UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
| For the
month of: November 2024 |
|
Commission File Number: 001-15160 |
Brookfield
Corporation
(Name of Registrant)
Brookfield
Place
Suite 100
181 Bay Street, P.O. Box 762
Toronto, Ontario, Canada M5J 2T3
(Address of Principal Executive Offices)
Indicate by check mark whether
the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Exhibits 99.1 and 99.2 of this Form 6-K shall
be incorporated by reference into the registrant’s registration statements on Form F-3 (File Nos. 333-182656, 333-261528, 333-274061,
333-276533-01 and 333-276534) and on Form S-8 (File Nos. 333-129631, 333-178260, 333-184108, 333-204848, 333-214948, 333-233871 and
333-268020) and on Form F-10 (File No. 333-279601).
EXHIBIT INDEX
SIGNATURE
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| |
BROOKFIELD CORPORATION |
| |
|
| Date: November 1, 2024 |
By: |
/s/ Swati Mandava |
| |
|
Name: |
Swati Mandava |
| |
|
Title: |
Managing Director, Legal &
Regulatory |
Exhibit 99.1
FORM 51-102F3
MATERIAL CHANGE REPORT
| Item 1 | Name and Address of Company |
Brookfield Corporation (“BN”)
181 Bay Street, Suite 100
Brookfield Place
Toronto, Ontario
M5J 2T3
| Item 2 | Date of Material Change |
October 31, 2024
A joint news release with respect to
the material change was disseminated by BN and Brookfield Asset Management Ltd. (“BAM”) on October 31, 2024 through
the facilities of GlobeNewswire. A copy of the joint news release was subsequently filed on the System for Electronic Data Analysis and
Retrieval + (“SEDAR+”) under BN’s profile at www.sedarplus.ca.
| Item 4 | Summary of Material Change |
On October 31, 2024, BN and BAM entered
into an agreement (the “Arrangement Agreement”) whereby BAM would own and reflect 100% of the asset management business
(the “Arrangement”), and BN’s current 73% interest in the asset management business would be held indirectly through
ownership of approximately 73% of the publicly traded shares of BAM.
The creation of BAM in 2022 helped
to simplify BAM’s story and BAM has significantly expanded its shareholder base since. The Arrangement will continue to broaden
BAM’s shareholder base and simplify the structure of the Asset Management Company further by having its ownership consolidated under
BAM, rather than being split between BN and BAM. The Arrangement will also result in BAM’s market capitalization reflecting 100%
of the value of the asset management business, which BAM management believes will align BAM’s size and structure with its U.S.-based
global alternative asset management business peers and position BAM for potential inclusion in some of the most widely followed global
large cap stock indices, including in the U.S., in the future.
Under the terms of the Arrangement,
BAM will acquire approximately 73% of the outstanding common shares (“Common Shares”) of Brookfield Asset Management
ULC (“Asset Management Company”) from BN and certain of its subsidiaries as part of the Arrangement. BAM will issue
Class A Limited Voting Shares (“Class A Shares”) to BN in exchange for all of the Common Shares currently
owned by BN and its subsidiaries on a one-for-one basis. As part of the Arrangement, BAM’s articles will also be amended to ensure
that BN controls BAM for as long as it holds a majority of its voting shares. The Asset Management Company owns and operates Brookfield’s
leading global alternative asset management business.
The Arrangement is expected to close
in early 2025, subject to BAM shareholder and court approval and other customary closing conditions, including listing approval of the
New York Stock Exchange (“NYSE”) and Toronto Stock Exchange (“TSX”).
A copy of the Arrangement Agreement
has been filed under BN’s profile on SEDAR+ at www.sedarplus.ca.
| Item 5.1 | Full Description of Material Change |
On October 31, 2024, BN and BAM announced steps towards enhancing BAM’s
corporate structure and positioning BAM for broader equity index inclusion, particularly those in the U.S. As part of this effort, BAM
has now changed its head office to New York. In addition, BN and BAM have entered into an agreement whereby BAM would own and reflect
100% of the asset management business, and BN’s current 73% interest in the asset management business would be held indirectly through
ownership of approximately 73% of the publicly traded shares of BAM.
Under the terms of the Arrangement,
BAM will acquire approximately 73% of the outstanding Common Shares from BN and certain of its subsidiaries as part of the Arrangement.
BAM will issue Class A Shares to BN in exchange for all of the Common Shares currently owned by BN and its subsidiaries on a one-for-one
basis. As part of the Arrangement, BAM’s articles will also be amended to ensure that BN controls BAM for as long as it holds a
majority of its voting shares. The Asset Management Company owns and operates Brookfield’s leading global alternative asset management
business.
The review and assessment of the Arrangement
was conducted under the supervision of the Governance and Nominating Committee (the “GNC”) of the board of directors
of BN (the “Board”) in accordance with its charter, which authorizes the GNC to, among other things, review and conduct
oversight of all significant proposed related party transactions and situations involving a potential conflict of interest that are not
required to be dealt with by an “independent special committee” pursuant to applicable securities laws. The GNC is comprised
of the following independent directors: Frank J. McKenna, Diana L. Taylor and Hutham S. Olayan. Each member of the GNC is independent
of BAM for purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI
61-101”).
The GNC, having undertaken a review of, and having considered the terms
of, the Arrangement, the Arrangement Agreement and a number of other factors, has unanimously determined that the Arrangement is in the
best interests of BN and unanimously recommended that the Board determine that the Arrangement is in the best interests of BN and approve
the Arrangement. The Board, with Mr. Bruce Flatt, who serves as CEO of both BAM and BN, abstaining, based on, among other things, the
recommendation of the GNC, unanimously (i) determined that the Arrangement is in the best interests of BN; (ii) determined that the Arrangement
will not adversely affect BN or its shareholders; and (iii) and approved the Arrangement.
Reasons for the Arrangement
Each of the GNC and the Board carefully
considered a number of factors relating to the Arrangement, including, among others, the factors below. These factors benefit BAM and
are also expected to benefit BN, as a significant shareholder of BAM.
| · | Enhancing Corporate Structure and Expanding Shareholder Base: Creating BAM helped simplify BAM’s
story and BAM has significantly expanded its shareholder base since. The Arrangement will simplify the structure of the asset management
business further by having its ownership consolidated under BAM, rather than being split between BN and BAM. The Arrangement will also
result in BAM’s market capitalization reflecting 100% of the value of the asset management business, which BAM management believes
will help broaden BAM’s shareholder base and align BAM’s size and structure with its U.S.-based global alternative asset management
business peers. |
| · | Positioning BAM for Index Admission: In April 2023, a significant barrier to BAM’s inclusion
in some of the most widely followed global large cap stock indices, including in the U.S. (“Index Admission”) was removed
when S&P Dow Jones Indices announced that it had updated its share class eligibility rule for additions to certain indices such
that companies with multiple share class structures, which would have included BAM as a result of its Class A Shares and Class B
Shares, may be considered eligible candidates. Since this announcement, several companies with multiple share class structures, including
certain of BAM’s peer U.S.-based global alternative asset management businesses, have been admitted to the S&P 500 index. BAM
management believes that the Arrangement and BAM’s increased market capitalization resulting therefrom, together with other potential
steps, will position BAM for potential Index Admission in the future. In the view of BAM management, the potential benefits of Index Admission
include: (i) increased corporate profile with U.S. investors, analysts and media; (ii) an increased demand for shares given
that there are significantly more index tracking funds in the U.S. than in Canada; (iii) a wider and more diversified shareholder
base, and (iv) increased access to the deepest pools of public capital. |
| · | Formal Valuation: KPMG LLP (“KPMG”), the independent valuator retained by the
Governance, Nominating and Compensation Committee (the “BAM GNCC”) of the board of directors of BAM (the “BAM
Board”), delivered a formal valuation (the “Formal Valuation”) in accordance with MI 61-101, concluding that,
as of October 31, 2024, based on the scope of KPMG’s review and subject to the assumptions and limitations noted in the Formal
Valuation, that KPMG is of the opinion that the fair market value of the Common Shares was in the range of $46.35 to $51.67 per Common
Share and the fair market value of the Class A Shares was in the range of $46.43 to $51.63 per Class A Share. A summary of the
Formal Valuation is included below. |
Each of the GNC and the Board also
considered the following direct benefits to BN that are expected to result from the Arrangement:
| · | No Unlimited Liability: BN will no longer be exposed to unlimited liability as a shareholder of
the Asset Management Company for the payment of the Asset Management Company’s debts and liabilities in the event of its liquidation
or dissolution. |
| · | Direct Interest in Reporting Issuer: BN will own a direct interest in a reporting issuer (being
the Class A Shares) rather than an illiquid interest in a private company (being the Common Shares). |
| · | Additional Expenses are Immaterial: As a shareholder of BAM, BN will indirectly bear its proportionate
share of certain expenses of BAM not arising from the Asset Management Company, including with respect to executive compensation, financial
reporting and other costs associated with maintaining BAM’s existence as a public company. However, these expenses are immaterial
in the context of BN’s business and BN has determined that the overall benefits of the Arrangement are expected to outweigh these
additional costs. |
| · | BN Voting Control: BN will have the right to cast a majority of the votes in the election of directors
of BAM for so long as BN owns a majority of the aggregate outstanding Class A Shares and Class B Shares, and will have meaningful
voting rights at any time that BN’s ownership of the Class A Shares represents between 20% and 50% of the aggregate outstanding
Class A Shares and Class B Shares. |
| · | Continued Consolidation of Asset Management Business: BAM will be a subsidiary of BN and BN will
consolidate BAM (and therefore the Asset Management Company) and show the approximate 27% interest held by BAM’s other shareholders
as a non-controlling interest. |
| · | No Adverse Tax Consequences to BN or its Shareholders: BN does not expect any material adverse
Canadian or U.S. federal income tax impacts on BN or its shareholders as a result of the Arrangement. |
The Arrangement Agreement
BAM and BN have entered into the Arrangement
Agreement to provide for the terms of the Arrangement and certain customary covenants. The following description of the Arrangement Agreement
is not complete and is qualified in its entirety by reference to the full text of the Arrangement Agreement. A copy of the Arrangement
Agreement has been filed on SEDAR+ under BN’s profile at www.sedarplus.ca.
Covenants Regarding the Arrangement
The Arrangement Agreement contains
certain customary covenants of the parties that they will, subject to the terms of the Arrangement Agreement, (i) use their respective
commercially reasonable efforts to implement the Arrangement, (ii) cooperate with and assist each other in dealing with transitional
and other matters relating to or arising from the Arrangement or the Arrangement Agreement, and (iii) satisfy the conditions precedent
to the completion of the Arrangement. BAM has also agreed to conduct its business in the ordinary course, consistent with past practice,
from the date of the Arrangement Agreement until the Arrangement is completed.
Conditions Precedent
Completion of the Arrangement is subject
to certain customary conditions precedent, including: (i) approval of the Arrangement by the shareholders of BAM; (ii) granting
of exemptive relief or the approval of the Arrangement by shareholders of BN; (iii) obtaining of the interim order and the final
order of the Supreme Court of British Columbia in respect of the Arrangement; (iv) approval of NYSE and the TSX of the additional
listing of the Class A Shares to be issued to BN under the Arrangement; and (v) there having not occurred a material adverse
effect in respect of the Asset Management Company. The conditions precedent in the Arrangement Agreement for each of BAM and BN may be
waived, in whole or in part, in BAM or BN’s respective sole discretion. Certain conditions precedent to the completion of the Arrangement
in the Arrangement Agreement will be deemed to be satisfied, waived or released upon the Arrangement becoming effective.
Amendments
The Arrangement Agreement provides
that, subject to the provisions of the interim order of the Supreme Court of British Columbia, the plan of arrangement and applicable
law, at any time and from time to time before the effective time of the Arrangement, the Arrangement Agreement and the plan of arrangement
may be amended, modified or supplemented by written agreement of BAM and BN.
Termination
The Arrangement Agreement may be terminated
at any time before the implementation of the Arrangement (i) by mutual written agreement of BAM and BN; or (ii) by either BAM
or BN if the implementation of the Arrangement has not occurred by March 31, 2025.
Formal Valuation
The
following summary of the Formal Valuation is qualified in its entirety by, and should be read in conjunction with, the full text of the
Formal Valuation, which will be filed on SEDAR+ under BN’s profile at www.sedarplus.ca. The full text of the Formal
Valuation describes, among other things, the assumptions made, procedures followed, information reviewed, matters considered and limitations
and qualifications on the review undertaken by KPMG in connection with the Formal Valuation.
The Formal Valuation was provided for
the sole use of the BAM GNCC and the BAM Board and may not be used by any other person or relied upon by any other person other than the
members of the BAM GNCC and the BAM Board, or used for any other purpose, without the express prior written consent of KPMG.
Background
The BAM GNCC determined that KPMG was
a qualified and independent valuator for purposes of MI 61-101. As a result, the BAM GNCC retained KPMG to provide it with a formal valuation
in accordance with the requirements of MI 61-101.
Mandate and Professional Fees
KPMG was engaged by the BAM GNCC to
provide the Formal Valuation pursuant to a letter dated September 30, 2024 and executed on October 2, 2024 (the “Engagement
Agreement”). KPMG will be paid a fixed fee for rendering the Formal Valuation and will be reimbursed for its reasonable out-of-pocket
expenses to complete the Formal Valuation. KPMG will also be indemnified by the BAM GNCC in respect of certain liabilities which may be
incurred by KPMG in connection with the provision of its services. No part of KPMG’s fees pursuant to the Engagement Agreement are
contingent in whole or in part on the conclusions reached in the Formal Valuation or completion of the Arrangement.
Independence and Credentials of
KPMG
KPMG is one of the world’s largest
professional services firms, offering a broad range of services. KPMG’s valuation professionals have significant experience in valuing
a broad range of companies for various purposes, including securities law compliance, fairness opinions, solvency opinions, mergers and
acquisitions, corporate income tax purposes and litigation matters, among other things. The Formal Valuation is the opinion of KPMG as
a firm, and the form and content thereof have been approved for release by a committee, each of whom is a member of the Canadian Institute
of Chartered Business Valuators and experienced in merger, acquisition, divestiture and valuation matters.
Having regard to the provisions of
section 6.1 of MI 61-101, KPMG has confirmed that KPMG, including its affiliates and the engagement team, is independent. KPMG is not
the auditor of BAM, BN, the Asset Management Company or any of their respective affiliates (collectively, “Brookfield”).
KPMG has not advised Brookfield or any other party in connection with the Arrangement. Also, KPMG’s fees for its engagement are
not contingent upon its findings and KPMG does not have any financial interest in the completion of the Arrangement.
In the ordinary course of business,
KPMG (including its affiliates) have and continue to perform advisory and tax work for Brookfield. KPMG reviewed its records to determine
whether it has entered into engagement agreements with, or has earned fees from Brookfield in the past five years, and provided a disclosure
letter to the BAM GNCC on September 30, 2024 with respect to its findings. KPMG has determined that it is independent for the purpose
of MI 61-101 (and will continue to be independent throughout its engagement), without any conflict of interest for its engagement and
that it has the appropriate qualifications to prepare the Formal Valuation.
Scope of Review and Restrictions,
Assumptions and Limitations
The scope of review, matters considered,
reviews undertaken and restrictions, assumptions and limitations of the Formal Valuation are set forth in the Formal Valuation, the full
text of which will be filed on SEDAR+ under BN’s profile at www.sedarplus.ca.
In particular, KPMG has relied upon
the completeness, accuracy and fair presentation of all the financial and other factual information, data, advice, opinions or representations
obtained by it from public sources, obtained by or on behalf of BAM and/or the Asset Management Company, or otherwise obtained by KPMG,
including those representations contained in a certificate of BAM (collectively, the “Information”). The Formal Valuation
is conditional upon the completeness, accuracy and fair presentation of such Information. Subject to the exercise of professional judgment,
KPMG has not attempted to verify independently the completeness, accuracy or fair presentation of any of this Information. In preparing
the Formal Valuation, KPMG has made certain assumptions in addition to those noted therein which it considered to be reasonable and appropriate
in the circumstances.
Approach to Value
The Formal Valuation is based upon
methodologies and assumptions that KPMG considered appropriate in the circumstances for the purposes of arriving at an opinion as to the
range of fair market value of the Common Shares and the Class A Shares. Based on KPMG’s understanding of the ongoing nature
of BAM’s and the Asset Management Company’s operations, KPMG concluded that BAM and the Asset Management Company should be
valued using a going concern assumption.
Valuation Conclusion
Based on the scope of KPMG’s
review and subject to the assumptions and limitations as noted in the Formal Valuation, KPMG is of the opinion that, as at October 31,
2024, the fair market value of the Common Shares is in the range of $46.35 to $51.67 per Common Share and the fair market value of the
Class A Shares was in the range of $46.43 to $51.63 per Class A Share.
Prior Valuations
To the knowledge of BN or any of its
directors or senior officers, after reasonable inquiry, other than the Formal Valuation, there has been no “prior valuation”
of BN or of its securities or material assets in the 24 months preceding the date of this material change report.
Multilateral Instrument 61-101
BN has applied to the Ontario Securities
Commission, as principal regulator, for exemptive relief (the “Exemptive Relief”) pursuant to section 9.1 of MI 61-101
and Multilateral Instrument 11-102 – Passport System from the requirements of sections 5.4 and 5.6 of MI 61-101 applicable
to BN to obtain a formal valuation and minority approval of the Arrangement. If the Exemptive Relief is granted, BN does not intend to
seek shareholder approval or obtain a formal valuation in respect of the Arrangement.
Certain directors and senior officers
of BAM that own Class A Limited Voting Shares of BN, and BAM Partners Trust, which owns the Class B Limited Voting Shares of
BN, may be considered related parties of an interested party to the Arrangement for purposes of MI 61-101. The Arrangement will not affect
the percentage of Class A Shares or Class B Shares owned by such related parties.
| Item 5.2 | Disclosure for Restructuring Transaction |
Not applicable.
| Item 6 | Reliance on subsection 7.1(2) of National Instrument 51-102 |
Not applicable.
| Item 7 | Omitted Information |
Not applicable.
For further information, please contact
Swati Mandava, Managing Director, Legal & Regulatory, at (416) 359-8647.
November 1, 2024
Caution Regarding Forward-Looking Statements
This material change report contains “forward-looking
information” within the meaning of Canadian provincial securities laws and “forward-looking statements” within the meaning
of the U.S. Securities Act of 1933, the U.S. Securities Exchange Act of 1934, “safe harbor” provisions of the United States
Private Securities Litigation Reform Act of 1995 and in any applicable Canadian securities regulations (collectively, “forward-looking
statements”). Forward-looking statements include statements that are predictive in nature, depend upon or refer to future results,
events or conditions, and include, but are not limited to, statements which reflect management’s current estimates, beliefs and
assumptions and which are in turn based on our experience and perception of historical trends, current conditions and expected future
developments, as well as other factors management believes are appropriate in the circumstances. The estimates, beliefs and assumptions
of BN and BAM are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding
future events and as such, are subject to change. Forward-looking statements are typically identified by words such as “expect”,
“anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”,
“intend”, “plan”, “seek”, “strive”, “will”, “may” and “should”
and similar expressions. In particular, the forward-looking statements contained in this press release include statements referring to
BN’s and BAM’s beliefs as to the completion and timing of the Arrangement, BAM’s potential inclusion in global stock
indices and other expected impacts of the Arrangement. Factors that could cause actual results, performance, achievements or events to
differ from current expectations include, among others, risks and uncertainties related to: obtaining approvals, rulings, court orders
and consents, or satisfying other requirements, necessary or desirable to permit or facilitate completion of the Arrangement (including
regulatory and shareholder approvals); future factors that may arise making it inadvisable to proceed with, or advisable to delay, all
or part of the Arrangement; and business cycles, including general economic conditions.
Other factors, risks and uncertainties not presently
known to BN or BAM or that BN and BAM currently believe are not material could also cause actual results or events to differ materially
from those expressed or implied by statements containing forward-looking statements. Readers are cautioned not to place undue reliance
on statements containing forward-looking statements that are included in this press release, which are made as of the date of this press
release, and not to use such information for anything other than their intended purpose. BN and BAM disclaim any obligation or intention
to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required
by applicable law.
