Gaz Métro Limited Partnership announces corporate reorganization

    
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                   EXCHANGE OF ALL UNITS HELD BY THE PUBLIC
               FOR SHARES OF A NEW DIVIDEND-PAYING CORPORATION

    Conference Call Scheduled for 10:00 a.m. (Eastern Time) on June 22, 2010
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<p><span class="xn-location">MONTREAL</span>, <span class="xn-chron">June 22</span> /CNW Telbec/ - Gaz Métro Limited Partnership ("Gaz Métro") (TSX: GZM.UN) is pleased to announce that the Board of Directors of Gaz Métro inc. ("GMi"), in its capacity as general partner of Gaz Métro, (the "Board of Directors") has unanimously approved, through its independent and non-interested directors (with the other directors abstaining from voting), upon recommendation by the independent committee of the Board of Directors (the "Independent Committee"), a strategic corporate reorganization (the "Reorganization") of Gaz Métro's public ownership structure into a new dividend-paying public corporation ("Newco").</p>
<p>The Reorganization involves the exchange, on a one-for-one basis, of all publicly held units of Gaz Métro, which collectively represent a 29% economic interest in Gaz Métro, for shares of Newco. Following the exchange, Newco will become a partner of Gaz Métro along with GMi who will maintain its interest in the partnership, as illustrated in the attached diagram. Public unitholders will therefore retain their current proportionate economic interest in Gaz Métro indirectly through Newco, and will benefit, through Newco, from an increase in Gaz Métro distributions otherwise payable to Newco by an aggregate amount of <span class="xn-money">$20 million</span> over a three-year period.</p>
<p>It is anticipated that Newco will present going forward the investment characteristics currently attributable to an ownership of units of Gaz Métro including as it relates to maximization of cash distributions and risk profile of current underlying investments and projects. The transaction contemplates an enhanced governance profile and additional rights and protective measures with respect to Newco's investment in Gaz Métro.</p>
<p>In addition to its interest in Gaz Métro, Newco will have the ability to pursue, for its own benefit, certain development and acquisition strategies, including pursuant to an option to be granted by Gaz Métro to acquire 49% of its 50% indirect interest in the wind power project located on Seigneurie de Beaupré land (the "Seigneurie Project"), subject to obtaining all required consents.</p>
<p>"We have pursued for several years the objective of creating value in Gaz Métro for the benefit of our two main groups of unitholders, namely GMi and the public unitholders. We are enthusiastic with the opportunity to continue along this path with the creation of Newco, which optimizes payout, maintains stability and provides growth opportunities", said <span class="xn-person">Sophie Brochu</span>, President and Chief Executive Officer.</p>
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<p>Rationale for the Reorganization</p>
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<p>Following the announcement by the federal government and subsequent enactment of the legislation with respect to the taxation of publicly traded income trusts and limited partnerships (the "SIFT Rules"), the Board of Directors created the Independent Committee to review strategic objectives, evaluate available options and assess implications for public unitholders.</p>
<p>After analyzing a number of alternatives, the Independent Committee determined that the proposed Reorganization, aimed at creating a compelling investment vehicle for public unitholders while maintaining an efficient capital structure for Gaz Métro and its controlling partner, GMi, represents the most attractive available alternative to address the impact of the SIFT Rules.</p>
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<p>Anticipated Benefits of the Reorganization</p>
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<p>The Independent Committee and the Board of Directors believe that the Reorganization will have the following anticipated benefits, among others:</p>
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    - Newco will benefit from an enhanced financial profile:

        - Gaz Métro distributions otherwise payable to Newco will be
          increased by an aggregate amount of $20 million over a three-year
          period;

        - an annualized dividend of $1.00 per Newco share is expected to be
          paid starting in fiscal year 2011 and, taking into account the
          above and assumptions based on the current economic context of Gaz
          Métro, is expected to represent a sustainable dividend payout going
          forward;

        - an annualized dividend of $1.00 per Newco share is equivalent to an
          annual distribution of $1.31 per unit, under Gaz Métro's current
          structure, for a taxable investor in Québec, based on the maximum
          combined marginal tax rate announced for 2011;

        - Newco's corporate structure will be better suited for public equity
          markets than the current limited partnership structure of Gaz Métro
          and will give Newco enhanced flexibility to optimize its capital
          structure over time;

    - An annualized dividend of $1.00 per Newco share compares favourably to
      an estimated after-tax distribution per unit of Gaz Métro in a range of
      $0.85 to $0.87 for fiscal year 2011 under a status quo scenario,
      reflecting, among other things, the dilutive impact of a planned equity
      offering of $100 million by Gaz Métro in the fall of 2010;

    - Shareholders of Newco will continue to benefit from Gaz Métro's stable
      income and high distribution payout;

    - Newco will be granted an option by Gaz Métro to acquire 49% of its 50%
      indirect interest in the Seigneurie Project, subject to obtaining all
      required consents;

    - Newco will have independent access to growth opportunities within the
      parameters of a non-competition undertaking in favour of Gaz Métro;

    - Newco will have a $50 million committed bank facility (with a potential
      of up to $75 million);

    - Shareholders of Newco will benefit from an enhanced governance profile,
      with Newco's independent board of directors ensuring the protection of
      Newco's best interests, and from additional rights and protective
      measures with respect to their investment in Gaz Métro; and

    - Newco will be managed by the same experienced team of professionals
      pursuant to a 15-year administration and management support agreement
      to be entered into between Gaz Métro and Newco.
    
