Royalties Income Fund that it does not already own, in a cash deal valued at approximately $211 million.

The Richmond, B.C.-based Keg RIF announced the proposed agreement in a news release. The fund serves as the leading franchisor of the Keg Steakhouse chain and operates it through subsidiary Keg Restaurants, which has locations across Western Canada and the U.S.

Under the proposed transaction, Toronto-based Fairfax would pay $18.60 per unit — a 30.8% premium over the fund’s closing price on May 2 and a 34.7% premium over the 20-day volume weighted average. The proposed deal is not subject to a financing condition.

It follows negotiations between Toronto-based Fairfax’s investment manager, Hamblin Watsa Investment Counsel, and the fund’s independent board of trustees, who have unanimously agreed to proceed with the letter of intent. An independent unitholder with a 14.6% stake has committed to support the deal, subject to customary conditions.

The fund’s trustees have commissioned a formal valuation and fairness opinion as required under Canadian securities rules protecting minority investors. The transaction remains subject to a definitive agreement, regulatory and unitholder approvals, and satisfaction of other customary closing conditions.

No action is currently required from unitholders. The fund cautions there is no guarantee a final agreement will be reached or that the proposed transaction will proceed.

Pictured: Keg Steakhouse and Bar in Coquitlam, B.C.

Photo: The Keg

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