Exhibit 99.2
EXECUTION
VERSION
ARRANGEMENT AGREEMENT
BETWEEN
BROOKFIELD ASSET MANAGEMENT LTD.
and
BROOKFIELD CORPORATION
October 31, 2024
Table
of Contents
| |
|
Page |
| |
|
|
| Article 1
Interpretation |
2 |
| |
|
| 1.1 |
Definitions |
2 |
| 1.2 |
Construction |
8 |
| 1.3 |
Currency |
8 |
| 1.4 |
BN
Disclosure Letter |
8 |
| 1.5 |
Schedules |
9 |
| |
|
|
| Article 2
The Arrangement |
9 |
| |
|
| 2.1 |
Arrangement |
9 |
| 2.2 |
Effective
Date and Effective Time |
9 |
| 2.3 |
Interim
Order |
9 |
| 2.4 |
BAM
Meeting and BAM Meeting Materials |
10 |
| 2.5 |
BN
Meeting and BN Meeting Materials |
11 |
| 2.6 |
Effecting
the Arrangement and Ancillary Filings with the Registrar |
11 |
| |
|
|
| Article 3
Representations and Warranties |
12 |
| |
|
| 3.1 |
Mutual
Representations and Warranties |
12 |
| 3.2 |
Additional
Representations and Warranties of BAM |
13 |
| 3.3 |
Additional
Representations and Warranties of BN |
14 |
| 3.4 |
Survival |
14 |
| |
|
|
| Article 4
Covenants |
14 |
| |
|
| 4.1 |
Covenants
of BAM Regarding the Conduct of Business |
14 |
| 4.2 |
General
Covenants |
15 |
| 4.3 |
Covenants
of BAM |
16 |
| 4.4 |
Covenants
of BN |
16 |
| |
|
|
| Article 5
Conditions |
17 |
| |
|
| 5.1 |
Conditions
Precedent to Obligations of BAM |
17 |
| 5.2 |
Conditions
Precedent to Obligations of BN |
18 |
| 5.3 |
Conditions
Precedent to Obligations of Each Party |
19 |
| 5.4 |
Merger
of Conditions |
19 |
| |
|
|
| Article 6
Amendment and Termination |
19 |
| |
|
| 6.1 |
Amendment |
19 |
| 6.2 |
Term |
19 |
| 6.3 |
Termination |
19 |
| 6.4 |
Effect
of Termination |
19 |
| 6.5 |
Limitations
of Covenants |
20 |
| |
|
|
| Article 7
General |
20 |
| |
|
| 7.1 |
Expenses |
20 |
| 7.2 |
Notices |
20 |
| 7.3 |
Time
of the Essence |
21 |
Table
of Contents
(continued)
| |
|
Page |
| |
|
|
| 7.4 |
Assignment |
21 |
| 7.5 |
Binding
Effect |
22 |
| 7.6 |
Waiver |
22 |
| 7.7 |
Entire
Agreement |
22 |
| 7.8 |
Governing
Law; Attornment |
22 |
| 7.9 |
Limitation
on Liability |
22 |
| 7.10 |
Severability |
22 |
| 7.11 |
Counterparts;
Facsimiles |
23 |
| |
|
|
| Schedule A Plan of Arrangement |
A-1 |
| |
|
| Schedule B bam arrangement resolution |
B-1 |
ARRANGEMENT AGREEMENT
This Arrangement Agreement
made as of the 31st day of October, 2024,
B
E T W E E N:
BROOKFIELD
ASSET MANAGEMENT LTD., a corporation existing under the laws of British Columbia,
(hereinafter referred to as “BAM”)
- and -
BROOKFIELD
CORPORATION, a corporation existing under the laws of Ontario,
(hereinafter referred to as “BN”)
WHEREAS
BAM and BN hold, directly and indirectly, approximately 27% and 73%, respectively, of the issued and outstanding common shares of Brookfield
Asset Management ULC (“BAM ULC”) (the “Common Shares”);
AND
WHEREAS BAM and BN each wish to undertake a transaction by means of the Arrangement (as defined herein) whereby, among other
things, BN and the Subsidiary Shareholders (as defined herein) will exchange all of their Common Shares (the “BN Held Common
Shares”) for newly-issued Class A Limited Voting Shares in the capital of BAM (the “BAM Class A Shares”)
on a one-for-one basis;
AND
WHEREAS on completion of the Arrangement, (i) BN will own, directly or indirectly, BAM Class A Shares representing
an approximate 73% interest in BAM and (ii) BAM will own, directly or indirectly, 100% of the outstanding Common Shares;
AND
WHEREAS the BAM Board (as defined herein) has reviewed the terms and conditions of the Arrangement and based on, among other
things, the unanimous recommendation of the Governance, Nominating and Compensation Committee of BAM (the “GNCC”),
whose recommendation came after reviewing and considering the formal valuation provided by an independent valuator pursuant to Multilateral
Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”), a fairness
opinion and other considerations related to the Arrangement, has, with Mr. Bruce Flatt having recused himself, unanimously concluded
that the Arrangement is in the best interests of BAM;
AND
WHEREAS the BN Board (as defined herein) has reviewed the terms and conditions of the Arrangement and, on the unanimous recommendation
of the governance and nominating committee of BN, has, with Mr. Bruce Flatt having recused himself, unanimously concluded that the
Arrangement is in the best interests of BN;
NOW
THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual covenants and agreements hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Party, the Parties hereby
covenant and agree as follows:
Article 1
Interpretation
In this Agreement, including
the recitals hereto, other than the schedules and unless there is something in the subject matter or context inconsistent therewith, the
following capitalized words and terms shall have the following meanings:
“Agreement”
means this arrangement agreement, including the schedules attached hereto, as supplemented or amended from time to time.
“Arrangement”
means an arrangement under Section 288 of the BCBCA in accordance with the terms and subject to the conditions set out in the Plan
of Arrangement, subject to any amendments, variations or supplements to the Plan of Arrangement made in accordance with its terms, the
terms of this Agreement or made at the direction of the Court.
“Arrangement Records”
means the records in respect of the Arrangement required under Division 5 of Part 9 of the BCBCA to be filed with the registrar after
the Final Order has been granted giving effect to the Arrangement including, as applicable, one or more notices of alteration of notices
of articles and a copy of the Final Order.
“BAM”
has the meaning given to such term in the Preamble to this Agreement.
“BAM Arrangement
Resolution” means the special resolution of BAM Shareholders approving the Arrangement to be considered at the BAM Meeting,
to be substantially in the form attached as Schedule B.
“BAM
Board” means the board of directors of BAM as constituted from time to time.
“BAM
Circular” means the management information circular of BAM, including all appendices and schedules thereto, and any information
incorporated by reference therein, to be sent to BAM Shareholders in connection with the BAM Meeting, as amended, supplemented or otherwise
modified from time to time in accordance with this Agreement.
“BAM
Class A Shares” has the meaning given to such term in the Preamble to this Agreement.
“BAM
Class B Shares” means the Class B Limited Voting Shares in the capital of BAM.
“BAM Meeting”
means the special meeting of BAM Shareholders (including any adjournment or postponement thereof) to be called and held in accordance
with the Interim Order to consider, and if deemed advisable, to approve, the BAM Arrangement Resolution and the other matters set out
in the notice of meeting accompanying the BAM Circular.
“BAM Meeting Materials”
means the notice of meeting, the BAM Circular and the form of proxy in respect of the BAM Meeting which accompanies the BAM Circular.
“BAM Shareholders”
means, collectively, the holders of BAM Class A Shares and the holders of BAM Class B Shares entitled to receive notice of the
BAM Meeting and vote on the BAM Arrangement Resolution, in accordance with the Interim Order.
“BAM Shares”
means, collectively, the BAM Class A Shares and the BAM Class B Shares.
“BAM ULC”
has the meaning given to such term in the Preamble to this Agreement.
“BCBCA”
means the Business Corporations Act (British Columbia) and the regulations made thereunder, each as amended from time to time.
“BN”
has the meaning given to such term in the Preamble to this Agreement.
“BN
Board” means the board of directors of BN as constituted from time to time.
“BN
Circular” means (if applicable) the management information circular of BN, including all appendices and schedules thereto,
and any information incorporated by reference therein, to be sent to BN Shareholders in connection with the BN Meeting, as amended, supplemented
or otherwise modified from time to time in accordance with this Agreement.
“BN
Class A Shares” means the Class A Limited Voting Shares in the capital of BN.
“BN
Class B Shares” means the Class B Limited Voting Shares in the capital of BN.
“BN Disclosure Letter”
means the confidential disclosure letter executed and delivered by BN to BAM in connection with the execution of this Agreement.
“BN
Held Common Shares” has the meaning given to such term in the Preamble to this Agreement.
“BN Meeting”
means (if applicable) the special meeting of BN Shareholders (including any adjournment or postponement thereof) to be called and held
to consider, and if deemed advisable, to approve, the BN Resolution and the other matters set out in the notice of meeting accompanying
the BN Circular.
“BN Meeting Materials”
means (if applicable) the notice of meeting, the BN Circular and the form of proxy in respect of the BN Meeting which accompanies the
BN Circular.
“BN Resolution”
means (if applicable) the special resolution of BN Shareholders approving the Arrangement to be considered at the BN Meeting, to be substantially
in the form and content attached to the BN Circular.
“BN Shareholders”
means, collectively, the holders of BN Class A Shares and the holders of BN Class B Shares entitled to receive notice of the
BN Meeting and vote on the BN Resolution.
“Business Day”
means a day, other than a Saturday, Sunday or statutory or civic holiday in both Ontario and British Columbia, when banks are generally
open for the transaction of business in both Toronto, Ontario and Vancouver, British Columbia.
“Common Shares”
has the meaning given to such term in the Preamble to this Agreement.
“Control”
means, when applied to a relationship between two Persons, that a Person (the “first Person”) is considered to control
another Person (the “second Person”) if: (i) the first Person, directly or indirectly, beneficially owns or exercises
control or direction over securities, interests or contractual rights of the second Person carrying votes which, if exercised, would entitle
the first Person to elect a majority of the directors of the second Person, or a majority of any other Persons who have the right to manage
or supervise the management of the business and affairs of the second Person, unless that first Person holds the securities, interests
or rights only to secure a debt or similar obligation; (ii) the second Person is a partnership, other than a limited partnership,
and the first Person, together with any Person Controlled by the first Person, holds more than 50% of the interests (measured by votes
or by value) of the partnership; or (iii) the second Person is a limited partnership and the general partner of the limited partnership
is the first Person or any Person Controlled by the first Person, and the term “Controlled” has a corresponding meaning.
“Court”
means the Supreme Court of British Columbia.
“Effective Date”
means the date upon which the Arrangement becomes effective, being the date the Parties agree upon, acting reasonably, that is within
three Business Days following the satisfaction or waiver of the conditions precedent to the completion of the Arrangement, including the
granting of the Final Order by the Court.
“Effective Time”
means 5:00 p.m. Toronto local time on the Effective Date, or such other time as may be agreed to by BN and BAM.
“Encumbrance”
means any mortgage, charge, pledge, lien, hypothec, security interest, encumbrance, adverse claim or right of any third party to acquire
or restrict the use of property.
“Exemption”
means an exemption granted by the Ontario Securities Commission, as principal regulator of BN, pursuant to section 9.1 of MI 61-101 and
Multilateral Instrument 11-102 – Passport System from the requirements of sections 5.4 and 5.6 of MI 61-101 applicable to
BN to obtain a formal valuation of the Common Shares and the BAM Class A Shares and minority approval of the Arrangement.
“Final Order”
means the final order of the Court or, if appealed, the final order affirmed by an appellate court, approving the Arrangement, pursuant
to Section 291 of the BCBCA, as it may be amended or affirmed prior to the Effective Time by the Court or an appellate court, as
the case may be.
“GNCC”
has the meaning given to such term in the Preamble to this Agreement.
“Governmental Authority”
means any multinational, federal, provincial, territorial, state, regional, municipal, local or other government, governmental or quasi-governmental
entity or municipality, or political or other subdivision thereof, department, commission, board, self-regulating authority, regulatory
body, bureau, branch, or authority, or any agency or instrumentality of any such government, governmental or quasi-governmental entity
or municipality, or political or other subdivision thereof, or any federal, provincial, territorial, state, local or foreign court, commission,
board, agency, arbitrator or other tribunal, and any other entity exercising executive, legislative, judicial, taxing, regulatory, or
administrative powers or functions of government, and any official of any of the foregoing, including any securities commission or stock
exchange.
“Interested BAM Class A
Shareholder” means, at the applicable time, a holder of BAM Class A Shares who is, for the purposes of voting on the BAM
Arrangement Resolution, an “interested party” within the meaning of MI 61-101 or otherwise required to be excluded
for the purposes of a vote on the BAM Arrangement Resolution under the requirements of MI 61-101.
“Interim Order”
means the interim order of the Court in respect of the Arrangement, in a form acceptable to the Parties, as it may be varied or amended,
as contemplated by Section 2.3 of this Agreement.
“Law” or
“Laws” means, with respect to any Person, any Law, constitution, treaty, by-laws, statutes, codes, rules, regulations,
guidance, principles of law and equity, Orders, rulings, decisions, ordinances, judgments, injunctions, determinations, awards, decrees
or other similar requirements, whether domestic or foreign, enacted, adopted, promulgated or applied by a Governmental Authority that
is binding upon or applicable to such Person or its business, undertaking, property or securities, and to the extent that they have the
force of law, policies, guidelines, notices and protocols of any Governmental Authority, as amended, and, for greater certainty, includes
the terms and conditions of any authorization of or from any Governmental Authority.
“material adverse
effect” means, in respect of any corporation or company, any event, change, occurrence, effect, development, state of facts
or circumstances that, individually or in the aggregate with other events, changes, occurrences, effects, developments, states of facts
or circumstances has had, or would reasonably be expected to have, a material adverse effect on the business, assets, affairs, operations,
condition (financial or otherwise) or results of operations or liabilities (contingent or otherwise and whether contractual or otherwise)
of that corporation or company and its Subsidiaries taken as a whole; except any such event, change, occurrence, effect, development,
state of facts or circumstances resulting from or arising in connection with:
| (a) | any change, development or condition generally affecting the industry in which the corporation or company
operates; |
| (b) | any change in global, national or regional political conditions (including any temporary facility takeover
for emergency purposes, outbreak of hostilities or war or acts of terrorism or any escalation); |
| (c) | any earthquake, flood or other natural disaster; |
| (d) | any epidemic, pandemic or general outbreaks of illness or other public health crisis; |
| (e) | any change in general economic, business, banking, regulatory, political or market conditions or in financial,
credit, currency, commodities or securities markets, including any fluctuations in currency exchange, interest or inflation rates, in
Canada or the United States; |
| (f) | any change in applicable generally acceptable accounting principles, including IFRS and U.S. GAAP, after
the date of this Agreement; |
| (g) | any change in Laws after the date of this Agreement (provided that this clause (g) shall not apply
with respect to any representation or warranty the purpose of which is to address compliance with Laws); |
| (h) | the execution, announcement and pendency of this Agreement or the consummation of the transactions contemplated
hereby; |
| (i) | the actions or inactions expressly required by this Agreement or that are taken (or omitted to be taken)
with the prior written consent of the Parties; |
| (j) | any change in the market price or trading volume of any securities of the corporation or company (it being
understood that the causes underlying such changes in market price or trading volume may be taken into account, to the extent permitted
by this Agreement, in determining whether a material adverse effect has occurred); or |
| (k) | the failure, in and of itself, of the corporation or company to meet any internal, published or public
projections, forecasts, guidance or estimates, including of revenues, earnings, cash flows or other financial operating metrics before,
on or after the date of this Agreement (it being understood that the causes underlying such failure may be taken into account, to the
extent not referred to in paragraphs (a) to (i) above, in determining whether a material adverse effect has occurred); |
provided, however, that paragraphs (a) to
and including (g) above do not apply to the extent that any such event, change, occurrence, effect, development, state of facts or
circumstances disproportionately adversely affect the corporation or company and its Subsidiaries, taken as a whole, compared to other
companies primarily operating in the industry in which such corporation or company operates.
“MI 61-101”
has the meaning given to such term in the Preamble to this Agreement.
“misrepresentation”
means an untrue statement of a material fact, or an omission to state a material fact that is required to be stated or that is necessary
to make a statement not misleading in light of the circumstances in which it was made.
“NYSE”
means the New York Stock Exchange.
“Order”
means all judicial, arbitral, administrative, ministerial, departmental or regulatory judgments, injunctions, orders, decisions, rulings,
determinations, awards, settlements, stipulations or decreed of any Governmental Authority (in each case, whether temporary, preliminary
or permanent).
“Ordinary Course”
means, with respect to any Party, that such action is consistent with the past practices of such Party or its Subsidiaries and is taken
in the ordinary course of the normal day-to-day operations of the business of the Party or its Subsidiaries.
“Outside Date”
means March 31, 2025, or such later date as may be agreed to in writing by the Parties.
“Party”
means a party to this Agreement.
“Person”
means and includes an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated
organization, trust, body corporate, trustee, executor, administrator or other legal representative and the Crown or any agency or instrumentality
thereof.
“Plan of Arrangement”
means the plan of arrangement proposed under Section 288 of the BCBCA, attached as Schedule A, as amended, varied or supplemented
in accordance with the terms thereof, the terms of this Agreement or made at the discretion of the Court in the Final Order.
“Registrar”
means the Registrar of Companies under the BCBCA.
“Representatives”
means, collectively, the directors, officers, employees and agents of a Party at any time and their respective heirs, executors, administrators
and other legal representatives.
“Securities Act”
means the Securities Act (Ontario) and the regulations made thereunder, each as amended from time to time.
“Subsidiary”
means, at a particular time, a Person Controlled, directly or indirectly, by another Person.
“Subsidiary Shareholders”
means, collectively, BN BAM Holding Inc., BN BAM Holding 2 Inc., BN BAM Holding 3 Inc., BN BAM Holding 4 Inc., BN BAM Holding 5 Inc.,
BN BAM Holding 6 Inc. and Brookfield Renewable Power Inc.
“Tax Act”
means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp) C.1, as amended, including the regulations promulgated thereunder.
“Transaction Costs”
means all fees, costs and expenses incurred directly in connection with the Arrangement, including financing fees, advisory and other
professional expenses and printing and mailing costs associated with the BAM Meeting Materials and the BN Meeting Materials.
“TSX” means
the Toronto Stock Exchange.
“Valuation”
means the formal valuation of the BAM Shares provided by the Valuator in accordance with the requirements of MI 61-101.
“Valuator”
means KPMG LLP, the independent valuator selected and engaged by the GNCC to prepare the Valuation.
In this Agreement, unless
otherwise expressly stated or the context otherwise requires:
| (a) | the division of this Agreement into Articles and Sections and the use of headings are for convenience
of reference only and do not affect the construction or interpretation hereof; |
| (b) | the words “hereunder”, “hereof” and similar expressions refer to this Agreement
and not to any particular Article or Section and references to “Articles” and “Sections” are to Articles
and Sections of this Agreement; |
| (c) | words importing the singular include the plural and vice versa, words importing any gender include all
genders and words importing persons include individuals, corporations, general and limited partnerships, associations, trusts, unincorporated
organizations, joint ventures, Governmental Authorities and other entities; |
| (d) | the word “including” means “including without limiting the generality of the foregoing”; |
| (e) | if any date on which any action is required to be taken under this Agreement is not a Business Day, such
action will be required to be taken on the next succeeding Business Day; |
| (f) | a reference to time is to local time in Toronto, Ontario; and |
| (g) | a reference to the knowledge of a Party means to the best of the knowledge of any of the executive officers
of such Party after reasonable enquiry. |
All references to currency
herein are to lawful money of Canada unless otherwise specified.
The BN Disclosure Letter itself
and all information contained in it is confidential information and may not be disclosed unless (i) it is required to be disclosed
pursuant to Law unless such Law permits the Parties to refrain from disclosing the information for confidentiality or other purposes or
(ii) a Party needs to disclose it in order to enforce its rights under this Agreement.
