The logo of Blackstone Group is displayed at the New York Stock Exchange on April 4, 2016.Brendan McDermid/Reuters
David and Gary Berman, the father-and-son duo who run Tricon Residential Inc., TCN-N will receive US$96-million combined, plus potential severance pay, if Blackstone Inc.’s BX-N proposed takeover of their Toronto-based real-estate company is completed.
Blackstone and Tricon announced their US$3.5-billion friendly acquisition in January, but details on what the Bermans stand to make from selling the family business were disclosed in a regulatory document filed late last week. David Berman, who co-founded Tricon in 1988, will walk away with US$53.2-million, while his son Gary, who is Tricon’s chief executive officer, will get US$43.2-million. Both payouts largely stem from Tricon shares and stock options the two men own that will vest if the deal closes.
Tricon’s executive officers also have employment agreements that guarantee them a combined US$33-million in cash severance pay if they are fired within two years of the deal’s closing. While Blackstone can choose to enter into new employment contacts, it has not yet done so with any of the officers, according to the filing.
Blackstone and Tricon have been close business partners since 2020, when the private equity giant invested US$240-million in the rental property landlord. Blackstone also appointed a director to Tricon’s board.
Despite this relationship, some investors were surprised to see the Bermans sell the company they built from the ground up. The new filing sheds light on their thinking – including Tricon’s decision to accept a “no-shop” provision that prevented its board from soliciting rival takeover offers that might have delivered a higher price for shareholders.
Tricon largely owns single family housing in U.S. sun belt cities such as Atlanta, Dallas, Tampa and Phoenix. Rental housing in these locations has been a great investment for numerous landlords, yet by May, 2023, when Blackstone approached Gary Berman about a deal, Tricon’s shares were trading at roughly the same price they traded hands for in 2015 – which amounted to a roughly 40-per-cent discount to the company’s net asset value.
By that point, Tricon had already considered a number of options to boost its sagging share price, including moving its head office to the U.S. so that it would qualify for inclusion in a popular American real-estate stock market index. Tricon also held preliminary discussions with an unnamed U.S. real-estate investment trust about an all-share merger.
With nothing major in the offing, Gary Berman entertained the initial talks with Blackstone and informed Tricon’s board about the idea. However, the discussions did not turn serious until last fall after the potential deal with a U.S. REIT collapsed. The potential buyer refused to a pay a premium to Tricon’s common share price, according to the filing.
Blackstone initially offered US$11.00 in cash per common share, which Tricon’s board felt was inadequate. Blackstone came back shortly after with an offer of US$11.10 per share and also included the “no-shop” provision, partially offset by a two-tiered termination fee.
The two parties negotiated for four months, and Tricon ultimately accepted a bid worth US$11.25 per share, as well as the “no-shop” provision and the unique termination fee. If Tricon scraps the deal within 30 days in favour of a better proposal, it would have to pay Blackstone US$61-million, and if it did so after 60 days, the fee would be US$122-million.
Tricon’s special committee of board directors sought legal advice on the no-shop provision and ultimately supported it for a number of reasons, including a limited number of rival potential strategic and financial acquirers, and a lack of interest from any potential buyers after an activist investor took aim at Tricon last fall.
Tricon did not return a request for comment.