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<p>Mechanics of the Reorganization</p>
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<p>The Reorganization is expected to be completed by <span class="xn-chron">September 30, 2010</span>. Gaz Métro has entered into an arrangement agreement pursuant to which it will effect the Reorganization by way of a statutory plan of arrangement under Section 192 of the <span class="xn-location">Canada</span> Business Corporations Act, subject to the approval of the Superior Court of Québec as well as the approval of (i) at least 66 2/3% of the votes cast by all unitholders present in person or by proxy at a special meeting of unitholders of Gaz Métro to be held to consider the Reorganization (the "Meeting"), (ii) at least 66 2/3% of the votes cast by unitholders other than GMi and affiliated entities (as defined in Gaz Métro's Limited Partnership Agreement), present in person or by proxy at the Meeting and (iii) a simple majority of the votes cast by all unitholders present in person or by proxy at the Meeting, excluding units beneficially owned or over which control or direction is exercised by "interested parties" whose votes are required to be excluded in accordance with applicable securities regulation.</p>
<p>The Reorganization is also subject to other customary closing conditions for transactions of this nature, including the receipt of the <span class="xn-location">Toronto</span> Stock Exchange approval for the substitutional listing of Newco's common shares issuable pursuant to the Reorganization.</p>
<p>A management proxy circular containing additional details about the Meeting and the Reorganization will be mailed to the unitholders of Gaz Métro in <span class="xn-chron">August 2010</span>. It is expected that the Meeting will be held in <span class="xn-chron">September 2010</span>.</p>
<p>Gaz Métro will maintain its quarterly distribution of <span class="xn-money">$0.31</span> per unit until <span class="xn-chron">September 30, 2010</span> and today the Board of Directors of GMi has approved a distribution of <span class="xn-money">$0.31</span> per unit payable on <span class="xn-chron">September 30, 2010</span>, to unitholders of record at the close of business on <span class="xn-chron">September 15, 2010</span>. Upon completion of the Arrangement, Gaz Métro intends to continue its practice of distributing substantially all of its net income (but excluding non-recurring items) ("Net Income"), and, in any case, not less than 85% of its Net Income, subject to certain exceptions.</p>
<p>DBRS Limited has indicated that they view the proposed Reorganization as having no impact on the business risk of Gaz Métro and, based on its analysis of the proposed transaction, has confirmed GMi's Commercial Paper rating at R-1 (low) and First Mortgage Bonds rating at A, both with Stable trends.</p>
<p>It is expected that Newco will adopt a dividend policy of paying out a high proportion of its available cash in the form of quarterly dividends to its shareholders. It is expected that following completion of the Arrangement, Newco will pay an annualized dividend of <span class="xn-money">$1.00</span> per share.</p>
<p>Dividends to be paid by Newco are expected to be all or substantially all eligible dividends which qualify for the enhanced federal dividend tax credit. An advance tax ruling from <span class="xn-location">Canada</span> Revenue Agency confirms, among other things, that public unitholders will have a choice to either effect the exchange on a tax-deferred basis (by making a joint tax election with Newco) if they have embedded capital gains on their units, or realize any gain or loss.</p>
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<p>Fairness Opinion</p>
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<p>The Independent Committee retained BMO Nesbitt Burns Inc. ("BMO") in connection with the Reorganization. Pursuant to this mandate, BMO provided the Independent Committee and the Board of Directors with its opinion on <span class="xn-chron">June 22, 2010</span> that, as at the date thereof, the proposed transaction is fair, from a financial point of view, to such public unitholders. The full text of BMO's fairness opinion, along with the assumptions, limitations and considerations upon which it was based, will be appended to the management proxy circular to be mailed to unitholders.</p>
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<p>Recommendation of the Board of Directors</p>
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<p>The Board of Directors (with interested and non-independent directors abstaining from voting), based on the recommendation of the Independent Committee and on its own review, including consideration of the opinion provided by BMO on the fairness of the transaction for the public unitholders, has determined that the Reorganization is fair to the public unitholders and that it is in the best interests of Gaz Métro and its unitholders. The Board of Directors recommends that unitholders vote in favour of the Reorganization.</p>
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<p>Telephone Conference</p>
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<p>Gaz Métro will hold a telephone conference with financial analysts on <span class="xn-chron">June 22, 2010</span>, at <span class="xn-chron">10:00 a.m. (Eastern Time</span>) to discuss the proposed Reorganization. <span class="xn-person">Sophie Brochu</span>, President and Chief Executive Officer, and Pierre Despars, Executive Vice President, Corporate Affairs and Chief Financial Officer, will be the speakers. This will be followed by a question period. Media and other interested individuals are invited to listen in. The conference can be accessed live by dialling 514-807-9895 or toll-free 1-888-231-8191. It will also be webcast live on Gaz Métro's Web site (<a href="http://www.gazmetro.com/investors">www.gazmetro.com/investors</a>) in the "Webcasts" section. Rebroadcasts can be accessed for 30 days by telephone at 514-807-9274 or toll-free at 1-800-642-1687 (access code: 82086411), and for 90 days on Gaz Métro's Web site.</p>
