VenGrowth reaches definitive agreement for takeover by Covington

TORONTO – The boards of several VenGrowth capital funds announced Thursday they have reached a definitive agreement for a takeover by Covington Capital Fund II Inc., in a shares-for-shares transaction.

Both Covington and VenGrowth are labour-sponsored venture funds, which previously could offer retail investors certain tax incentives. The funds generally invested the money in businesses that aren’t publicly traded and limited their investors’ ability to cash in their holdings.

Under the proposal, Covington is offering to acquire at least $200 million investment assets of five VenGrowth funds and the New Generation Biotech Equity Fund in return for Covington shares of an equivalent value.

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VenGrowth and NGBE shareholders will also have some opportunity to immediately convert the Covington shares they get into cash – with certain limitations and conditions.

In particular, shareholders of VenGrowth I, VenGrowth II, VenGrowth Advanced Life Sciences and NGBE will have to pay a 15 per cent redemption fee if they decide to opt for cash immediately, and the total cash is limited to $35.3 million..

Shareholders of those three VenGrowth funds will also have the option of cashing in up to 15 per cent of their Covington II shares annually for the first four years after closing without any additional redemption discount. After four years, there will be no restrictions on redemptions.

The redemption restrictions don’t apply to shareholders of VenGrowth II and VenGrowth Traditional Industries.

Since Covington and VenGrowth announced on May 31 that they intended to strike such a deal, the friendly transaction has been opposed by GrowthWorks, another labour sponsored venture firm that sought to acquire VenGrowth itself.

Last month, the Ontario Securities Commission prevented GrowthWorks from making a rival offer to VenGrowth shareholders. However, GrowthWorks CEO David Levi responded that his group may try a different approach.

VenGrowth has scheduled a shareholder vote for Aug. 25.