The following schedules are
attached to this Agreement and form a part hereof:
Schedule A – Plan of Arrangement
Schedule B – BAM Arrangement
Resolution
Article 2
The Arrangement
Each of the Parties agrees
that the Arrangement will be implemented in accordance with and subject to the terms and conditions contained in this Agreement and on
the terms set forth in the Plan of Arrangement.
| 2.2 | Effective Date and Effective Time. |
The Arrangement will become
effective on the Effective Date, and, commencing at the Effective Time, the steps to be carried out pursuant to the Arrangement will become
effective in the order set out in the Plan of Arrangement without any further act or formality, except as contemplated in the Plan of
Arrangement.
As
soon as reasonably practicable following the execution of this Agreement, BAM will apply to the Court pursuant to Section 291
of the BCBCA and prepare, file and diligently pursue an application for the Interim Order, which will provide, among other things:
| (a) | for the calling and holding of the BAM Meeting for the purpose, among other things, of considering the
BAM Arrangement Resolution; |
| (b) | for the class of Persons to whom notice is to be provided in respect of the Arrangement and the BAM Meeting
and for the manner in which such notice is to be provided; |
| (c) | that the requisite approval for the BAM Arrangement Resolution will be: (i) not less than 66⅔%
of the votes cast by the holders of BAM Class A Shares present in person or represented by proxy at the BAM Meeting; (ii) not
less than 66⅔% of the votes cast by the holders of BAM Class B Shares present in person or represented by proxy at the BAM
Meeting; and (iii) not less than a majority of the votes cast by the holders of BAM Class A Shares present in person or represented
by proxy at the BAM Meeting, other than votes cast in respect of BAM Class A Shares that are beneficially owned by any Interested
BAM Class A Shareholders or over which control or direction is exercised by any Interested BAM Class A Shareholder; |
| (d) | that, in all other respects,
the terms, conditions and restrictions of BAM’s articles, including quorum requirements for BAM Shareholders, and all other
matters, shall apply in respect of the BAM Meeting; |
| (e) | for the notice requirements with respect to the presentation of the application to the Court for the Final
Order; |
| (f) | for the confirmation of the record date for the BAM Meeting; and |
| (g) | that the BAM Meeting may be adjourned or postponed from time to time by BAM without the need for additional
approval of the Court. |
| 2.4 | BAM Meeting and BAM Meeting Materials. |
Subject to the terms of this
Agreement and the receipt of the Interim Order:
| (a) | BAM will convene and conduct the BAM Meeting in accordance with the Interim Order and Law as soon as reasonably
practicable for the purpose of considering the BAM Arrangement Resolution (and any other proper purpose as may be set out in the BAM Meeting
Materials); |
| (b) | BAM will not adjourn, postpone or cancel (or propose or permit the adjournment, postponement or cancellation
of) the BAM Meeting except as required for quorum purposes (in which case the meeting shall be adjourned and not cancelled), by Law or
by a Governmental Authority; |
| (c) | BAM will: (i) prepare the BAM Meeting Materials (and any necessary amendments or supplements to the
BAM Circular), together with any other documents required by Law in connection with the BAM Meeting; (ii) cause the BAM Meeting Materials
and other documentation required under Law in connection with the BAM Meeting to be mailed and filed as required by the Interim Order
and in accordance with Law; and (iii) ensure that the BAM Circular complies in all material respects with all Laws and the Interim
Order and contains sufficient detail to permit BAM Shareholders to form a reasoned judgment concerning the matters to be placed before
them at the BAM Meeting. The Parties will cooperate in the preparation of the BAM Meeting Materials and any amendment or supplement to
the BAM Meeting Materials as required or appropriate, and BAM will promptly mail or otherwise publicly disseminate any amendment or supplement
to the BAM Meeting Materials to BAM Shareholders in accordance with the Interim Order and, if required by the Court or Law, file the same
with any Governmental Authority. Without limiting the generality of the foregoing, BAM shall ensure the BAM Meeting Materials do not contain
any misrepresentation; and |
| (d) | the BAM Circular will, among other things, (i) include a copy of the Valuation and the fairness opinion;
(ii) state that the BAM Board and the GNCC have received the Valuation and fairness opinion; and (iii) contain a statement that
the BAM Board has, with Mr. Bruce Flatt having recused himself, based on, among other things, the unanimous recommendation of the
GNCC, unanimously concluded that the Arrangement is in the best interests of BAM, approved the entering into of this Agreement and recommended
that BAM Shareholders vote in favour of the BAM Arrangement Resolution. |
| 2.5 | BN Meeting and BN Meeting Materials. |
Unless the Exemption is obtained
on or prior to December 7, 2024, or such later date as may be agreed upon between BN and BAM, and subject to the terms of this Agreement:
| (a) | BN will convene and conduct the BN Meeting in accordance with Law as soon as reasonably practicable, but
in any event on or prior to January 20, 2025, for the purpose of considering the BN Resolution (and any other proper purpose as may
be set out in the BN Meeting Materials); |
| (b) | BN will not adjourn, postpone or cancel (or propose or permit the adjournment, postponement or cancellation
of) the BN Meeting except as required for quorum purposes (in which case the meeting shall be adjourned and not cancelled), by Law or
by a Governmental Authority; |
| (c) | BN will: (i) prepare the BN Meeting Materials (and any necessary amendments or supplements to the
BN Circular), together with any other documents required by Law in connection with the BN Meeting; (ii) cause the BN Meeting Materials
and other documentation required under Law in connection with the BN Meeting to be mailed and filed as required by the Interim Order and
in accordance with Law; and (iii) ensure that the BN Circular complies in all material respects with all Laws and contains sufficient
detail to permit BN Shareholders to form a reasoned judgment concerning the matters to be placed before them at the BN Meeting. The Parties
will cooperate in the preparation of any amendment or supplement to the BN Meeting Materials as required or appropriate, and BN will promptly
mail or otherwise publicly disseminate any amendment or supplement to the BN Meeting Materials to BN Shareholders and, if required by
Law, file the same with any Governmental Authority; and |
| (d) | the BN Circular will, among other things, contain a statement that the BN Board has, with Mr. Bruce
Flatt having recused himself, based on, among other things, the unanimous recommendation of the governance and nominating committee of
the BN Board, unanimously, concluded that the Arrangement is in the best interests of BN, approved the entering into of this Agreement
and recommended that BN Shareholders vote in favour of the BN Resolution. |
| 2.6 | Effecting the Arrangement and Ancillary Filings with the Registrar. |
Subject
to the rights of termination contained in Section 6.2, upon BAM Shareholders approving the Arrangement as set out in the Interim
Order, BAM obtaining the Final Order and the satisfaction (or waiver, if applicable) of the other conditions herein contained in
favour of each of the Parties and either the receipt of the Exemption or the (if applicable) BN Shareholders approving the BN Resolution,
the Parties covenant and agree to, within three Business Days following the satisfaction or waiver of such conditions herein contained,
file with the Registrar any and all documents (including, with respect to the Arrangement Records) and to exchange (to the extent not
previously exchanged) such other documents as may be necessary or desirable to give effect to the Arrangement and implement the Plan of
Arrangement on such date. The closing of the Arrangement will take place at the offices of Torys LLP, Suite 3300, 79 Wellington Street
West, Toronto, Ontario M5K 1N2 at 8:00 a.m. (Toronto local time) on the Effective Date, or at such other time and place as
may be agreed to by the Parties.
Article 3
Representations and Warranties
| 3.1 | Mutual Representations and Warranties. |
Each Party represents and
warrants to each of the other Parties, and BN represents on behalf of itself and each of the Subsidiary Shareholders to each of the other
Parties, as follows and acknowledges that the other Parties are relying on such representations and warranties in connection with entering
into this Agreement and consummating the Arrangement:
| (a) | it is duly incorporated, amalgamated or continued and is validly existing under the laws of its governing
jurisdiction and has the corporate power and authority to enter into this Agreement and, subject to obtaining the requisite approvals
contemplated hereby, to perform its obligations hereunder; |
| (b) | it has all necessary corporate power and authority to execute and deliver this Agreement, the Plan of
Arrangement and the other agreements and documents to be entered into by it in connection with the Arrangement, to perform its obligations
hereunder and thereunder and, subject to obtaining any required shareholder or Court approvals, to consummate the transactions contemplated
hereunder and thereunder; |
| (c) | the execution and delivery of this Agreement by it and the completion by it of the transactions contemplated
herein do not and will not: |
| (i) | result in the breach of, or violate any term or provision of, its articles or by-laws; |
| (ii) | conflict with, result in the breach of, constitute a default under, or accelerate or permit the acceleration
of the performance required by, any agreement, instrument, license, permit or authority to which it is a party or by which it is bound,
or to which any assets of such Party are subject, or result in the creation of any Encumbrance upon any of its assets under any such agreement
or instrument, or give to others any interest or right, including rights of purchase, termination cancellation or acceleration, under
any such agreement, instrument, license, permit or authority, which in any case would have a material adverse effect on it; or |
| (iii) | violate any provisions of any Law or any judicial or administrative award, judgement, order or decree
applicable and known to it, the violation of which would have a material adverse effect on it; |
| (d) | no dissolution, winding-up, bankruptcy, liquidation or similar proceeding has been commenced or is pending
or, to such Party’s knowledge, is proposed in respect of it, except as contemplated by the Plan of Arrangement; |
| (e) | the execution and delivery of this Agreement and the completion of the transaction contemplated herein
have been duly approved by its board of directors, and this Agreement constitutes a valid and binding obligation of such Party enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency and other laws affecting the enforcement of creditors’
rights generally and to general principles of equity and limitations upon the enforcement of indemnification for fines or penalties imposed
by law; and |
| (f) | other than the Interim Order, the Final Order and the Exemption (if the BN Shareholder Approval is not
obtained), no authorization of, or other action by or in respect of, or filing, recording, registering or publication with, any Governmental
Authority is necessary on the part of the Parties for the consummation by the Parties of their obligations in connection with the Arrangement
under this Agreement or for the completion of the Arrangement, except for such authorizations and filings as would not, individually or
in the aggregate, reasonably be expected to prevent or materially delay the ability of any of the Parties to consummate the Arrangement. |
| 3.2 | Additional Representations and Warranties of BAM. |
BAM
represents and warrants to each of the other Parties as follows and acknowledges that the other Parties are relying on such representations
and warranties in connection with entering into this Agreement and consummating the Arrangement:
| (a) | the authorized capital of BAM
consists of an unlimited number of BAM Class A Shares and 21,280 BAM Class B Shares; |
| (b) | as of October 30, 2024, there were 442,953,107 BAM Class A Shares and 21,280 BAM Class B
Shares issued and outstanding, all of which have been duly issued and are outstanding as fully paid and non-assessable shares in the capital
of BAM; |
| (c) | BAM has full power and authority to issue BAM Class A Shares pursuant to the Arrangement and such
BAM Class A Shares, when issued, will be duly authorized and validly issued as fully paid and non-assessable Class A Limited
Voting Shares in the capital of BAM, free and clear of any lien or other similar right with respect thereto, other than under applicable
securities laws; |
| (d) | BAM is a “taxable Canadian corporation” for purposes of the Tax Act; and |
| (e) | each of the GNCC and the BAM Board has received an oral Valuation from the Valuator and BAM has been authorized
by the Valuator to permit inclusion of the Valuation and references thereto in the BAM Circular and in such public disclosure as may be
required by BN pursuant to the Exemption. |
| 3.3 | Additional Representations and Warranties of BN. |
BN
represents and warrants, on behalf of itself and each of the Subsidiary Shareholders, to each of the Parties as follows and acknowledges
that the Parties are relying on such representations and warranties in connection with entering into this Agreement and consummating the
Arrangement, except as disclosed in the BN Disclosure Letter:
| (a) | the BN Held Common Shares are
owned by BN and the Subsidiary Shareholders, legally and beneficially, with good and valid title, free and clear of all liens; |
| (b) | no Person has any agreement, option, understanding or commitment or any right or privilege (whether by
law, contractual or otherwise) capable of becoming such for the purchase or acquisition from BN or certain of its Subsidiaries for the
BN Held Common Shares; and |
| (c) | the Subsidiary Shareholders are each wholly-owned Subsidiaries of BN. |
The representations and warranties
of each Party contained in this Agreement will not survive the completion of the Arrangement and will expire and be terminated on the
earlier of the Effective Time and the date on which this Agreement is terminated in accordance with its terms.
Article 4
Covenants
| 4.1 | Covenants of BAM Regarding the Conduct of Business. |
| (a) | BAM covenants and agrees that during the period from the date of this Agreement until the earlier of the
Effective Date and the time that this Agreement is terminated in accordance with its terms and except (i) as expressly permitted
or required by this Agreement or the Plan of Arrangement, (ii) as required by Law or a Governmental Authority, or (iii) unless
BN shall otherwise request or provide consent in writing, such consent not to be unreasonably withheld, conditioned or delayed, BAM shall
conduct business only in, and not take any action except in the Ordinary Course and use commercially reasonable efforts to preserve intact
its present business organization, goodwill, properties, business relationships and assets in all material respects and to keep available
the services of its and their officers and employees as a group and to maintain good relations with suppliers, customers, landlords, licensors,
lessors, creditors, distributors, partners and all other Persons having business relationships with BAM. |
| (b) | Without limiting the generality of Section 4.1(a), BAM shall not, directly or indirectly, during
the period from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance
with its terms: |
| (i) | unless BN shall otherwise request or provide consent in writing, such consent not to be unreasonably withheld,
conditioned or delayed, amend or propose to amend its articles or other comparable constating documents; |
| (ii) | issue, sell, grant, award, pledge, dispose of or otherwise encumber or agree to issue, sell, grant, award,
pledge, dispose of or otherwise encumber any BAM Shares or other equity or voting interests or any options, share appreciation rights,
warrants, calls, conversion or exchange privileges or rights of any kind to acquire (whether on exchange, exercise, conversion or otherwise)
any BAM Shares or other equity or voting interests or other securities, except for the issuance of incentive compensation securities pursuant
to BAM’s existing plans in the Ordinary Course; |
| (iii) | redeem, purchase or otherwise acquire or offer to purchase or otherwise acquire BAM Shares; |
| (iv) | increase, create, incur, assume or otherwise become liable, in one transaction or in a series of related
transactions, with respect to any indebtedness for borrowed money or guarantees thereof, any equity commitment or otherwise become liable
with respect to the liabilities of any Person in an amount, on a per transaction or series of related transactions basis, in excess of
$10,000,000; |
| (v) | reorganize, amalgamate or merge BAM with any other Person; or |
| (vi) | reduce the stated capital of BAM Shares. |
Subject to the terms of this
Agreement, each Party will:
| (a) | use its commercially reasonable efforts and do all things reasonably required of it to cause the Plan
of Arrangement to become effective on the Effective Date; |
| (b) | prior to and following the Effective Date, do and perform all such acts and things, and execute and deliver
all such agreements, assurances, notices and other documents and instruments, as may be reasonably required to facilitate the carrying
out of the intent and purpose of this Agreement; and |
| (c) | prior to and following the Effective Date, cooperate with and assist each other Party in dealing with
transitional and other matters relating to or arising from the Arrangement or this Agreement. |
BAM
covenants and agrees to (and will cause each of its Subsidiaries, as applicable, to):
| (a) | perform the obligations required
to be performed by BAM under the Arrangement and do all such other acts and things as may be necessary or desirable and are within
its power and control in order to carry out and give effect to the Arrangement, including using all commercially reasonable efforts to
obtain: |
| (i) | the approval of BAM Shareholders required for the implementation of the Arrangement; |
| (ii) | the Interim Order and the Final Order; |
| (iii) | such other consents, orders, rulings or approvals and assurances as are necessary or desirable for the
implementation of the Arrangement, including those referred to in Section 5.1; and |
| (iv) | satisfaction of the other conditions precedent referred to in Article 5; |
| (b) | not, on or before the Effective Date, perform any act or enter into any transaction that could interfere
or could be inconsistent with the completion of the Arrangement or any transaction contemplated by this Agreement; |
| (c) | make a joint election with BN and each of the Subsidiary Shareholders in respect of the disposition of
their Common Shares pursuant to section 85 of the Tax Act (or any similar provision of any provincial or territorial tax legislation)
as contemplated in the Plan of Arrangement, with the agreed amount under such joint elections to be determined by each such transferor
in its sole discretion within the limits set out in the Tax Act; and |
| (d) | on or before the Effective Date, assist and cooperate in the preparation and filing with all applicable
securities commissions or similar securities regulatory authorities in Canada and the United States of all necessary applications to seek
exemptions, if required, from the prospectus, registration and other requirements of applicable securities laws of jurisdictions in Canada
and the United States for the issue by BAM of the securities to be issued pursuant to the Arrangement, and such other exemptions that
are necessary or desirable in connection with the Arrangement. |
BN
covenants and agrees to:
| (a) | perform the obligations required to be performed by it under the Arrangement and do all such other acts
and things as may be necessary or desirable and are within its power and control in order to carry out and give effect to the Arrangement,
including using all commercially reasonable efforts to obtain: |
| (i) | the Exemption or the approval of BN Shareholders required for the implementation of the Arrangement; |
| (ii) | such other consents, rulings, orders, approvals and assurances as are necessary or desirable for the implementation
of the Arrangement, including those referred to in Section 5.1; and |
| (iii) | satisfaction of the other conditions precedent referred to in Article 5; |
| (b) | make, and cause the Subsidiary Shareholders to make, a joint election with BAM in respect of the disposition
of its Common Shares pursuant to section 85 of the Tax Act (or any similar provision of any provincial or territorial tax legislation)
as contemplated in the Plan of Arrangement, with the agreed amount under such joint elections to be determined by each such transferor
in its sole discretion within the limits set out in the Tax Act; |
| (c) | not, on or before the Effective Date, perform any act or enter into any transaction that could interfere
or could be inconsistent with the completion of the Arrangement or any transaction contemplated by this Agreement; and |
| (d) | except as disclosed in the BN Disclosure Letter, not, and cause the Subsidiary Shareholders to not, issue,
deliver, transfer, pledge, encumber, dispose or sell, or authorize the issuance, delivery, transfer, pledge, encumbrance, disposal or
sale of, any Common Shares, or grant options, warrants, calls or other rights to purchase or otherwise acquire any Common Shares. |
Article 5
Conditions
| 5.1 | Conditions Precedent to Obligations of BAM. |
The obligation of BAM to complete
the transactions contemplated by this Agreement are subject to the satisfaction, at or prior to the Effective Time, of each of the following
conditions precedent, each of which may be waived, in whole or in part, by BAM:
| (a) | the BAM Arrangement Resolution will have been approved by BAM Shareholders at the BAM Meeting in accordance
with the Interim Order; |
| (b) | the Interim Order and the Final Order will have each been obtained on terms consistent with this Agreement
and shall not have been set aside or modified in a manner unacceptable to BAM; |
| (c) | all governmental, court, regulatory, third party and other approvals, consents, expiry of waiting periods,
waivers, permits, exemptions, orders and agreements and all amendments and modifications to, and terminations of, agreements, indentures
and arrangements considered by the Parties, each acting reasonably, to be necessary or desirable for the completion of the transactions
provided for in this Agreement or the Plan of Arrangement will have been obtained or received on terms that are satisfactory to BAM, acting
reasonably; |
| (d) | no law, regulation or policy will have been proposed, enacted, issued, promulgated, enforced or applied
that interferes with or is inconsistent with the completion of the Arrangement or their effective application to the Arrangement; |
| (e) | there will not be in force any order or decree restraining or enjoining the completion of the transactions
contemplated by this Agreement; and |
| (f) | this Agreement will not have been terminated pursuant to the provisions of Article 6. |
| 5.2 | Conditions Precedent to Obligations of BN. |
The obligation of BN to complete
the transactions contemplated by this Agreement are subject to the satisfaction, at or prior to the Effective Time, of each of the following
conditions precedent, each of which may be waived, in whole or in part, by BN:
| (a) | the Exemption will have been obtained and not rescinded or the BN Resolution will have been approved by
BN Shareholders at the BN Meeting; |
| (b) | all governmental, court, regulatory, third party and other approvals, consents, expiry of waiting periods,
waivers, permits, exemptions, orders and agreements and all amendments and modifications to, and terminations of, agreements, indentures
and arrangements considered by the Parties, each acting reasonably, to be necessary or desirable for the completion of the transactions
provided for in this Agreement or the Plan of Arrangement will have been obtained or received on terms that are satisfactory to BN, acting
reasonably; |
| (c) | no law, regulation or policy will have been proposed, enacted, issued, promulgated, enforced or applied
that interferes with or is inconsistent with the completion of the Arrangement or their effective application to the Arrangement; |
| (d) | there will not be in force any order or decree restraining or enjoining the completion of the transactions
contemplated by this Agreement; |
| (e) | the BAM Class A Shares to be issued pursuant to the Arrangement will have been conditionally approved
to be listed and posted for trading on the NYSE and the TSX, subject to, in each case, standard listing conditions imposed by the NYSE
and the TSX, as applicable, in similar circumstances; and |
| (f) | this Agreement will not have been terminated pursuant to the provisions of Article 6. |
| 5.3 | Conditions Precedent to Obligations of Each Party. |
The obligation of each Party
to complete the transactions contemplated by this Agreement is further subject to the conditions (which may be waived, in whole or in
part, by such Party without prejudice to its right to rely on any other condition in its favour) that:
| (a) | the covenants of each other Party to be performed on or before the Effective Date pursuant to the terms
of this Agreement will have been duly performed in all material respects; |
| (b) | since the date of this Agreement, there shall not have occurred, or have been disclosed to the public
(if previously undisclosed to the public) a material adverse effect of BAM ULC; |
| (c) | except as set forth in this Agreement, the representations and warranties of each other Party will be
true and correct in all respects as at the Effective Date as though made at the Effective Time, with the same effect as if such representations
and warranties had been made at, and as of, such time. |
The
conditions set out in Section 5.1 and Section 5.2 will be conclusively deemed to have been satisfied or waived, as applicable,
on the filing by BAM of the Arrangement Records under the BCBCA to give effect to the Plan of Arrangement.