<p>A copy of the presentation that will be made during this conference call will be available on Gaz Métro's Web site (<a href="http://www.gazmetro.com/investors">www.gazmetro.com/investors</a>) in the "Webcasts" section.</p>
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<p>Gaz Métro Overview</p>
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<p>With over <span class="xn-money">$3.6 billion</span> in assets, Gaz Métro is Québec's leading natural gas distributor. Operating in this regulated industry for over 50 years, Gaz Métro has become the trusted energy provider to some 180,000 customers in Québec and 136,000 customers in Vermont while developing the skills and expertise needed to diversify beyond natural gas. Gaz Métro's prudent growth strategy has been marked by the successful entry into electricity distribution in Vermont and development of wind power projects in Québec. Offering historically strong and stable distributions and showing a competitive spirit, Gaz Métro is committed to its customers, Partners, employees and the community. Gaz Métro's units are listed on the <span class="xn-location">Toronto</span> Stock Exchange under the symbol GZM.UN. <a href="http://www.gazmetro.com">www.gazmetro.com</a></p>
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<p>Cautionary note regarding forward-looking statements</p>
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<p>Certain statements in this press release may be forward-looking pursuant to applicable securities laws. Such forward-looking information reflects the intentions, plans, expectations and opinions of the management of Gaz Métro inc. (GMi), Gaz Métro's general partner, and is based on information currently available to management and on assumptions with respect to future events. The words "plans", "expects", "estimates", "forecasts", "intends", "anticipates" or "believes", or similar expressions, including the negative of these terms and future or conditional forms, often identify forward-looking statements. The forward-looking statements in this press release include statements on expectations regarding the Reorganization, the satisfaction of conditions in respect of the Reorganization, the receipt of required approvals, the perceived benefits of the Reorganization, expected future distributions to unitholders and taxability thereof, expected dividends to be paid by Newco following the completion of the Reorganization and the potential transfer of a portion of Gaz Métro's indirect interest in the wind power project located on the Seigneurie de Beaupré land, and the financial forecasts for Newco, a corporation which would hold the public unitholders' interest in Gaz Métro. Forward-looking statements involve known and unknown risks and uncertainties and other factors outside management's control.</p>
<p>A number of factors could cause actual results of Gaz Métro and Newco to differ materially from current expectations as described in the forward-looking statements, including, but not limited to, terms of decisions rendered by governmental bodies, general economic conditions, the competitiveness of natural gas in relation to other energy sources, the reliability of natural gas supplies, the integrity of the natural gas distribution system, exchange rates fluctuations, the evolution of development projects, Specified Investment Flow Through rules and other factors described in the 2009 Annual Information Form of each of Gaz Métro and GMi under the item "Risks", and in the Management's Discussion and Analysis of each of Gaz Métro and GMi for the fiscal year ended <span class="xn-chron">September 30, 2009</span> and for the quarter ended <span class="xn-chron">March 31, 2010</span>. Although the forward-looking statements contained herein are based upon what management believes to be reasonable assumptions, management cannot assure investors that actual results will be consistent with these forward-looking statements. Assumptions underlying the forward-looking statements contained in this press release include assumptions to the effect that all required approvals and consents to implement the proposed Reorganization will be obtained in due time, that no unforeseen changes in the legislative and regulatory framework of energy markets in Québec and in the State of Vermont will occur, that no significant event occurring outside the ordinary course of business, such as a natural disaster or other calamity, will occur, that Gaz Métro will be able to continue its practice of distributing substantially all of its net income, that the authorized rate of return for Gaz Métro's natural gas distribution activity in Québec will be maintained or improve, that the Seigneurie Project will be completed within the contemplated timeframe, and other assumptions described in the Management's Discussion and Analysis of each of Gaz Métro and GMi for the fiscal year ended <span class="xn-chron">September 30, 2009</span> and for the quarter ended <span class="xn-chron">March 31, 2010</span>. These forward-looking statements do not reflect any potential impact on the financial situation of Gaz Métro or Newco that may result from the adoption of the International Financial Reporting Standards starting in their respective 2012 fiscal year. These forward-looking statements are made as of this date, and management assumes no obligation to update or revise them to reflect new events or circumstances, except as required pursuant to applicable securities laws. Readers are cautioned not to place undue reliance on these forward-looking statements.</p>
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    Diagram of the proposed corporate reorganization:
    http://files.newswire.ca/457/Sunshine_EN.pdf
    

For further information: Investors and analysts: Caroline Warren, Investor Relations, 514-598-3324; Media: Marie-Noëlle Cano, Media and Public Relations, 514-598-3449