Government Operations Committee on May 29th, 2007

[Carolyn Blair]

We probably wouldn't comment specifically on this process. I would say that in general, the concept of reserve bids is maybe more common in an art auction than in this type of auction. The effective reserve bid probably comes more from the fairness opinion. Unless this is seen by an independent party to be fair to the taxpayers and our client, the government, then it just won't happen. Our job is to generate the highest bid out of the current market.

[Raymond Simard, Liberal, Saint Boniface, MB]

But there has to be, in somebody's mind, fair market value for these buildings. It seems to me that if you're going to put out a tender over there--I'm not going to repeat the amount that was quoted, but whatever amount we feel is fair--and it comes in half a billion dollars lower, we wouldn't sell.

So that fairness study is where we would get that response?

[Carolyn Blair]

Right. Once we know what the bid is, a separate study will be done to determine whether it is fair or not. And I think it would be reasonable to assume that if it's not a satisfactory price coming out of this process, then....

[Raymond Simard, Liberal, Saint Boniface, MB]

The government would pay for that fairness report as well, I would imagine. The client wouldn't.

[Carolyn Blair]

I would imagine, yes. We certainly will not be providing that fairness opinion.

[Raymond Simard, Liberal, Saint Boniface, MB]

How do you ensure that there is no conflict of interest with regard to the purchaser in terms of maybe...? Obviously this is a large-scale purchase. One of the purchasers may be a BMO or a Royal Bank client. How do you make sure there is no conflict of interest there in terms of favouring one over the other?

[Carolyn Blair]

As part of our contract we are prohibited from buying the buildings; from financing the buildings in any way, shape, or form; or from arranging the financing. It's not our balance sheet. It's not the use of our debt placement services. We're certainly capable of doing that, but are not doing that. All the bids will come in sealed and we'll determine which is the best one--or more--of them.

[Raymond Simard, Liberal, Saint Boniface, MB]

That's very important, by the way. We haven't heard that, so that's very important.

Are you going to give preference to a bidder that will bid on the whole thing, the nine buildings, or are you going to put the buildings out individually? How is that going to work in terms of process?

[Carolyn Blair]

The offering shows all nine, and they can bid on all or part.

[Raymond Simard, Liberal, Saint Boniface, MB]

So if you got a higher price for one individual building, you would go with that one purchaser?

[Carolyn Blair]

As long as it didn't prejudice another bid for all. We need to optimize that, and we won't know until the bids come in.

[Raymond Simard, Liberal, Saint Boniface, MB]

On the sale and leaseback, did I understand correctly, Madam Chair, that the government would have an opportunity at the end of buying back the building?

[The Chair, Liberal, Diane Marleau]

It depends on the terms.

[Raymond Simard, Liberal, Saint Boniface, MB]

Is that something that is being considered as well? It sounds like it may be an interesting proposal.

[Keith Jameson]

I can answer that. Yes, and I think the minister also made that reference. There will be a mechanism for the government to buy back.

[Raymond Simard, Liberal, Saint Boniface, MB]

That's at $1 or $2? Is that what was quoted?

[Keith Jameson]

That I can't comment on.

[Raymond Simard, Liberal, Saint Boniface, MB]

We'll have to ask the minister that.

Have you done similar sales with other levels of government, or is this a first for both your companies?

[Keith Jameson]

I have not done a sale and leaseback for another level of government, no.

[Raymond Simard, Liberal, Saint Boniface, MB]

Or for the federal government?

[Keith Jameson]

No.

[Carolyn Blair]

We have done them where the government is a tenant but is not the vendor. We have also done them in other countries. My partners, for example in the U.K., have done sale and leasebacks for the U.K. government.

If you're asking me personally, it's been limited to instances when the government is a tenant but not the vendor.

[Raymond Simard, Liberal, Saint Boniface, MB]

Is it unusual to have two sales agents on this type of sale? How do you work that out? You guys are competing on a daily basis. Are you sharing the commission? This baffles me. It would seem that the government would go out, have one company respond, and deal with that one company.

[Carolyn Blair]

In the RFP there was a one-liner that made it clear that the government reserved the right to select more than two advisers. We had the opportunity to work together, or not work. You compete until the point where you're selected, and then you work well together. This happens in our industry all the time, in particular on securities transactions. You'll put five, six, seven, or eight dealers together on a single securities transaction in what they call a syndicate. Each of our firms is comfortable in these transactions, either working alone or in concert with another.

And yes, the fee is shared, to finish the answer.

[Raymond Simard, Liberal, Saint Boniface, MB]

I have one last question. Did you make recommendations as to how the other 35 buildings should be disposed of? Was that part of the consulting contract?