Article 6
Amendment and Termination
Subject to the provisions
of the Interim Order, the Plan of Arrangement and Law, this Agreement and the Plan of Arrangement may, at any time and from time to time
before or after the holding of the BAM Meeting and/or the BN Meeting, but not later than the Effective Time, be amended, modified or supplemented
by written agreement of the Parties, without further notice to or authorization on the part of BAM Shareholders.
This Agreement shall be effective
from the date hereof until the earlier of the Effective Time and the termination of this Agreement in accordance with its terms.
This Agreement may be terminated
at any time prior to the Effective Time: (i) by mutual written agreement of BAM and BN; or (ii) by either BAM or BN if the Effective
Time shall not have occurred on or before the Outside Date, except that the right to terminate this Agreement under this Section 6.3
shall not be available to any Party whose failure to fulfill any of its covenants or agreements or breach of any of its representations
and warranties under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur by such Outside
Date.
| 6.4 | Effect of Termination. |
Upon the termination of this
Agreement pursuant to Section 6.3 hereof, (i) this Agreement shall become null and void and be of no further force or effect
without liability of any Party (or any shareholder, director, officer, employee, agent, consultant or representative of such Party) to
any other Party hereto and (ii) no Party will have any liability or further obligation to the other Parties hereto or any other Person.
| 6.5 | Limitations of Covenants. |
None
of the covenants of BAM or BN contained herein shall prevent the BAM Board or BN Board, as the case may be, from:
| (a) | acting in accordance with its view of its fiduciary duties; |
| (b) | responding as required by Law
to any unsolicited submission or proposal regarding any acquisition or disposition of its respective assets or assets of any of its respective
Subsidiaries, or any unsolicited proposal to amalgamate, merge or effect an arrangement or any unsolicited acquisition proposal generally
involving BAM, BN or any of their Subsidiaries; or |
| (c) | making any disclosure to BAM Shareholders or BN Shareholders, which, in the judgement of the BAM Board
or the BN Board, respectively, is required under Law. |
Article 7
General
Except as otherwise agreed,
each Party shall pay for its own portion of the Transaction Costs relating to (i) shareholders meetings and mailing and (ii) any
legal or advisory fees (as applicable). For greater certainty, all other Transaction Costs not relating to the foregoing will be the responsibility
of, and will be paid for by, BAM ULC.
Any demand, notice or other
communication to be given in connection with this Agreement must be given in writing and delivered personally or by courier or by facsimile
addressed to the recipient as follows:
Brookfield
Asset Management Ltd.
250 Vesey Street, 15th Floor
New York, New York
10281-0221
United States
| |
Attention: |
Olivia Garfield |
| |
E-mail: |
[Redacted] |
With a copy to:
Brookfield
Asset Management Ltd.
250 Vesey Street, 15th Floor
New York, New York
10281-0221
United States
| |
Attention: |
Kathy Sarpash |
| |
Email: |
[Redacted] |
Brookfield
Corporation
Brookfield Place
181 Bay Street, EP 100
Toronto, Ontario M5J 2T3
| |
Attention: |
Frank J. McKenna |
| |
Email: |
[Redacted] |
With a copy to:
Brookfield
Corporation
Brookfield Place
181 Bay Street, EP 100
Toronto, Ontario M5J 2T3
| |
Attention: |
Swati Mandava |
| |
E-mail: |
[Redacted] |
or other such address that a Party may, from time
to time, advise the other Parties hereto by notice in writing given in accordance with the foregoing. Date of receipt of any such notice
will be deemed to be the date of actual delivery thereof or, if given by facsimile, on the day of transmittal thereof if given during
the normal business hours of the recipient with written confirmation of receipt by fax and verbal confirmation of same and on the next
Business Day, if not given during such hours.
Time is of the essence of
this Agreement.
No Party may assign its rights
or obligations under this Agreement or the Plan of Arrangement without the prior written consent of the other Parties, provided that no
such consent will be required for any Party to assign its rights and obligations under this Agreement and the Plan of Arrangement to a
corporate successor to such Party (whether by way of amalgamation or winding-up) or to a purchaser of all or substantially all of the
assets of such Party.
This Agreement will be binding
upon and enure to the benefit of the Parties hereto and their respective successors and permitted assigns.
Any waiver or release of any
of the provisions of this Agreement, to be effective, must be in writing executed by the Party granting the same.
This Agreement, together with
the agreements and other documents herein or therein referred to, constitutes the entire agreement between the Parties with respect to
the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written,
between the Parties with respect thereto.
| 7.8 | Governing Law; Attornment. |
This Agreement will be governed
by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. Each Party agrees that
any action or proceeding arising out of or relating to this Agreement may be instituted in the courts of Ontario, waives any objection
which it may have now or later to the venue of that action or proceeding, irrevocably submits to the non-exclusive jurisdiction of those
courts in that action or proceeding and agrees to be bound by any judgment of those courts.
| 7.9 | Limitation on Liability. |
No Representative of a Party
shall have any personal liability whatsoever on behalf of such Party (or any of its Subsidiaries) to any other Party under this Agreement,
the Arrangement or any other transactions entered into, or documents delivered, in connection with any of the foregoing. In no event will
one Party be liable to any other Party for any special, consequential, indirect, collateral, incidental or punitive damages or lost profits
or failure to realize expected savings or other commercial or economic loss of any kind, however caused and on any theory of liability,
arising in any way out of this Agreement, whether or not such Person has been advised of the possibility of such damages.
If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law or public policy, all other conditions and
provisions of this Agreement will nevertheless remain in full force and effect so long as the economic or legal substance of the transactions
contemplated by this Agreement is not affected in any manner materially adverse to any Party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the Parties will negotiate in good faith to modify this Agreement
so as to effect the original intent of the Parties as closely as possible in any acceptable manner to the end that the transactions contemplated
by this Agreement are fulfilled to the fullest extent possible.
| 7.11 | Counterparts; Facsimiles. |
This Agreement may be executed
in one or more counterparts, each of which will be deemed to be an original and all of which taken together will be deemed to constitute
the same instrument. Delivery of an executed signature page to this Agreement by any Party by electronic transmission will be as
effective as delivery of a manually executed copy of the Agreement by such Party.
[Remainder of page intentionally left blank]
IN
WITNESS WHEREOF the Parties have executed this Agreement.
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BROOKFIELD ASSET MANAGEMENT LTD. |
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By: |
/s/ Kathy Sarpash |
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Name: |
Kathy
Sarpash |
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Title: |
Authorized
Signatory |
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BROOKFIELD CORPORATION |
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By: |
/s/ Swati Mandava |
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Name: |
Swati Mandava |
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Title: |
Authorized Signatory |
Arrangement
Agreement
Schedule A
Plan of Arrangement
(Please see attached.)
PLAN OF ARRANGEMENT
UNDER SECTION 288 OF THE
BUSINESS CORPORATIONS ACT (BRITISH COLUMBIA)
Article 1
Definitions and Interpretation
In this Plan of Arrangement, unless the context
otherwise requires, capitalized terms used but not defined shall have the meanings ascribed to them below:
“Aggregate Capital Share Number”
means the number of BAM Class A Shares equal to the U.S. Dollar Equivalent of the aggregate principal amount of the Capital Notes
owned by Holdings (2025) LP immediately before Section 3.1(n) divided by the Trading Price, and rounded down, if necessary,
to the nearest whole number.
“Aggregate Capital Unit Number”
means the number of Class A LP Units equal to the aggregate principal amount of the Capital Notes owned by BN immediately before
Section 3.1(m) divided by C$1.00, and rounded down, if necessary, to the nearest whole number.
“Applicable Number” means,
in the case of each Transferor, the number equal to the number of Common Shares owned by the Transferor immediately prior to the Effective
Time less the Capital Share Number.
“Arrangement” means an arrangement
under Section 288 of the BCBCA in accordance with the terms and subject to the conditions set out in this Plan of Arrangement, subject
to any amendments, variations or supplements to this Plan of Arrangement made in accordance with its terms, the terms of the Arrangement
Agreement or made at the direction of the Court.
“Arrangement Agreement” means
the arrangement agreement dated October 31, 2024 between BN, BAM and BAM ULC (including the schedules thereto), as amended or supplemented
in accordance with its terms.
“BAM” means Brookfield Asset
Management Ltd., a corporation governed by the laws of British Columbia.
“BAM Arrangement Resolution”
means the special resolution of BAM Shareholders approving the Plan of Arrangement to be considered at the BAM Meeting, to be substantially
in the form and content attached to the BAM Circular.
“BAM
Circular” means the management information circular of BAM, including all appendices and schedules thereto, and any information
incorporated by reference therein, to be sent to BAM Shareholders in connection with the BAM Meeting, as amended, supplemented or otherwise
modified from time to time in accordance with the Arrangement Agreement.
“BAM
Class A Shares” means the Class A Limited Voting Shares in the capital of BAM.
“BAM
Class B Shares” means the Class B Limited Voting Shares in the capital of BAM.
“BAM Meeting” means the special
meeting of BAM Shareholders (including any adjournment or postponement thereof) to be called and held in accordance with the Interim Order
to consider, and if deemed advisable, to approve, the BAM Arrangement Resolution and the other matters set out in the notice of meeting
accompanying the BAM Circular.
“BAM Shareholders” means collectively
the holders of BAM Class A Shares and the holders of BAM Class B Shares entitled to receive notice of the BAM Meeting and vote
on BAM Arrangement Resolution, in accordance with the Interim Order.
“BAM ULC” means Brookfield
Asset Management ULC, an unlimited liability company governed under the laws of British Columbia.
“BCBCA” means the Business
Corporations Act (British Columbia) and the regulations made thereunder, each as amended from time to time.
“BN”
means Brookfield Corporation, a corporation governed under the laws of Ontario.
“BN Holdco” means an indirect
subsidiary of BN to be formed prior to the Effective Time to hold Common Shares.
“BN Subco” means a wholly-owned
subsidiary of a BN Holdco to be formed prior to the Effective Time to hold a Capital Note.
“BN Subco Note” means a non-interest
bearing, Canadian dollar-denominated demand promissory note issued by a BN Subco to the BN Holdco of which it is a wholly-owned subsidiary
with a principal amount equal to the principal amount of the Capital Note transferred by such BN Holdco to such BN Subco in Section 3.1(k).
“BRPI” means Brookfield Renewable
Power Inc.
“BRPI Note” means a non-interest
bearing, Canadian dollar-denominated demand promissory note issued by BN to BRPI with a principal amount equal to the principal amount
of the Capital Note transferred by BRPI to BN in Section 3.1(j).
“Business Day” means a day,
other than a Saturday, Sunday or statutory or civic holiday in both Ontario and British Columbia, when banks are generally open for the
transaction of business in both Toronto, Ontario and Vancouver, British Columbia.
“Capital Amount” means: (i) for
BN, C$4,170,885,270 less the aggregate of the amounts in respect of the BN Holdcos calculated pursuant to (v) below; (ii) for
each of Holding 1, Holding 2, Holding 3 and Holding 4, C$104,970,059; (iii) for each of Holding 5 and Holding 6, C$52,485,027; (iv) for
BRPI, C$166,407,502; and (v) for each BN Holdco, an aggregate amount equal to C$4.03 for each Common Share owned by them immediately
before the Effective Time, or, in each case, such other amount as may be agreed by BN and BAM in writing prior to the Effective Time.
“Capital Note” means a non-interest
bearing, Canadian dollar-denominated demand promissory note issued by BAM to a Transferor with a principal amount equal to the Capital
Amount for such Transferor.
“Capital Share Number” means
the number of BAM Class A Shares equal to the U.S. Dollar Equivalent of the Capital Amount divided by the Trading Price, and rounded
down, if necessary, to the nearest whole number.
“Class A LP Units” means
the Class A Limited Partnership Units of Holdings (2025) LP.
“Common Shares” means common
shares in the capital of BAM ULC.
“Control” means, when applied
to a relationship between two Persons, that a Person (the “first Person”) is considered to control another Person (the
“second Person”) if: (i) the first Person, directly or indirectly, beneficially owns or exercises control or direction
over securities, interests or contractual rights of the second Person carrying votes which, if exercised, would entitle the first Person
to elect a majority of the directors of the second Person, or a majority of any other Persons who have the right to manage or supervise
the management of the business and affairs of the second Person, unless that first Person holds the securities, interests or rights only
to secure a debt or similar obligation; (ii) the second Person is a partnership, other than a limited partnership, and the first
Person, together with any Person Controlled by the first Person, holds more than 50% of the interests (measured by votes or by value)
of the partnership; or (iii) the second Person is a limited partnership and the general partner of the limited partnership is the
first Person or any Person Controlled by the first Person, and the term “Controlled” has a corresponding meaning.
“Court” means the Supreme Court
of British Columbia.
“DRS” means direct registration
system.
“Effective Date” means the
date upon which the Arrangement becomes effective, being the date BAM and BN agree upon, acting reasonably, that is within three Business
Days following the satisfaction or waiver of the conditions precedent to the completion of the Arrangement, including the granting of
the Final Order by the Court.
“Effective Time” means 5:00
p.m. Toronto local time on the Effective Date, or such other time as may be agreed to by BN and BAM.
“Encumbrance” means any mortgage,
charge, pledge, lien, hypothec, security interest, encumbrance, adverse claim or right of any third party to acquire or restrict the use
of property.
“Final Order” means the final
order of the Court or, if appealed, the final order affirmed by an appellate court, approving the Arrangement, pursuant to Section 291
of the BCBCA, as it may be amended or affirmed prior to the Effective Time by the Court or an appellate court, as the case may be.
“Holding 1” means BN BAM Holding
Inc.
“Holding 2” means BN BAM Holding
2 Inc.
“Holding 3” means BN BAM Holding
3 Inc.
“Holding 4” means BN BAM Holding
4 Inc.
“Holding 5” means BN BAM Holding
5 Inc.
“Holding 6” means BN BAM Holding
6 Inc.
“Holdings (2025) LP” means
BAM Holdings (2025) LP.
“Interim Order” means the interim
order of the Court in respect of the Arrangement, as it may be varied or amended, as contemplated by Section 2.3 of the Arrangement
Agreement.
“Person” means and includes
an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust,
body corporate, trustee, executor, administrator or other legal representative and the Crown or any agency or instrumentality thereof.
“Plan of Arrangement” means
this plan of arrangement, as amended, varied or supplemented in accordance with the terms hereof, the terms of the Arrangement Agreement
or made at the discretion of the Court in the Final Order.
“Tax Act” means the Income
Tax Act (Canada), R.S.C. 1985 (5th Supp) C.1, as amended.
“Trading Price” means the volume-weighted
average trading price of one BAM Class A Share on the NYSE for a five-day trading period ending on the day prior to the Effective
Date.
“Transfer Agent” means TSX
Trust Company, BAM’s and BN’s transfer agent.
“Transferors” means, collectively,
BN, Holding 1, Holding 2, Holding 3, Holding 4, Holding 5, Holding 6, each BN Holdco and BRPI, each a “Transferor”.
“U.S. Dollar Equivalent” means
the amount of United States dollars that could be purchased with the relevant amount of Canadian dollars based on the Bank of Canada daily
exchange rate on the Effective Date.
In addition, words and phrases used herein and
defined in the BCBCA and not otherwise defined herein or in the Arrangement Agreement shall have the same meaning herein as in the BCBCA
unless the context otherwise requires.
| 1.2 | Interpretation Not Affected by Headings |
The division of this Plan of Arrangement into
articles, sections, subsections, paragraphs and subparagraphs and the insertion of headings herein are for convenience of reference only
and shall not affect the construction or interpretation of this Plan of Arrangement. The terms “this Plan of Arrangement”,
“hereof”, “herein”, “hereto”, “hereunder” and similar expressions refer to this Plan of
Arrangement and not to any particular article, section or other portion hereof and include any instrument supplementary or ancillary hereto.
In this Plan of Arrangement, unless the context
otherwise requires: (a) words importing the singular shall include the plural and vice versa, (b) words importing the use of
either gender shall include both genders and neuter and (c) “include”, “includes” and “including”
shall be deemed to be followed by the words “without limitation”.
If the date on which any action is required or
permitted to be taken hereunder is not a Business Day, such action shall be required or permitted to be taken on the next succeeding day
which is a Business Day.
In this Plan of Arrangement, unless something
in the subject matter or context is inconsistent therewith or unless otherwise herein provided, a reference to a statute includes all
regulations made thereunder, all amendments to such statute or regulation in force from time to time and any statute or regulation that
supplements or supersedes such statute or regulation.
Unless
otherwise stated, all references herein to amounts of money are to be expressed in lawful currency of Canada (C$).
Time shall be of the essence in every matter or
action contemplated hereunder. All times expressed herein are local time in Toronto, Ontario unless otherwise stipulated herein.
Article 2
Arrangement Agreement
This Plan of Arrangement is made pursuant to,
and is subject to the provisions of, the Arrangement Agreement, except in respect of the sequence of the steps comprising the Arrangement,
which shall occur as set forth herein.
At and after the Effective Time, this Plan of
Arrangement shall be binding on: (a) BAM, BAM ULC, the Transferors, each BN Subco and Holdings (2025) LP; and (b) the Transfer
Agent, in each case without any further authorization, act or formality on the part of any person, except as expressly provided herein.
Article 3
Arrangement
Commencing at the Effective Time, except as otherwise
noted, each of the steps set out below shall occur in the following order without any further act or formality, with each step occurring
two minutes after the completion of the immediately preceding step:
Amendments to BAM Articles
| (a) | The special rights and restrictions of BAM Class A Shares and BAM Class B Shares will be altered
to delete references to “Special Common Shares” in paragraphs 26.3 and 27.2. |
| (b) | The special rights and restrictions of BAM Class A Shares and BAM Class B Shares will be altered
by deleting paragraph 27.4 in its entirety and replacing it with the following: |
“In the election of directors, except
as provided below, holders of Class A Shares shall be entitled to elect one-half of the board of directors of the Company and holders
of Class B Shares shall be entitled to elect the other one-half of the board of directors of the Company. At any time that:
| (i) | Brookfield Corporation (or its successor) and its subsidiaries (as defined in the Act) beneficially own
a number of Class A Shares that exceeds 50% of the aggregate number of all the issued and outstanding Class A Shares and Class B
Shares as of the record date for any meeting of shareholders, holders of Class A Shares and holders of Class B Shares shall
vote together as a single class in the election of the board of directors of the Company at such meeting of shareholders; or |
| (ii) | Brookfield Corporation (or its successor) and its subsidiaries (as defined in the Act) beneficially own
a number of Class A Shares that is not less than 20% but does not exceed 50% of the sum of all the issued and outstanding Class A
Shares and Class B Shares as of the record date for any meeting of shareholders: |
| (A) | Brookfield Corporation (or its successor) shall be entitled to elect one of the directors who would otherwise
be elected by other holders of the Class A Shares at such meeting of shareholders; |
| (B) | holders of Class A Shares, including Brookfield Corporation (or its successor) solely in respect
of any Class A Shares that it and its subsidiaries (as defined in the Act) beneficially own in number that exceeds 20% of the sum
of all the issued and outstanding Class A Shares and Class B Shares, shall be entitled to elect one-half of the board of directors
of the Company less such number of directors to be elected by Brookfield Corporation (or its successor) under (A) above at such meeting
of shareholders; and |
| (C) | holders of Class B Shares shall be entitled to elect the other one-half of the board of directors
of the Company at such meeting of shareholders.” |
| (c) | The special rights and restrictions of the special common shares in the capital of BAM will be altered
by deleting Part 28 in its entirety. |
| (d) | The special rights and restrictions of the special shares in the capital of BAM will be altered by deleting
Part 29 in its entirety. |
| (e) | The special rights and restrictions of special shares, series 1 in the capital of BAM will be altered
by deleting Part 30 in its entirety. |
Share Transfers by the Transferors
| (f) | Each Transferor will, simultaneously, transfer all of the Common Shares it owns to BAM for a purchase
price equal to the fair market value of such Common Shares, and in respect of each such transfer, BAM will satisfy the purchase price
for the Common Shares acquired from the Transferor by issuing the Applicable Number of BAM Class A Shares and a Capital Note to such
Transferor. |
| (g) | In respect of the transfer by each Transferor of Common Shares to BAM described in Section 3.1(f) above,
the aggregate amount to be added by BAM to the stated capital of the BAM Class A Shares will be an amount equal to the aggregate
cost to BAM of the Common Shares acquired from the Transferor (determined for purposes of the Tax Act, including pursuant to subsection
85(1) of the Tax Act, where relevant), less the principal amount of the Capital Note issued by BAM to the Transferor. |
| (h) | In respect of the transfer by each Transferor of Common Shares to BAM described in Section 3.1(f) above,
BAM and the Transferor will jointly elect, in prescribed form and within the time limits referred to in subsection 85(6) of the Tax
Act, to have the provisions of subsection 85(1) of the Tax Act apply to the transfer of Common Shares and, if applicable, BAM and
the Transferor will jointly elect under the provisions of any corresponding provincial tax legislation. The agreed amount for the Common
Shares specified in the subsection 85(1) election between BAM and the Transferor will be an amount that is: (i) not less than
the greater of (A) the “adjusted cost base” for purposes of the Tax Act of the Common Shares to the Transferor immediately
prior to the transfer, and (B) the principal amount of the Capital Note issued by BAM to the Transferor, and (ii) not greater
than the aggregate fair market value of the Common Shares transferred by the Transferor at the time of the transfer, but otherwise such
agreed amount will be as determined by the Transferor in its sole discretion. |
Distributions, Transfers and Settlements of
Capital Notes
| (i) | Each of Holding 1, Holding 2, Holding 3, Holding 4, Holding 5 and Holding 6 will reduce the stated capital
of its common shares owned by BN by an amount equal to the principal amount of the Capital Note received by it in Section 3.1(f) above
and will effect such reduction in stated capital by transferring the Capital Note to BN. |
| (j) | BRPI will transfer the Capital Note received by it in Section 3.1(f) above to BN for a purchase
price equal to the principal amount of the note, which will be satisfied by BN issuing the BRPI Note to BRPI. |
| (k) | Each BN Holdco will transfer the Capital Note received by it in Section 3.1(f) above to the
BN Subco wholly-owned by it for a purchase price equal to the principal amount of the note, which will be satisfied by the BN Subco issuing
a BN Subco Note to BN Holdco. |
| (l) | Each BN Holdco will subscribe for 100 common shares in the capital of the BN Subco that is wholly-owned
by it for a subscription price equal to the principal amount of the BN Subco Note owing by such BN Subco to such BN Holdco, and in full
payment and satisfaction of such subscription price and such BN Subco’s obligation under such BN Subco Note, such BN Subco’s
obligation under such BN Subco Note will be set off against such BN Holdco’s obligation to pay the subscription price and such BN
Subco Note will be cancelled. |
| (m) | BN will transfer all of the Capital Notes it owns to Holdings (2025) LP for a purchase price equal to
the aggregate principal amount of the Capital Notes which will be satisfied by Holdings (2025) LP issuing the Aggregate Capital Unit Number
of Class A LP Units to BN. |
| (n) | Holdings (2025) LP will subscribe for the Aggregate Capital Share Number of BAM Class A Shares for
a subscription price equal to the aggregate principal amount of the Capital Notes it owns, and in full payment and satisfaction of such
subscription price and BAM’s obligations under the Capital Notes, BAM’s obligations under the Capital Notes will be set off
against Holdings (2025) LP’s obligation to pay such subscription price and the Capital Notes will be cancelled. The aggregate amount
to be added by BAM to the stated capital of the BAM Class A Shares so issued will be an amount equal to the aggregate principal amount
of the Capital Notes acquired by BAM from Holdings (2025) LP. |
| (o) | Each BN Subco will subscribe for the Capital Share Number of BAM Class A Shares for a subscription
price equal to the aggregate principal amount of the Capital Note it owns, and in full payment and satisfaction of such subscription price
and BAM’s obligations under the Capital Note, BAM’s obligations under the Capital Note will be set off against such BN Subco’s
obligation to pay such subscription price and the Capital Note will be cancelled. The aggregate amount to be added by BAM to the stated
capital of the BAM Class A Shares so issued will be an amount equal to the aggregate principal amount of the Capital Note acquired
by BAM from each BN Subco. |
Article 4
Shares
| (a) | Upon the transfer of the Common Shares pursuant to subsection 3.1(f) of this Plan of Arrangement:
(i) the name of each relevant Transferor will be deemed to be removed from the register of holders of Common Shares; (ii) each
Transferor will be deemed to be added to the register of holders of BAM Class A Shares as the holder of the number of BAM Class A
Shares issued to each such Transferor pursuant to subsection 3.1(f) of this Plan of Arrangement and will be deemed to be the legal
and beneficial owner thereof; and (iii) BAM will be deemed to be added to the register of holders of Common Shares as the holder
of the number of Common Shares acquired pursuant to subsection 3.1(f) of this Plan of Arrangement and will be deemed to be the legal
and beneficial owner thereof. |
| (b) | Upon the satisfaction of the subscription price of the common shares in the capital of the BN Subco pursuant
to subsection 3.1(l) of this Plan of Arrangement, the applicable BN Holdco will be deemed to be added to the register of holders
of common shares in the capital of the BN Subco as the holder of the 100 common shares issued to the BN Holdco pursuant to subsection
3.1(l) of this Plan of Arrangement and will be deemed to be the legal and beneficial owner thereof. |
| (c) | Upon the transfer of the Capital Notes to Holdings (2025) LP pursuant to subsection 3.1(m) of
this Plan of Arrangement, BN will be deemed to be added to the register of holders of Class A LP Units as the holder of the number
of Class A LP Units issued to BN pursuant to subsection 3.1(m) of this Plan of Arrangement. |
| (d) | Upon the satisfaction of the subscription price of the BAM Class A Shares by Holdings (2025) LP pursuant
to subsection 3.1(n) of this Plan of Arrangement, Holdings (2025) LP will be deemed to be added to the register of holders of BAM
Class A Shares as the holder of the number of BAM Class A Shares issued to Holdings (2025) LP pursuant to subsection 3.1(n) of
this Plan of Arrangement and will be deemed to be the legal and beneficial owner thereof. |
| (e) | Upon the satisfaction of the subscription price of the BAM Class A Shares by each BN Subco pursuant
to subsection 3.1(o) of this Plan of Arrangement, BN Subco will be deemed to be added to the register of holders of BAM Class A
Shares as the holder of the number of BAM Class A Shares issued to such BN Subco pursuant to subsection 3.1(o) of this
Plan of Arrangement and will be deemed to be the legal and beneficial owner thereof. |
| 4.2 | Deemed Fully Paid and Non-Assessable Shares |
All BAM Class A Shares issued pursuant hereto
will be deemed to be or have been validly issued and outstanding as fully paid and non-assessable shares or units, as the case may be,
for all purposes of the BCBCA.
Article 5
Delivery of Consideration
| 5.1 | Delivery of DRS Statements |
No certificates will be issued in respect of BAM
Class A Shares issued pursuant to Section 3.1 of this Plan of Arrangement. As soon as practicable following the Effective Time,
the Transfer Agent will deliver to each Transferor, each BN Subco and Holdings (2025) LP one or more DRS statements representing BAM Class A
Shares to which such Transferor, BN Subco and Holdings (2025) LP is entitled pursuant to the Arrangement.
Any exchange or transfer of securities pursuant
to this Plan of Arrangement shall be free and clear of any Encumbrances, except for claims of the transferring or exchanging securityholder
to be paid the consideration payable to such securityholder pursuant to the terms of this Plan of Arrangement.
From and after the Effective Time:
| (a) | this Plan of Arrangement shall apply to any and all BAM Class A Shares issued prior to the Effective
Time or pursuant to this Plan of Arrangement; |
| (b) | the rights and obligations of BAM, BAM ULC, the Transferors, each BN Subco, Holdings (2025) LP and the
Transfer Agent shall be solely as provided for in this Plan of Arrangement; and |
| (c) | all actions, causes of action, claims or proceedings (actual or contingent and whether or not previously
asserted) based on or in any way relating to any BAM Class A Shares or Common Shares shall be deemed to have been settled, compromised,
released and determined without liability except as set forth herein. |
Article 6
Amendments
| 6.1 | Amendments to Plan of Arrangement |
| (a) | BAM and BN reserve the right to amend, modify or supplement this Plan of Arrangement at any time and from
time to time prior to the Effective Time, provided that each such amendment, modification or supplement must be agreed to in writing by
each of BAM and BN and filed with the Court, and, if made following the BAM Meeting, then: (i) approved by the Court, and (ii) if
the Court directs, approved by BAM Shareholders and communicated to BAM Shareholders if and as required by the Court, and in either case
in the manner required by the Court. |
| (b) | Subject to the provisions of the Interim Order, any amendment, modification or supplement to this Plan
of Arrangement, if agreed to by BAM and BN, may be proposed by BAM and BN at any time prior to or at the BAM Meeting, with or without
any other prior notice or communication, and if so proposed and accepted by the Persons voting at the BAM Meeting shall become part of
this Plan of Arrangement for all purposes. |
| (c) | Any amendment, modification or supplement to this Plan of Arrangement that is approved or directed by
the Court following the BAM Meeting will be effective only if it is agreed to in writing by each of BAM and BN and, if required by the
Court, by some or all of BAM Shareholders voting in the manner directed by the Court. |
| (d) | Any amendment, modification or supplement to this Plan of Arrangement may be made by BAM and BN without
the approval of or communication to the Court or BAM Shareholders, provided that it concerns a matter which, in the reasonable opinion
of BAM and BN is of an administrative or ministerial nature required to better give effect to the implementation of this Plan of Arrangement
and is not materially adverse to the financial or economic interests of any of BAM Shareholders. |
| (e) | This Plan of Arrangement may be withdrawn prior to the Effective Time in accordance with the terms of
the Arrangement Agreement. |
Article 7
Further Assurances
Notwithstanding that the transactions and events
set out herein shall occur and be deemed to occur in the order set out in this Plan of Arrangement without any further act or formality,
each of the parties to the Arrangement Agreement shall make, do and execute, or cause to be made, done and executed, all such further
acts, deeds, agreements, transfers, assurances, instruments or documents as may reasonably be required by any of them to further document
or evidence any of the transactions or events set out herein.
Schedule B
bam arrangement resolution
BE IT RESOLVED, AS A SPECIAL RESOLUTION, THAT:
| 1. | The arrangement (the “Arrangement”) under Division 5 of Part 9 of the Business
Corporations Act (British Columbia) (the “BCBCA”) involving, among others, Brookfield Asset Management Ltd. (“BAM”),
Brookfield Corporation (“BN”) and Brookfield Asset Management ULC (“BAM ULC”), as more particularly
described and set forth in the management proxy circular (the “Circular”) of BAM dated November 1, 2024, as the
Arrangement may be modified or amended, and all the transactions contemplated thereby are hereby authorized and approved. |
| 2. | The plan of arrangement, as
it may be or have been amended (the “Plan of Arrangement”) involving, among others, BAM, BN and BAM ULC, the
full text of which is set out in Schedule A of Appendix B to the Circular, is hereby authorized and approved. |
| 3. | The Arrangement Agreement dated
October 31, 2024, among BAM, BN and BAM ULC (the “Arrangement Agreement”), and all the transactions contemplated
therein, together with the actions of the directors of BAM in approving the Arrangement and the actions of the authorized persons of BAM
in executing and delivering the Arrangement Agreement and any amendments thereto, are hereby ratified and approved. |
| 4. | BAM is hereby authorized to apply for a final order from the Supreme Court of British Columbia to approve
the Arrangement on the terms set forth in the Arrangement Agreement and the Plan of Arrangement (as they may be or may have been amended
or modified to the extent permitted by the Arrangement Agreement or the Plan of Arrangement, as applicable). |
| 5. | Notwithstanding that this resolution has been passed (and the Arrangement adopted) by the holders of BAM’s
class A limited voting shares and class B limited voting shares or that the Arrangement has been approved by the Supreme Court of British
Columbia, the directors of BAM are hereby authorized and empowered (i) to amend the Arrangement Agreement or the Plan of Arrangement
to the extent permitted by the Arrangement Agreement, and (ii) subject to the terms of the Arrangement Agreement, not to proceed
with the Arrangement. |
| 6. | Any authorized signatory, officer or director of BAM is hereby authorized and directed for and on behalf
of BAM to cause the records in respect of the Arrangement required under Division 5 of Part 9 of the BCBCA to be filed with the registrar
giving effect to the Arrangement, including, as applicable, one or more notices of alteration of notices of articles. |
| 7. | Any authorized signatory, officer or director of BAM is hereby authorized and directed for and on behalf
of BAM to execute or cause to be executed and to deliver or cause to be delivered, all such other documents, agreements and instruments
and to perform or cause to be performed all such other acts and things as in such person’s opinion may be necessary or desirable
to give full effect to the foregoing resolution and the matters authorized thereby, such determination to be conclusively evidenced by
the execution and delivery of such document, agreement or instrument or the doing of any such act or thing. |
Exhibit 99.3
|
Brookfield Asset Management Ltd. |
Formal Valuation of Class A
Shares of Brookfield Asset Management Ltd. and Common Shares of Brookfield Asset Management ULC and Fairness Opinion of the Arrangement
|
| Privileged & Confidential |
KPMG
LLP
October 31, 2024 |
© 2024 KPMG
LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated
with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP.
Table of Contents:
| 2.0 | Terms
of KPMG Engagement |
3 |
| 3.0 | Independence
and Credentials |
3 |
| 6.0 | Restrictions,
Assumptions and Limitations |
5 |
| 7.0 | Arrangement
Overview |
7 |
| 11.0 | Financial
Overview |
21 |
| 12.0 | Valuation
Analysis |
30 |
| 13.0 | Valuation
Conclusion |
50 |
| 15.0 | Fairness
Opinion Conclusion |
54 |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
Privileged &
Confidential
October 31, 2024
Governance, Nominating and Compensation
Committee of the Board of Directors of Brookfield Asset Management Ltd.
c/o Brookfield Asset Management
Ltd.
Brookfield Place
181 Bay Street Suite 100
Toronto, Ontario
M5J 2T3
|
|
| Attention: |
Ms. Olivia Garfield, Chair |
| Subject: | Formal
Valuation of Class A Shares of Brookfield Asset Management Ltd. and Common Shares of
Brookfield Asset Management ULC and Fairness Opinion of the Arrangement |
KPMG LLP (“KPMG”)
has been requested by the Governance, Nominating and Compensation Committee of the Board of Directors (the “GNC Committee”)
of Brookfield Asset Management Ltd. (“BAM LTD”) to provide a formal valuation in accordance with Multilateral Instrument
61-101 - Protection of Minority Security Holders in Special Transactions (“MI 61-101”) of the class A limited voting
shares of BAM LTD (the “BAM LTD Class A Shares”) and the common shares of Brookfield Asset Management ULC (“BAM
ULC”) (the “BAM ULC Common Shares”) as at a current date which we have taken to be October 31, 2024 (the “Valuation
Date”) (the “Formal Valuation”).
We understand the
Formal Valuation is required in connection with the intention to exchange 1,194.0 million BAM ULC Common Shares held by Brookfield Corporation
(“BN”) and its subsidiaries (the “Shares Received”, or “Subject Shares”) for 1,194.0 million newly
issued BAM LTD Class A Shares (the “Shares Given Up”, or the “Consideration”) (the “Arrangement”).
Collectively, the
Subject Shares and the Consideration, are referred to herein as the “Exchanged Shares”.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
In addition, KPMG
has been requested by the GNC Committee to review the terms of the Arrangement and to provide the GNC Committee with an opinion as to
the fairness of the Arrangement, from a financial point of view, to the holders of BAM LTD Class A Shares (other than BAM LTD Class A
Shares held, directly or indirectly, by an “interested party” within the meaning of MI 61-101 or otherwise required to be
excluded under the requirements of MI 61-101) (the “Fairness Opinion”).
We understand that
the specific terms and conditions of the Arrangement will be provided in a management information circular of BAM LTD (the “Circular”),
to be mailed to holders of BAM LTD Class A Shares. We further understand that the Formal Valuation and Fairness Opinion and/or a
summary thereof will be included in the Circular and that the Formal Valuation and Fairness Opinion will be provided to and be relied
upon by the board of directors of BAM LTD (the “Board”).
All amounts in
this letter are in US dollars, unless otherwise stated.
| 2.0 | Terms
of KPMG Engagement |
KPMG has been engaged
by the GNC Committee to provide the Formal Valuation and Fairness Opinion pursuant to a letter dated September 30, 2024, and executed
on October 2, 2024 (the “Engagement Agreement”). KPMG is to be paid a fixed fee for rendering the Formal Valuation and
Fairness Opinion and will be reimbursed for its reasonable out-of-pocket expenses to complete the Formal Valuation and Fairness Opinion.
KPMG is also being indemnified by the GNC Committee in respect of certain liabilities which may be incurred by KPMG in connection with
the provision of its services. No part of KPMG’s fees pursuant to the Engagement Arrangement are contingent in whole or in part
on the conclusions reached in the Formal Valuation, the outcome of the Fairness Opinion and/or completion of the Arrangement. KPMG understands
that the Formal Valuation and Fairness Opinion are among other factors considered by the GNC Committee in assessing the Arrangement.
| 3.0 | Independence
and Credentials |
KPMG is one of
the world’s largest professional services firms, offering a broad range of services. KPMG’s valuation professionals have
significant experience in valuing a broad range of companies for various purposes, including securities law compliance, fairness opinions,
solvency opinions, mergers and acquisitions, corporate income tax purposes, and litigation matters, amongst other things. The Formal
Valuation and Fairness Opinion expressed herein are the opinions of KPMG as a firm, and the form and content herein have been approved
for release by a committee, each member of which is a member of the Canadian Institute of Chartered Business Valuators and experienced
in merger, acquisition, divestiture, and valuation matters.
Having regard to
the provisions of Section 6.1 of MI 61-101, we confirm that KPMG, including its affiliates and the engagement team (hereafter “KPMG”),
is independent. KPMG is not the auditor of BAM LTD, BAM ULC, BN or any of their respective affiliates (collectively, “Brookfield”).
KPMG has not advised Brookfield or any other party in connection with the Arrangement. Also, our fees for this engagement are not contingent
upon our findings and we do not have any financial interest in the completion of the Arrangement.
In the ordinary
course of business, KPMG, including its affiliates, have and continue to perform advisory and tax work for Brookfield. KPMG reviewed
its records to determine whether it has entered into engagement agreements with, or has earned fees from Brookfield in the past five
years, and provided a disclosure letter to the GNC Committee on September 30, 2024 with respect to its findings. We have determined
that KPMG is independent for the purpose of MI 61-101 (and, will continue to be independent throughout the engagement), without any conflict
of interest for this engagement and that it has the appropriate qualifications to prepare the Formal Valuation and Fairness Opinion.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
In connection with
preparing the Formal Valuation and Fairness Opinion, KPMG has reviewed and relied upon (where considered appropriate), or undertaken,
among other things, the following:
| • | BAM
ULC and BAM LTD’s audited consolidated financial statements, management’s discussion
and analysis and annual information form as at, and for the periods ended December 31,
2022 and December 31, 2023, and BAM ULC and BAM LTD’s unaudited consolidated financial
statements as at and for the six month period ended June 30, 2024; |
| • | Five-year
projections for BAM ULC, prepared by Brookfield management (“Management”) as
at September 2024 on a consolidated basis
and by business segments that has been communicated to its investors and the general public
as part of its 2024 Investor Day Presentation on September 10, 2024; |
| • | Fee-related
earnings (“FRE”) allocation by business segments over the five-year projections
for BAM ULC as at September 2024, as provided by Management; |
| • | Organization
charts and steps memo outlining details of share and consideration exchanges related to the
Arrangement; |
| • | Detailed
organization chart for BAM LTD, BAM ULC and its subsidiaries and affiliates, as at December 31,
2023 and June 30, 2024; |
| • | Documents
relating to share units issued and outstanding for BAM ULC and BAM LTD, including BAM ULC
Common Shares held by BAM LTD and BN, and underlying issuances of options by BAM LTD, as
at the Valuation Date; |
| • | Documents
related to related party transactions and balances; |
| • | Documents
related to tracking shares continuity and preferred redeemable non-controlling interest as
at June 30, 2024; |
| • | Summary
of BAM ULC’s carry eligible new funds as at June 30, 2024; |
| • | Various
supporting financial detail for positions in equity investments held by BAM ULC as at June 30,
2024; |
| • | Certain
additional internal financial, operational, corporate and other information prepared or provided
by Management, including internal operating and financial information of BAM ULC and BAM
LTD as at June 30, 2024 and preceding historical periods; |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
| • | Materials
related to certain equity-based compensation plans of BAM ULC and/or BAM LTD and its subsidiaries; |
| • | Selected
public market trading statistics and relevant financial information of BAM ULC and/or BAM
LTD and other public comparable companies; |
| • | Selected
financial statistics and relevant financial information with respect to selected precedent
transactions in the alternative asset management industry; |
| • | Selected
relevant reports published by equity research analysts and industry sources regarding BAM
ULC and/or BAM LTD and other comparable public companies; |
| • | General
industry and economic information obtained from other sources considered reliable and appropriate
in the circumstance; |
| • | A
review of relevant published market data and other public information available to us as
related to the industries and economy in which BAM ULC and BAM LTD operates; |
| • | Independent
research concerning the current economic conditions and outlook of the global economy; |
| • | Economic
and financial research and performed such other analyses and investigations as deemed appropriate; |
| • | A
draft of the Arrangement Agreement between BAM LTD and BN dated October 31, 2024 (the
“Arrangement Agreement”, outlining the terms of the Arrangement; |
| • | A
draft of the Management Information Circular with respect to the Arrangement; and, |
| • | Discussions
with the GNC Committee, Management, and legal advisors to BAM LTD and the GNC Committee to
further our understanding of, amongst other things, the operations, historical results, and
future prospects of BAM ULC and BAM LTD. |
Each of BAM LTD
and BAM ULC has represented to KPMG after due enquiry that there have not been any prior valuations (as defined in MI 61-101) of BAM
LTD or BAM ULC or of their respective securities or material assets in the past 24-month period.
| 6.0 | Restrictions,
Assumptions and Limitations |
The
Formal Valuation and Fairness Opinion has been provided for use by the GNC Committee and the board
of BAM LTD (the “Board”). As indicated above, the Formal Valuation and Fairness Opinion and/or a summary thereof has also
been provided for inclusion in the Circular to be sent to the holders of BAM LTD Class A Shares (the “Shareholders”)
in connection with the Arrangement and to the Board, and may not be used by any person or relied upon by any person without the prior
express written consent of KPMG. KPMG will assume no responsibility for the losses incurred by BAM LTD, its Shareholders, directors,
or any other parties as a result of the circulation, publication, reproduction or use of the Formal Valuation and/or Fairness Opinion
contrary to the provisions of this paragraph.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
The Fairness Opinion
does not address the relative merits of the Arrangement as compared to other transactions or business strategies that might be available
to BAM LTD. KPMG expresses no opinion with respect to future trading prices of the BAM ULC Common Shares and BAM LTD Class A Shares.
KPMG has relied
upon the completeness, accuracy and fair presentation of all the financial and other factual information, data, advice, opinions or representations
obtained by it from public sources, obtained by or on behalf of BAM LTD and/or BAM ULC, or otherwise obtained by KPMG, including the
representation letter identified below (collectively, the “Information”). The Formal Valuation and Fairness Opinion is conditional
upon the completeness, accuracy and fair presentation of such Information. Subject to the exercise of professional judgment, KPMG has
not attempted to verify independently the completeness, accuracy or fair presentation of any of this Information. In preparing the Formal
Valuation and Fairness Opinion, KPMG has made certain assumptions in addition to those noted herein which it considered to be reasonable
and appropriate in the circumstances.
BAM LTD has represented
to KPMG in a representation letter, among other things, that the Information provided to KPMG in connection with the Formal Valuation
and Fairness Opinion was, at the date the Information was provided, complete, true and correct in all material respects and does not
omit to state any material fact. Further, BAM LTD has represented that there has been no material change, financial or otherwise, in
the financial condition, assets, liabilities, business, operations or prospects of BAM ULC and/or BAM LTD which would reasonably be expected
to materially affect the Formal Valuation and Fairness Opinion and that there are not any material contingent liabilities or actions,
suits, proceedings or investigations or enquiries pending or threatened against or affecting BAM ULC and/or BAM LTD, which may in any
way materially affect the Formal Valuation and Fairness Opinion.
The Formal Valuation
and Fairness Opinion are given as of the Valuation Date. KPMG disclaims any undertaking or obligation to advise any person of any changes
in any fact or matter affecting the Formal Valuation and Fairness Opinion, which would have been known or expected to be known as of
the date hereof, but may come or be brought to KPMG’s attention after such date, or which occurs after the date hereof. Without
limiting the foregoing, in the event that there is any material change in any fact or matter affecting the Formal Valuation and Fairness
Opinion which would have been known or expected to be known as of the date hereof, but may be brought up to KPMG’s attention after
such date, or which occurs after the date hereof, KPMG reserves the right to change, modify, or withdraw the Formal Valuation and Fairness
Opinion and disclaims any undertaking or obligation to update the Formal Valuation and Fairness Opinion after such date. Moreover, KPMG
reserves the right, but will be under no obligation, to complete any additional analyses that might subsequently be required following
the receipt of additional information.
KPMG’s conclusions
are rendered, as best as reasonably possible, on the basis of securities markets, economic, financial and general business conditions
prevailing as at Valuation Date and the condition and prospects, financial and otherwise, of BAM ULC and/or BAM LTD as they were reflected
in the Information and as they have been represented to KPMG through discussions.
In its analyses
and in preparing the Formal Valuation and Fairness Opinion, KPMG made various assumptions with respect to industry performance, general
business and economic conditions and other matters, which it considered to be reasonable and appropriate in the circumstances, many of
which are beyond the control of KPMG and BAM LTD.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
No opinion, counsel,
or interpretation is intended in matters that require legal or appropriate professional advice. It is assumed that such opinions, counsel
or interpretations have been or will be obtained from the appropriate professional sources.
KPMG believes that
the Formal Valuation and Fairness Opinion should be considered as a whole and that selecting portions of KPMG’s analysis could
create a misleading view of the methodologies and approaches underlying KPMG’s conclusions. The preparation of a Formal Valuation
and a Fairness Opinion is a complex process and not necessarily susceptible to a partial analysis or summary description. Any attempt
to do so could lead to undue emphasis on any particular factor or analysis.
Following the receipt
of all required approvals, including Shareholder and court approval, and the satisfaction or waiver of the other conditions contained
in the Arrangement Agreement, the Arrangement is expected to result in BAM LTD owning, directly and indirectly, approximately 100% of
BAM ULC by way of an exchange of shares between BN (and certain of its subsidiaries) and BAM LTD on a tax-deferred basis, as detailed
below.
As at the Valuation
Date, BN and its subsidiaries own or exercise control or direction over approximately 1,194.0 million BAM ULC Common Shares, representing
approximately 73.0% of the issued and outstanding shares. BAM LTD currently owns approximately 436.5 million BAM ULC Common Shares, representing
approximately 26.7% of the issued and outstanding shares. The remaining BAM ULC Common Shares, representing about 0.3%, are held in BAM
ULC Escrowed Stock Plan companies (“ESP Co’s”).
BAM LTD has approximately
421.0 million Class A Shares issued and outstanding to public shareholders, as at the Valuation Date. Furthermore, BAM LTD has 21,280
Class B common shares (the “BAM LTD Class B Shares”) issued and outstanding, which are held in a trust, the beneficial
and voting interests of which are held by current and former senior executives and directors of Brookfield (“BAM Partners Trust”).
As part of the
Arrangement, BN and its subsidiaries intend to exchange approximately 1,194.0 million BAM ULC Common Shares (representing their collective
73.0% interest in BAM ULC) for an equal number of newly-issued BAM LTD Class A Shares.
After giving effect
to the Arrangement, BAM LTD is expected to own, directly and indirectly, approximately 100% of BAM ULC. BN and its subsidiaries are expected
to own or exercise control or direction over approximately 1,194.0 million BAM LTD Class A Shares, representing approximately 73.2%
of BAM LTD’s issued and outstanding shares. The ownership interest of the current holders of BAM LTD Class A Share after the
Arrangement is expected to represent approximately 26.6% of BAM LTD’s issued and outstanding shares.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
The below illustrates
the simplified organizational structure before and after giving effect to the Arrangement:
Key Terms of
Share Classes
We understand that
the BAM LTD Class A Shares and BAM LTD Class B Shares have the following attributes:
| § | The
share conditions for the BAM LTD Class A Shares and BAM LTD Class B Shares provide
that, subject to applicable law and in addition to any other required shareholder approvals,
all matters to be approved by shareholders (other than the election of directors) must be
approved by a majority, or in the case of matters that require approval by special resolution,
at least two-thirds, of the votes cast by the holders of BAM LTD Class A Shares and
by the holders of BAM LTD Class B Shares who vote in respect of the resolution, each
voting as a separate class. Holders of BAM LTD Class A Shares are entitled, as a class,
to elect one-half of the Board and holders of BAM LTD Class B Shares are entitled, as
a class, to elect the other one-half of the Board. |
| § | The
holders of Class A Shares and Class B Shares rank on a parity with each other with
respect to the payment of dividends (if, as and when declared by the Board) and the return
of capital on the liquidation, dissolution or winding up of BAM LTD or any other distribution
of the assets of the BAM LTD among its shareholders for the purpose of winding up its affairs. |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
BAM ULC
Overview
BAM ULC is a leading
global alternative asset manager with a proven track record of delivering strong risk-adjusted returns to its clients across market cycles
by investing in high-quality assets over a long-term horizon. As at the Valuation Date, BAM ULC manages approximately $1 trillion in
assets under management (“AUM”) across sectors such as renewable power & transition, infrastructure, private equity,
real estate, and credit. BAM ULC’s earning profile is primarily comprised of management and other fees that are generated on fee-bearing
capital (“FBC”) managed on behalf of its underlying funds and entities it manages, and carried interest which is a performance-based
fee generated when BAM ULC outperforms a stipulated hurdle rate of return for its underlying funds.
BAM ULC was established
in June 2022, with the intention of BN to spin out its asset management business which was completed in December 2022 (the
“ULC Spin Off”). The strategic rationale for the ULC Spin Off was primarily to enable public investor access to a pure-play
alternative asset management company that is asset light, with strong cash generation and a simple business model .
As part of the
ULC Spin Off, BN retained ownership of carried interest generated by funds that were significantly deployed around the time of the ULC
Spin Off (“Mature Funds”) while carried interest to be generated by funds deployed thereafter (“New Funds”) is
allocated to BAM ULC and BN at 66.67% and 33.33%, respectively. Given the recency of BAM ULC’s establishment, it has limited accrued
carried interest, which reflects the nature of the momentum being created with its new funds and limits the portion of performance-based
fees expected in BAM ULC’s near-term earnings. It is expected that within three to four years, BAM ULC’s realized carried
interest will increase commensurate with fundraising activity for new funds and their underlying fund performance over that period.
BAM ULC’s
strategic advantage stems from having stable and predictable funding sources that act as levers for it to scale its platform when opportunities
arise. Approximately 87% of BAM ULC’s FBC is backed by perpetual and long-term capital, with a portion placed in closed-end funds
with durations of ten to twelve years. Furthermore, BAM ULC manages a sizable amount of capital on behalf of Brookfield publicly-listed
affiliates, which provides stability with low redemption risk.
Fundraising
Channels
BAM ULC has more
than 2,300 clients globally which invest their capital through BAM ULC’s various investment strategies. BAM ULC’s fundraising
channels can be categorized as follows:
| 1) | Institutional
– BAM ULC benefits from having large and diverse institutional fundraising capabilities,
evidenced by its general partner (“GP”) relationships with thirty-nine of the
top fifty largest institutional alternative asset allocators in the world which accounts
for approximately 35% of BAM ULC’s annual fundraising over the past five years. BAM
ULC’s institutional client base is comprised of sovereign wealth funds, pension plans,
endowments, foundations, financial institutions, and family offices. |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
| 2) | Public
markets – BAM ULC manages permanent capital for its public affiliates (BN, Brookfield
Business Partners L.P. (“BBU”), Brookfield Infrastructure Partners L.P. (“BIP”),
and Brookfield Renewables Partners L.P. (“BEP”). This unique structure allows
BAM ULC to treat the public market as a perpetual capital limited partner (“LP”)
while offering investors access to daily liquidity. |
| 3) | Insurance
– Insurance companies require long-term capital management solutions that generate
required returns on premiums collected and align with the long-duration liabilities inherent
in insurance policies. Due to the regulatory nature of the industry, insurance companies
require bespoke solutions tailored to their specific needs. BAM ULC is well-positioned to
capitalize on this channel given its relationships in the market and experience with Brookfield
Wealth Solutions. As at the Valuation Date, BAM ULC manages approximately $88 billion of
capital on behalf of Brookfield Wealth Solutions. |
| 4) | Private
wealth – This channel encompasses BAM ULC’s relationships with various wealth
management platforms and financial advisors who invest on behalf of high-net-worth individuals.
This fundraising channel has been significantly expanded since Brookfield’s 2021 acquisition
of an interest in Oaktree Capital Management and is viewed as one of BAM ULC’s high
growth fundraising channels in the near to medium term. |
Product Offering
BAM ULC offers
a diverse range of products with more than 50 unique active alternative investment strategies. Historically, its product range widened
and evolved based on its clients’ needs, and BAM ULC engages in evaluating new investment strategies on a continuous basis. The
existing product portfolio broadly falls into one of three categories, (i) long-term private funds, (ii) permanent capital
vehicles and perpetual strategies, and (iii) liquid strategies. As at June 30, 2024, approximately 87% of BAM ULC’s FBC
was long-term in nature, creating a stable and predictable earnings base.
Principal Strategies
BAM ULC’s
products invest across five principal strategies:
| 1) | Credit
and Other ($305 billion AUM / $238 billion FBC) – Provides exposure to credit solutions
such as infrastructure debt, real estate debt, asset-based finance, structured solutions,
opportunities debt, and other credit products. BAM ULC operates one of the most comprehensive
alternative credit platforms globally, which includes a partnership approach represented
by its 73% interest in Oaktree Capital Management, L.P (“Oaktree”), one of the
premier credit franchises globally with a focus on an opportunistic, value-driven and risk-mitigated
investment approaches. In recent years, BAM ULC has also made strategic entries into areas
such as music royalties, asset-based lending, and other niche areas through accretive acquisitions
(Primary Wave, LCM Partners, Castlelake L.P. etc.) to further broaden its product offering. |
| 2) | Real
Estate ($268 billion AUM / $93 billion FBC) – Provides exposure to a diversified real
estate portfolio across property sectors. Asset types comprise amongst others housing, hospitality,
offices, retail, logistics, and storage. BAM ULC is one of the largest real estate investors
with a diversified portfolio in well-established markets. |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
| 3) | Infrastructure
($191 billion AUM / $91 billion FBC) – Provides exposure to infrastructure investments
that generate stable, inflation-protected cash flows. Underlying asset types include transportation,
utilities, data centers and midstream, amongst others. Brookfield is widely regarded as one
of the largest and most diversified owner-operators of infrastructure assets globally. |
| 4) | Renewable
Power and Transition ($100 billion AUM / $52 billion FBC) – Provides exposure to renewable
energy and energy transition assets. BAM ULC is one of the largest global transition platforms
and has a leadership position in the market with regards to renewable power and transition
assets, with 40 years of track record. As at the Valuation Date, BAM ULC owns 34 gigawatts
(“GW”) of operational renewable capacity and has a development pipeline of 200
GW in key sectors such as hydro, solar, wind, and distributed generation and storage. |
| 5) | Private
Equity ($131 billion AUM / $40 billion FBC) – Provides exposure to high-quality businesses
that offer essential products and services, making them more resilient throughout market
cycles. Asset types comprise amongst others financial infrastructure, industrials, infrastructure
services, business services, technology services, and healthcare services. BAM ULC has over
20 years of track record pertaining to private equity investments, with a best-in-class global
platform. |
BAM LTD
BAM LTD was incorporated
on July 4, 2022 as part of the ULC Spin Off to form a separate publicly-listed entity that allows public market investors to directly
access a pure-play, leading alternative asset management business.
BAM LTD Class A
Shares are dual-listed on the New York Stock Exchange (“NYSE”) and the Toronto Stock Exchange (“TSX”) under the
symbol “BAM” and has a market capitalization of $20.5 billion as at September 30, 2024, based on a closing share price
of $47.29 and approximately 433.0 million total diluted shares outstanding (as discussed subsequently in this Valuation which reflects
the share settlement of outstanding option liabilities at BAM LTD).
BAM LTD is primarily
a holding company, with its primary asset being its investment in BAM ULC (approximately 27% interest). Given the underlying earnings
profile of BAM ULC, BAM LTD targets to pay out approximately 90% of its distributable earnings to shareholders quarterly and reinvest
the balance back into the business. In addition to BAM LTD’s interest in BAM ULC, its operations and financial position comprise
of various other related party transactions and balances, such as:
| § | Under
a perpetual agreement (the “Asset Management Services Agreement”), BAM LTD provides
services to support BAM ULC on a cost-recovery basis, such as investment management, fundraising,
investor relations, and other related activities. BAM LTD also incurs additional marginal
costs that are not recovered from BAM ULC, which are necessary to support its operations; |
| § | BAM
LTD holds a nominal investment in the Class A Preferred Shares in a subsidiary of BAM
ULC, specifically Brookfield US Holdings Inc. ("BUSHI"), which are redeemable at
the option of the holder and the issuer plus accrued and unpaid dividends, and are non-voting;
and, |
| § | BAM
LTD holds options to acquire additional BAM ULC shares, which are meant to track and mirror
certain awards issued to employees of BAM ULC such that the options can be exercised concurrently
and at the same exercise price as the underlying awards in BAM ULC. Other equity option programs
exist within BAM LTD to similarly mirror the dilution impact of options issued at the BAM
ULC level, with the exception of a tranche of equity options in which BAM LTD is solely obligated
to settle. |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
BAM ULC, through
its various asset strategies and funds, deploys capital globally, with approximately 60% of its AUM concentrated in North America, and
the remainder throughout the rest of the world. As a result, macroeconomic factors that impact the global economy, with a specific focus
on the U.S., will have an impact on BAM ULC’s operations. Specifically, we note fundraising and capital deployment, are specifically
susceptible to macroeconomic factors such as policy interest rates, inflation, and the growth in Gross Domestic Product (“GDP”).
Policy interest
rates impact asset managers as they dictate cost of funding and determine liquidity in the market, as well as an ability to deploy capital
through various market cycles. Further, asset valuations are correlated to policy interest rates which influences an asset manager’s
portfolio performance.
High inflation
diminishes the purchasing power of currency, prompting a reevaluation of asset allocation strategies as investors seek to hedge against
rising costs. This trend has been particularly evident in recent years, where policymakers have adjusted interest rates to mitigate inflationary
pressures. Further, a period of high inflation could result in a sector rotation, as investors shift from growth investments to assets
that are hedged against inflation such as infrastructure assets.
A growing GDP typically
indicates a healthy economy which boosts investor confidence, increasing inflows to asset managers as investors seek to capitalize on
growth opportunities. Further, economic forecasts are commonly used to determine the asset allocation of pension funds and endowments,
where an optimistic economic outlook could increase the allocation towards equities and alternative investments.
The following section
provides specific commentary on the above-mentioned macroeconomic indicators based on information obtained from the Economic Intelligence
Unit (the “EIU”).
Historical Macroeconomic
Trends in the U.S.
Given the volatility
in macroeconomic factors in recent years, it is important to understand the trends in key variables, and how these are expected to change
on a go forward basis due to shifts in economic conditions.
The following graph
illustrates the alignment of the historical and projected movements of the U.S. policy interest rate and real GDP growth from 2018 to
2023, and the forecast for the remaining full year 2024 to 2028.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
Source: Economist Intelligence Unit
The historical
period covering 2018 to the Valuation Date reflected significant economic shifts in the US economy, which was impacted by market volatility,
extraordinary events and central bank policy responses. We highlight that the U.S. policy interest rate and real GDP growth moved in
response to global events such as the COVID-19 pandemic (the “Pandemic”), the subsequent recovery and increased deal activity,
along with efforts to efforts to manage inflation through interest rate policies. We detail each major cycle below:
| § | After
a period of monetary policy tightening aimed at controlling economic growth and inflation,
the policy interest rate trended at 1.63% in 2019. Real GDP growth had reached 2.5% by 2019,
which was reflective of record unemployment, continuous consumer spending and growing business
investment. |
| § | The
emergence of the Pandemic in 2020 led to rippling effects across the U.S. and global economy.
Real GDP contracted by 2.2% due to widespread lockdowns and government mandated protocols,
leading to a significant disruption in commercial activity and supply chains. In response,
the policy interest rate sharply decreased to 0.13% as part of drastic measures enacted to
stimulate economic activity. |
| § | Policy
interest rates remained at 0.13% in 2021 as part of further monetary easing. The ensuing
low cost of borrowing, combined with government stimulus programs and pent-up consumer demands
fueled a significant recovery in the economy, boosting real GDP growth to 5.8%. The low interest
rate environment also stimulated a sharp increase in capital markets and deal activity, as
businesses and corporations took advantage of favorable financing conditions. |
Brookfield Asset Management Ltd.
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October 31, 2024
| § | As
the U.S. and global economy entered into the later stages of the recovery from the Pandemic
in 2022 to 2023, supply chain bottlenecks, rising commodity prices and labour shortages created
significant concerns over rapid inflation (which for the most part materialized). To counteract
these inflationary pressures, more restrictive monetary policy was enacted, raising the policy
interest rate to 4.38% in 2022 and further to.5.38% in 2023. The higher cost of borrowing
slightly tempered business investment and consumer spending, as real GDP growth declined
to 1.9% in 2022, before increasing to 2.5% as certain sectors (such as technology and leisure
and entertainment etc.) sustained moderate to high growth. |
| § | Starting
in 2024 and beyond, the U.S. economy is expected to stabilize as inflationary pressures ease
and monetary policy normalizes. Refer to the following sections where policy interest rates
and real GDP growth expectations are discussed in more detail. Similarly, evolving geopolitical
tensions are discussed below in more detail which could pose challenges to the economic outlook
over the near-term. |
We note that the
most recent period of elevated interest rates and mounting inflation leading up to the Valuation Date has adversely impacted the alternative
asset management industry, due to increased borrowing costs, lower investor appetite for alternative assets and lower market liquidity
in general. These trends and their specific impact to the sector are examined in greater detail in the subsequent sections below and
in Section 10 – Industry Overview.
Interest Rates
and Other Monetary Measures
In 2024, North
American economies continued to experience a decrease in inflation from the heights observed in 2022, in large part, due to monetary
policy actions of the Federal Reserve (the "Fed") and other central banks where interest rates were raised in recent years
to curb inflation.
The percentage
change in the Consumer Price Index (“CPI”) for North America year-over-year is forecasted to decrease from 4.1% in 2023 to
2.9% in 2024. In the second half of 2024, the focus of the Fed shifted towards preventing further labour market deterioration as progress
in reducing inflation showed signs of stabilization. Consequently, the Fed lowered the target range for the federal funds rate by 50
bps on September 18, 2024, to a range of 4.75% to 5.00%. For the remainder of 2024, the EIU expects up to two more rate cuts of
25 bps, in November and December, respectively. Looking ahead, the EIU projects the policy rate in the U.S. to return to a neutral
level, around 3.1%, by the end of 2026. This neutral rate is expected to be higher than past levels, indicating new inherent inflationary
pressures due to demographic changes and modifications to global supply chains.
As summarized in
the table below, other major economies around the world showed similar trends throughout 2023 and 2024, with inflation and interest rates
projected by the EIU to decrease throughout the coming years. For alternative asset managers, these trends are expected to provide tailwinds,
as cost of funding reduces, liquidity broadly increases, and asset valuations may benefit from lower discount rates. This activity is
expected to spur capital flows, which improves conditions for capital raising and deployment, and is a key driver of FRE.
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Geopolitical
Risks
2024 is a year
with significant national elections that have either already taken place, such as in India, the EU, France, and the UK, or will occur
later in the year, such as in the U.S. Upcoming elections result in uncertainty pertaining to future political policy choices and regulations
impacting the outlook for select industries, and consequently oftentimes, delay investor decisions.
The continued conflicts
in Ukraine and the Middle East may cause further disruptions to shipping and supply chain. Maritime shipping routes may be heavily impacted,
with the implications spilling into energy prices and higher commodity prices as supply chains are disrupted. Furthermore, an escalation
of the war may also draw in external powers, potentially increasing tension between the U.S and China and Russia.
For alternative
asset managers, the above geopolitical risks are relevant as they influence investor confidence, increase broad based volatility, and
may reduce liquidity in the market if risks persist for longer periods of time. Further, the realization of returns on private investments
is exposed to risk if operational and financial results of underlying fund investments are negatively impacted by geopolitical events
and shifts in political policies.
Economic Growth
As per the EIU,
the real GDP is expected to grow by 2.3% in North America by the end of 2024, primarily driven by robust job creation and strong household
finances in the first half of 2024. Looking ahead, the EIU forecasts a deceleration of the real GDP growth rate in 2025 to 1.4%, driven
by a tightening labour market and weakening consumer spending.
The outlook on
real GDP is expected to be relatively muted in Europe, with moderate growth of 1.3% projected for 2024, and forecasted growth being approximately
10 to 20 bps lower in the medium-term compared to forecasts for North America. The lower relative growth of the European region is attributed
to lower expectation of exports and investments, despite a return to lower interest rates and inflation. It further reflects the uncertainty
regarding the U.S. trade policy under a potential Trump administration, with countries such as Germany being heavily exposed to U.S.
tariffs.
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The Asia-Pacific
(“APAC”) region, similar to the European region, is exposed to uncertainty around U.S. tariffs under a potential Trump administration.
However, APAC is expected to lead global real GDP growth, driven by China’s stimulus measures announced in September 2024,
aimed at stabilizing asset prices and breaking a deflationary cycle. The stabilization of asset prices is significant as consumer spending
in China is found to be highly linked to personal asset wealth and less to level of wages. India is expected to remain one of the fastest
growing economies within the APAC region, driven by public investments and growth in the services sector. Lastly, the growth outlook
for South-east Asian countries, that are heavily dependent on trade, remains optimistic.
The Middle East
is expected to experience real GDP growth of 3.1% by 2028, however, in 2024 growth is forecasted to be at a relatively lower level of
1.7%, respectively. Medium-term growth is expected to increase as oil output is expected to rise following a gradual easement of oil
capacity constraints in 2025 by Organization of the Petroleum Exporting (“OPEC”) countries. Countries in Europe are expected
to decrease their energy reliance on Russia as the war in Ukraine persists and will look towards the Middle Eastern countries to supplement
their energy needs. Furthermore, private consumption is expected to increase as currencies pegged to the U.S dollar will benefit from
the policy interest rate cuts by the Fed. Nonetheless, geopolitical risks are high within the Middle East and may impact real GDP growth.
Based on the observed
GDP trends, North America and Europe can be expected to remain key markets for alternative asset managers given their relatively higher
stability, economically and geopolitically. Notably, APAC and the Middle East present higher growth potential, albeit with increased
geopolitical risks that might dampen investor confidence, especially in the Middle East.
Alternative
Asset Manager Market Overview
Alternative assets
represent asset classes that are outside of conventional investments such as stocks, bonds, and cash. These investments are less liquid
in nature and require longer investment durations to realized attractive risk-adjusted returns. Moreover, the illiquidity of these assets
typically results in a lower correlation with conventional asset classes and provides diversification opportunities for investors over
a long-term horizon. Some notable alternative investments include private equity, hedge funds, venture capital, private debt, real estate,
infrastructures, etc.
Alternative asset
managers are specialized investment firms that invest in and manage alternative assets on behalf of institutional investors and retail
clients. These managers employ various strategies with the goal of generating outsized returns over the investment period. Once capital
is deployed, the managers typically earn management fees from LPs which serves as a source of recurring and stable cash flows throughout
market cycles. Furthermore, to align the managers’ interests with their LPs and to maximize returns, a performance-based compensation
model is often in place that ties the managers’ earnings directly to the funds’ performance. In the following, we discuss
the specific trends observed around investment returns, fundraising, AUM growth, and capital deployment opportunities.
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Historical Fundraising
and Outlook
From 2018 to 2023,
the global private capital market raised funds in the range of $1.0 trillion to $1.5 billion annually, according to Preqin, a leading
provider and analyst of information specific to the alternative asset management industry. Fundraising is typically impacted by various
factors including but not limited to interest rates, market conditions and volatility, investor sentiment, and geopolitics. Notably,
we observed that interest rates have emerged as a key factor over the past several years.
As illustrated
in the chart below, the pace of fundraising exhibits a lag in response to the interest rate environment. Specifically, global private
capital fundraising decreased by 5.3% in 2020 as economic growth came to a halt due to the COVID-19 pandemic. The sharp reduction in
interest rates in 2020 led to a record-breaking $1.5 trillion raised in 2021. However, the unprecedented rise in interest rates started
in 2022 to combat inflation resulted in volatility and pullbacks in the stock market and caused many LPs to be overexposed to private
markets relative to their target allocation. As a result, annual fundraising observed a 5.2% and 15.8% decline in 2022 and 2023, respectively.
Despite the above
headwinds, the expectation of a steady decline in interest rates to normalized levels over the near-term will likely improve liquidity
conditions and potentially accelerate fundraising activity. Preqin forecasts global private capital fundraising to grow at a compounded
annual growth rate (“CAGR”) of 5.1% from $1.2 trillion in 2023 to $1.5 trillion in 2029.
| |
 |
|
| |
|
|
| |
Source: EIU, Preqin, September 2024 |
|
Brookfield Asset Management Ltd.
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Historical Alternative
Assets AUM Growth and Outlook
As illustrated
in the chart below, global alternative assets’ AUM is estimated to grow from $9.8 trillion in 2018 to $18.2 trillion in 2024, at
a CAGR of 10.9%. Annual growth rates during this period were in the range of 3.2% to 21.8%. The peak growth rate of 21.8% corresponds
to 2021, a year characterized by an unprecedented low interest rate environment and an abundance of liquidity. Conversely, the low growth
rate of 3.2% is associated with 2022, which experienced a rapidly rising interest rate environment coupled with significant market volatility,
consistent with our observations on fundraising volume and interest rate discussed above.
In comparison,
key players in the U.S. alternative asset management industry, comprised of BAM LTD and other comparable companies discussed in the following
section, achieved annual FBC growth rate averaging between 12.6% and 35.8% during the same period. We observed the U.S. alternative asset
managers outpaced global alternative assets AUM growth by a multiple in the range of 1.1x to 6.4x, or an average of 2.6x. Notably, this
trend has intensified in recent years, as evidenced by the increase in the average multiple from 1.7x prior to 2020 to 3.3x post-2020.
This trend aligns with our observations that investors increasingly favor the largest fund managers who have demonstrated strong performance
across various market cycles, as well as the availability of diverse product offerings in asset classes such as buyout, infrastructure,
and private debt.
Looking ahead,
Preqin is projecting global alternative asset AUM will grow at a CAGR of 10.0% from 2024 to 2029. If the aforementioned relationship
continues to hold true, applying the observed growth multiples of approximately 1.5x to 3.0x to the global alternative asset AUM growth
rate would imply a CAGR of 15% to 30% for the large U.S. alternative asset manager over the same period.
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|
| |
|
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Source: Preqin, September 2024 |
|
Brookfield Asset Management Ltd.
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Alternative
Assets Returns and Outlook
Alternative assets
have consistently generated attractive returns in the mid-teens in recent years. In North America, private capital achieved an internal
rate of return (“IRR”) of 13.7% from 2017 to 2023, according to data from Preqin. Over the same period, private capital in
Europe and the APAC regions delivered IRRs of 11.6% and 11.5%, respectively.
The higher returns
of alternative assets as compared to stocks and bonds during a period of market volatility have contributed to their increasing popularity
among LPs and retail investors. Furthermore, various asset classes within private capital (i.e. private equity, private debt, real estate,
infrastructure, venture capital, etc.) demonstrated the ability to generate IRRs in the range of 7.0% to 16.4% over the same historical
period. This wide range of risk-adjusted returns provides LPs with additional flexibility and options for diversification. Given attractive
historical returns, LPs consider private market funds to be an essential asset class in their portfolios to achieve the targeted required
returns. Going forward, Preqin projects an IRR of 12.9% and 12.2% North American and European private capital, respectively, from 2023
to 2029.
In the following
sections, we summarized key trends observed for specific private capital asset classes.
Private Equity
Private equity
is one of the largest asset strategies and is expected to maintain this position in the near future. In recent years, the performance
of private equity investments has been muted due to a challenging macroeconomic environment characterized by high interest rates, cost
inflation, and recession concerns. These factors resulted in a decline in exit multiples and greater emphasis on revenue growth and margin
expansion. Furthermore, asset managers have opted to hold investments for longer rather than exit in a “buyers’ market”
at lower returns, leading to reduced deal activity. However, with anticipated interest rate reductions, private equity deal activity
is expected to increase in 2025. According to Preqin, the private equity sector achieved an IRR of 15.5% from 2017 to 2023 and is forecasted
to generate a slightly lower IRR of 13.4% from 2023 to 2029.
Renewable Power &
Transition
The private market
for renewable power and energy transition assets is benefitting from decarbonization goals set by both governments and corporations.
To achieve these goals, governments and corporates across the globe are expected to make substantial investments in renewable power over
the coming years. In recent years, governments have introduced policies to encourage investments in renewable energy, such as the Inflation
Reduction Act enacted by the U.S. government in 2022 and the European Green Deal initiated by the EU in 2020. Additionally, the demand
for renewable power assets is being driven by electrification trends, which create a high need for low-cost energy solutions, particularly
in sectors like artificial intelligence and data centers.
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Infrastructure
Infrastructure
investments are characterized by stable cash flows that are often contracted and inflation-indexed. Future growth is expected to be driven
by significant capital requirements for maintenance and modernization of legacy infrastructure in the U.S. and in Europe over the medium
to long-term. Concurrently, trends such as deglobalization, decarbonization, and digitization are creating additional investment needs
for greenfield infrastructure developments, such as data centers. Furthermore, the demand for private capital investment in infrastructure
is expected to rise due to the scarcity of government funding. Based on Preqin, the infrastructure sector (inclusive of renewable) achieved
an IRR of 9.2% from 2017 to 2023 and is forecasted to generate an IRR of 10.9% from 2023 to 2029.
Real Estate
The real estate
segment has been impacted by lasting effects of the COVID-19 pandemic resulting in behavioral changes such as lower office attendance,
migration from urban to rural areas, and increased online shopping. Such trends reduced the demand for commercial real estate and are
expected to prevail over the near-term. In addition, and as observed for other asset strategies, the market for real estate assets was
negatively impacted by the high interest rate environment, weighing on valuations and deal activity. This presents opportunities for
sophisticated investors with a long-term perspective to acquire high quality-assets. From 2017 to 2023, the real estate sector generated
an IRR of 7.0% according to Preqin and is projected to recover in the medium term, with an expected IRR of 9.3% from 2023 to 2029.
Private Credit
Private credit
is one of the fastest growing sectors and has outperformed other private market asset strategies in terms of fundraising, AUM growth,
and investment performance in 2023. The growth is primarily driven by a shift from traditional bank lending to nonbank entities, as banks
retreat from leveraged lending due to regulatory pressures and competition. Furthermore, the risk-return profile is relatively more attractive
in the higher interest environment and in times of economic uncertainties whereby investors are attracted by the payment priority of
debt holders over equity holders. Going forward, the asset strategy is expected to see significant growth as GPs are extending their
lending activities into asset-based lending, consumer credit, equipment leasing and other tangible and intangible asset types, which
are currently still mostly financed by banks. According to Preqin, the private credit sector achieved an IRR of 8.1% from 2017 to 2023
and is forecasted to generate a higher IRR of 12.0% from 2023 to 2029.
Summary of Key
Industry Value Drivers
Considering the
current market conditions and industry dynamics, the primary attributes that allow larger alternative asset managers to capture a greater
share of future industry growth are mainly tied to the following distinguishing factors:
| § | Scale
Positions Favorably: The ability to leverage scale allows alternative asset managers
to effectively engage in future growth, particularly in light of fundraising trends and concentration
of LPs to the largest GPs; |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
| § | Diversification:
A diversified portfolio of fund offerings and strategies enables alternative asset managers
to capitalize on sector momentum while limiting exposure to specific asset classes that may
be sensitive to certain macroeconomic conditions; |
| § | Sector
Leadership: Holding a leadership position in certain asset strategies that are favored
by the market under certain economic conditions, or seen to have significant tailwinds, often
allow for outsized growth relative to peers; and, |
| § | Proven
Track Record: A history of successful capital deployment in acquiring quality assets
and delivering excess returns across various market cycles is essential for establishing
credibility, retaining existing LPs, and attracting future investments. |
BAM
ULC
Financial
Position
A summary
of BAM ULC’s audited financial position as at December 31, 2022 and December 31, 2023, as well as the unaudited financial
position as at June 30, 2024 are presented in the table below.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
Based on our review of BAM ULC’s
financial position, we noted the following:
| § | Non-cash
net working capital was $20 million as at June 30, 2024, and was predominantly comprised
of management fees earned but not collected, accrued bonus compensation, performance and
cash-settled share-based compensation, and various due to and from affiliates related to
cost sharing and related party arrangements. |
| § | Cash
and cash equivalents decreased from $2.7 billion as at December 31, 2023 to $1.9 billion
as at June 30, 2024. The decline was primarily driven by the acquisition of the incremental
ownership interest in Oaktree, the timing of settlement of annual bonuses, and an add-on
investment in a complementary strategy. The decline was partially offset by the repayment
of a bridge facility made to an affiliate, and the reimbursement of fund expenses; |
| § | Investments
increased from $7.5 billion as at December 31, 2023 to $8.3 billion as at June 30,
2024 and are primarily comprised of BAM ULC’s approximate 15% limited partnership interest
in Brookfield Strategic Real Estate Partners III (“BSREP III”), its approximate
73% equity interest in Oaktree, and various other equity interests in investments and accumulated
unrealized carried interest in BAM ULC’s funds. The increase in book value over the
six-month period was primarily the result of BAM ULC’s acquisition of an incremental
ownership interest in Oaktree of approximately 4.5%, and net unrealized carried interest
earned on funds, partially offset by a decrease in unrealized carried interest on certain
Mature Funds during the period; |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
| § | Preferred
shares redeemable non-controlling interest was $2.2 billion as at June 30, 2024, which
reflects a marginal increase since December 31, 2023. As part of the ULC Spin Off, subsidiaries
of BAM ULC issued preferred tracking shares to BN which are entitled to quarterly dividends
when declared and redeemable at the option of the issuer (whose board is controlled by BN)
and when a redemption triggering event has occurred. As net carried interest generated on
Mature Funds is all attributable to BN, this balance primarily represents the accumulated
unrealized carried interest, net of carried interest allocation expense and taxes on Mature
Funds owing to BN. |
| § | Non-controlling
interest in BAM ULC increased from $173 million as at December 31, 2023 to $244 million
as at June 30, 2024, and reflects the carried interest generated by new funds that is
attributable to BN (33.33%). |
Historical Results
The table below
sets out a summary of BAM ULC’s audited financial results for the twelve-months period ended December 31, 2022 and December 31,
2023, as well as the unaudited financial results for the trailing-twelve-months (“TTM”) period ended June 30, 2024.
We note that the below presents non-GAAP financial measures which BAM ULC utilizes to monitor its operations. A full reconciliation of
the non-GAAP financial measures to the financial results reported according to U.S. GAAP are part of BAM ULC’s publicly-filed financial
statements.
The key non-GAAP
industry standard metric for alternative asset managers is fee-related earnings (previously defined as “FRE”), which reflects
the net management fees generated by an asset manager on its FBC. FRE is a stable stream of cash flows related to asset management activity,
excluding net carried interest. BAM ULC earns fee revenues from base management and advisory fees, net of costs (“Net Management
Fees”), as well as contractual incentive distribution rights (“IDRs”) and performance fees from affiliated entities.
IDRs are distributions earned from BEP and BIP for exceeding predetermined return hurdles. Performance fees are generated when BAM ULC
exceeds predetermined investment returns within BBU and on certain liquid strategy portfolios, and are based on the quarterly volume-weighted
average increase in BBU unit price over the previous threshold. To determine FRE, direct costs associated with earning those fees such
as employee compensation, professional fees, technology costs and other shared services costs are deducted from total fee revenue.
Reported separately
from FRE is net carried interest, which reflects the performance-based returns of an alternative asset manager and is generated when
an asset manager outperforms a hurdle rate of return for the underlying funds that it manages. Carried interest is a high-risk, high-reward
stream of cash flows that is subject to higher degrees of volatility and is generally viewed as riskier than FRE. It is typically paid
toward the harvest period of a fund, when investments are being sold and capital has been returned to investors. It may also be subject
to claw back provisions until all investments have been realized and minimum investment returns are adequately secured.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
Based on our review
of BAM ULC’s financial results, we noted the following:
| § | Total
fee revenues grew by 8.2% from $4.0 billion in 2022 to $4.4 billion in 2023. For the TTM
period as at June 30, 2024, total fee revenues were $4.5 billion. Around 90% of total
fee revenues are earned from base management fees, while IDRs historically reflected approximately
8% to 9% of total fee revenues and the remainder is earned through transaction and advisory
fees; |
| § | Growth
in total fee revenues in 2023 was primarily driven by base management fees (+9.3%) earned
from fundraising for BAM ULC’s latest infrastructure, real estate and private equity
flagship funds and incremental fees earned from capital deployment across BAM ULC’s
opportunistic credit funds. In the first six months of 2024, growth in base management fees
was predominantly attributable to incremental fees from BAM ULC’s credit platform and
Brookfield Wealth Solutions’ acquisition of the remaining outstanding shares of American
Equity Investment Life Holding Company (“AEL”), which resulted in increased FBC
for BAM ULC; |
| § | IDRs
increased in 2023 (+12.8%) as well as the first six months of 2024, driven by an increase
in BEP and BIP’s quarterly dividend over the prior period of 5% and 6%, respectively; |
| § | The
increase in total fee revenues in the first six months of 2024 was partially offset by lower
fees from BAM ULC’s public affiliates that were subject to decreases in average market
capitalizations and therefore reduced long-term perpetual FBC; |
| § | Direct
costs increased due to BAM ULC’s expansion of its asset management business and higher
equity-based compensation, which resulted in a slight compression of FRE margin at share
from 58.0% in 2022 to 56.3% in 2023 and 56.0% for the TTM period as at June 30, 2024; |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
| § | FRE
is closely correlated to underlying FBC. We note that BAM ULC’s FBC increased from
$418 billion as at December 31, 2022, to $457 billion as at December 31, 2023 and
to $514 billion as at June 30, 2024. Growth was primarily driven by credit and other
investment strategies; and, |
| § | As
discussed above, net carried interest allocated to BAM ULC has been nominal historically
as net carried interest generated by Mature Funds is fully attributable to BN. |
Projections
In performing our
Formal Valuation, we have utilized the five-year projections prepared by Management as of September 2024, which reflect Management’s
most recent outlook for BAM ULC that has been communicated to its investors and the general public as part of its 2024 Investor Day Presentation
on September 10, 2024.
We discuss the
key assumptions and drivers inherent in the projections below:
FBC
BAM ULC is projecting
to grow its FBC from $514 billion in 2024 to $1.1 trillion by 2029, at a CAGR of 16%. The key drivers for FBC growth over the projection
period are summarized below:
Fundraising
Source
| § | BAM
ULC benefits from a diverse range of fundraising sources including, institutional investors,
insurance businesses, private wealth businesses, and publicly traded affiliates. These fundraising
channels provide a steady source of capital that underpins BAM ULC’s FBC growth over
the discrete forecast period. |
| § | Institutional
investors remain a key growth area for BAM ULC. Specifically, BAM ULC services thirty-nine
of the top fifty institutional alternative allocators globally and has dedicated client teams
specializing in middle-market institutions, family offices, and third-party insurers. BAM
ULC’s extensive relationship with a diverse range of institutional investors coupled
with product offerings that span across various asset strategies allow the BAM ULC to capture
the increasing demand from limited partners for alternative asset allocations, consistent
with our understanding of the industry trends. |
| § | Brookfield
Wealth Solutions is projected to underwrite $15 billion of new policies on an annual basis
which will provide a secure source of capital to BAM ULC with limited incremental fundraising
efforts required. Furthermore, BAM ULC offers a suite of products, including private credit
vehicles, asset-backed and specialty finance product, designed for third-party insurance
companies to support the growing demand for long-duration, high quality assets that support
policyholder obligations. |
| § | Private
wealth represents a relatively new fundraising channel that has been gaining momentum given
the increased retail demand for alternative asset exposure. Going forward, Management expects
the introduction of tailored products for the private wealth channel will continue to drive
significant growth. |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
| § | A
substantial portion of BAM ULC’s fundraising is supported by its publicly listed affiliates.
These affiliates act as perpetual capital vehicles to BAM ULC and provide stable and long-term
funding source with limited redemption risks. |
| § | As
discussed in the Industry Overview, the global alternative asset AUM is projected to grow
at a CAGR of 10.0% from 2024 to 2029. Specifically, market leader in the industry historically
achieved growth at a multiple of 1.5x to 3.0x to the global industry, with recent trends
towards the higher end of the multiple. As such, it appears that BAM ULC’s projected
FBC growth at a CAGR of 16% is in line with broader market expectations. |
| § | We
note however, that while fundraising has been fairly robust, there remains a risk, particularly
if alternative assets fall out of favor due to macroeconomic shifts. Any decline or shift
in demand for alternative assets could adversely impact the growth trajectory of FBC over
the projection period and into perpetuity. |
Asset Strategy
FBC
| § | Credit
FBC is forecasted to grow from $238 billion in 2024 to $590 billion in 2029, or at a CAGR
of 20%, which represents the highest growth rate amongst BAM ULC’s five asset strategies.
Generally, private credit is expected to be one of the fastest growing alternative asset
strategies, driven by an expansion of private lending activities into areas that were historically
predominantly served by banks, and opportunities in structured financing, infrastructure
debt, and real estate debt markets. BAM ULC’s partnership model with Oaktree provides
the scale and capability to deploy large amounts of private credit capital. |
| § | Real
estate FBC is forecasted to grow from $93 billion in 2024 to approximately $140 billion by
2029, or at a CAGR of 9%, which represents the lowest growth rate amongst BAM ULC’s
five asset strategies. As the market for real estate assets experienced softness in recent
years, BAM will be able to acquire high-quality assets at attractive valuations, particularly
in multifamily housing and office-to-residential conversions, by leveraging its industry
knowledge and know-how. |
| § | Infrastructure
FBC is forecasted to grow from $91 billion in 2024 to $160 billion by 2029, or at a CAGR
of 12%. The growth projected for BAM ULC is supported by general market trends for the asset
strategy, such as significant private capital requirements for legacy infrastructure in the
U.S. and in Europe, as well as for new infrastructure developments globally. BAM ULC owns
a leadership position in the market for infrastructure investments, and manages a wide range
of high-quality assets in key infrastructure sectors that generate stable and inflation-protected
cash flows over the long term. Known for its flagship infrastructure fund, BIF, BAM ULC is
perceived to be a sophisticated partner for infrastructure projects and therefore well positioned
to further grow its infrastructure FBC. |
| § | Renewable
FBC is forecasted to grow from $52 billion in 2024 to approximately $110 billion by 2029,
or at a CAGR of 16%. The growth is primarily driven by global trends such as decarbonization
and energy transition initiatives, electrification and digitization trends, as well as increased
demand for low-cost energy solutions. Specifically, corporate off-takers are expected to
lead the demand for decarbonization solutions, in which BAM ULC is well-positioned to capitalized
on the trend given its demonstrated ability to effectively execute large-scale development
projects. We highlight that BAM ULC recently announced its first closing of $10 billion for
Brookfield Global Transition Fund II (“BGTF II”) in February 2024, further
illustrating investors demand for the asset class. |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
| § | Private
equity FBC is forecasted to increase from $40 billion to approximately $90 billion, or at
a CAGR of 16%. Overall, growth in private equity is expected to be driven by an expected
recovery in transaction activity in light of a lower and more favorable interest rate environment.
BAM ULC is expecting to attract a continuous inflow of capital from investors to this asset
strategy, as it positions itself as a best-in-class global platform known for investments
in high-quality businesses that provide essential products and services that are resilient
through market cycle. Within its flagship funds, BAM ULC was able to generate oversized returns
historically (27% gross IRR over 25 years). |
| § | While
BAM ULC’s projected growth trajectory is supported for each asset strategy by expected
market trends, we note that unexpected changes in the macroeconomic and industry environment
could put the achievability of the projections at risk. Further, regulatory delays could
dampen the quantum of renewable investments, policy changes may impact the requirement for
private capital for infrastructure projects, and, while a lower interest rate environment
is viewed to be beneficial for the majority of asset strategies, the attractiveness of private
credit solutions might be somewhat reduced. |
Overall, we note
that the growth pattern projected for FBC is generally aligned with industry expectations as previously discussed. Further, we note that
the projected FBC growth from 2024 to 2029 is relatively aligned with historical FBC growth rates observed for BAM ULC. Specifically,
the projected CAGR of 16% compares to a realized CAGR of 17% for the period from 2020 to 2024, despite the discussed industry headwinds
during that period of time.
FRE
BAM ULC is forecasting
stable FRE growth over the projection period, increasing from $2.3 billion in 2024 to $5.0 billion by 2029, at a CAGR of 17%. FRE growth
is primarily driven by the projected increase in FBC as discussed previously. Notably, the CAGR for FRE from 2024 to 2029 at 17% is slightly
higher than the CAGR for FBC at 16%, over the same period. The above trend is underpinned by BAM ULC’s expectation to expand its
FRE margin from 56% in 2024 to 60% by 2029 through economies of scale. Particularly, BAM ULC aims to optimize its operating leverage
while growing its management fee stream through fundraising and capital deployment.
Net Carried Interest
BAM ULC is expected
to experience significant growth in its net carried interest realized over the projection period, increasing from $10 million in 2024
to $850 billion by 2029, at a CAGR of over 140%. We found the high growth trajectory is reflective of the current structure of BAM ULC,
where the business is only allocated 66.67% of net carried interest on New Funds, such that the existing carry position at the Valuation
Date is relatively nominal and the realization of the carry needs time to be established.
We understand the
key assumptions in Management’s projections for net carried interest over the projection period relate to i) the size; ii) the
return profile and asset appreciation rate, based on predetermined target hurdle rates; and iii) the life or exit timeline of the underlying
carry eligible funds, grouped by type of strategy. These underlying key assumptions are used as the framework to model the ensuing capital
that is deployed, and the net returns that are generated, realized and repatriated to investors or retained by BAM ULC as part of the
waterfall mechanics of the distribution structure.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
The growth outlook
for net realized carry is supported by BAM ULC’s ability to draw into a continuous stream of fundraising activities, increased
liquidity due to expected interest rate cuts and rising capital allocations to alternative assets and the largest alterative asset managers.
A critical driver for BAM ULC's future carried interest is the ability to successfully execute on the monetization of investments from
its New Funds. As more of these funds enter their distribution phases, BAM ULC will begin to realize carried interest on profitable exits.
However, despite the favorable base plan, future carry remains subject to broader market conditions and asset-specific performance, with
potential risks if macroeconomic trends shift unexpectedly. Given that BAM ULC is only entitled to net carried interest on New Funds,
there may be additional time value risk as New Funds may require a longer time period to exit.
BAM LTD
Financial Position
A summary of BAM
LTD’s audited financial position as at December 31, 2022 and December 31, 2023, as well as the unaudited financial position
as at June 30, 2024 are presented in the table below.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
Based on our review
of BAM LTD’s financial position, we noted the following:
| § | BAM
LTD is primarily a holding entity with its most significant asset being its investment in
BAM ULC of $3.3 billion as at June 30, 2024, which also includes a $46 million investment
in the Class A Preferred Shares of BUSHI; |
| § | The
remaining assets of $855 million as at June 30, 2024 include cash and cash equivalents,
due from affiliates and other assets. Due from affiliates are predominantly receivables related
to share and cash-based compensation. Other assets include options to acquire shares of BAM
ULC; and |
| § | Total
liabilities of $925 million as at June 30, 2024 consist of accounts payable and other,
and due to affiliates. |
Historical Results
The table below
sets out a summary of BAM LTD’s audited financial results for the stub period from July 4, 2022 to December 31, 2022
and the twelve-months period ended December 31, 2023, as well as the unaudited financial results for the TTM period ended June 30,
2024.
Based on our review of BAM LTD’s
financial results, we noted the following:
| § | BAM
LTD is primarily a holding entity with no significant operations other than its share of
earnings from its investment in BAM ULC. In the stub period 2022 BAM LTD earned a share of
income from BAM ULC of $21 million, which increased to $470 million in 2023. For the first
six months of 2024, the share of income from BAM ULC was $240 million; and, |
| § | BAM
LTD incurs compensation and benefits costs, primarily attributable to executive compensation
costs of BAM LTD, and unrealized carried interest compensation expense. A material portion
of these costs are reimbursed by BN and BAM ULC through operating recoveries in accordance
with the Relationship Agreement and the Asset Management Service Agreement. In the stub period
2022, BAM LTD earned net income of $19 million, which increased to $451 million in 2023.
For the first six months of 2024, net income was $226 million. |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
Definition of
Value
For the purpose
of the Formal Valuation, fair market value (“FMV”) is defined as the monetary consideration that, in an open and unrestricted
market, a prudent and informed buyer would pay to a prudent and informed seller, each acting at arm's length with the other and under
no compulsion to act.
Consistent with
MI 61-101, in determining the FMV of the Exchanged Shares, KPMG has not included a downward adjustment to reflect the lack of the liquidity
of the Exchanged Shares, the effect of the Arrangement on the Exchanged Shares, or the fact that the Exchanged Shares do not form part
of a controlling interest.
Valuation Approach
and Methodology
The Formal Valuation
is based upon methodologies and assumptions that KPMG considered appropriate in the circumstances for the purposes of arriving at an
opinion as to the range of FMV of the Exchanged Shares. Based on our understanding of the ongoing nature of BAM ULC and BAM LTD’s
operations we have concluded that BAM ULC and BAM LTD should be valued using a going concern assumption.
Overview of
Approaches
There are several
generally accepted techniques used in determining the going concern value of a business. Such techniques include, amongst others, discounted
cash flow (“DCF”) approaches, market approaches, and asset approaches.
Under the DCF approach,
FMV is assessed based on the present value of expected cash flow. Specifically, the after-tax free cash flow that a business is expected
to generate is projected over a specific projection period. The projected free cash flow, together with the continuing value of the business
at the end of the projection period, are discounted using a discount rate, which appropriately accounts for the nature of and the riskiness
of realizing the projected cash flows.
Under the market
approach, relevant valuation ratios/multiples are derived from transactional pricing information and underlying financial data of the
comparable companies selected and precedent transactions identified. The calculated ratios, after appropriate adjustment, are applied
to the corresponding financial ratio of the subject company to determine FMV. The value measure, or valuation ratio, is determined by
dividing the price of the comparable company/precedent transaction shares by a financial variable (such as earnings, cash flow, earnings
before interest, taxes, depreciation and amortization (“EBITDA”) or revenue), as determined from the financial data of the
comparable company/transaction.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
Under the adjusted
net asset (“ANA”) approach, a FMV analysis is performed for a company’s identified fixed, financial and other assets.
The estimated FMV of all the existing and potential liabilities is then subtracted from the aggregate value of the assets to arrive at
the FMV of the net assets of the business.
For the purpose
of our Valuation, we have prepared the analysis using inputs that are financial in nature, or market-based at dates preceding the Valuation
Date. Specifically, market-based inputs were assessed around September 30, 2024, and financial information for BAM ULC and BAM LTD
is based on June 30, 2024 financial statements, unless otherwise noted herein.
Selected Approaches
(BAM ULC)
We considered the
fact that alternative asset managers generate various fee streams with varying degrees of risk, and in some cases hold investment assets
that generate investment income. As such, the valuation of an alternative asset manager is comprised of several components of value.
As a result, we have applied a sum-of-the-parts (“SOTP”) approach in the valuation of BAM ULC which allows for the separate
assessment of each component of value based on the nature and risk profile of the underlying fee stream and/or asset base.
We considered the
following three components to the SOTP value of BAM ULC:
| 1) | FRE
– As discussed previously, BAM ULC earns FRE from Net Management Fees, contractual
IDRs and performance fees from affiliated entities. Within FRE, we further considered the
value associated with its underlying components: |
| a. | Net
Management Fees; and, |
| b. | IDRs
and Performance Fees. |
| 2) | Net
Carried Interest – Net Carried Interest reflects the ability of BAM ULC to harvest
carry positions generated in future periods based on its target/projected carry realizations.
Given the significant difference in the underlying risk profile and timing of Net Carried
Interest realizations, the FMV of this component was determined separately from the other
more stable fee streams, i.e., FRE. |
| 3) | Other
Balance Sheet and Net Asset Value (“NAV”) Adjustments –
BAM ULC is asset light, which means it holds limited investments directly in underlying funds,
however it does hold other balance sheet positions that are non-core to operations and are
incremental to its asset management operations. Examples of NAV adjustments include excess
cash, debt, and non-fee generating assets. This component of value is added to the FMV of
FRE and Net Carried Interest based on BAM ULC’s underlying balance sheet position,
assessed at FMV. |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
In determining
the FMV of BAM ULC as at the Valuation Date, we considered the following valuation approaches by component of value:
| § | FRE
- Net Management Fees |
| o | We
considered the Market approach in determining the FMV of Net Management Fees. We highlight
that FRE multiples are commonly used in the valuation of companies operating within the alternative
asset management sector, as this metric is often referenced in the valuation of public comparable
companies, precedent transactions, and typically form the basis of analyst expectations when
setting price targets of such companies. As such, we considered these market-based indicators
of value when selecting an FRE multiple for the valuation of BAM ULC. |
| o | We
also considered a DCF approach given the forecasted growth profile and the availability of
detailed financial projections of the Net Management Fees. |
| § | FRE
- IDRs and Performance Fees |
| o | We
considered a DCF approach given the forecasted growth profile and the availability of detailed
financial projections of the IDR and Performance Fees. Furthermore, given the unique partnership
structure and profit-sharing arrangements, there are limited comparable market metrics available
that would result in a meaningful comparison in the context of the Market Approach. Given
the differences in the underlying nature and risk/return profile of the various fee streams,
we have performed a separate DCF analysis to capture the unique growth and risk profile of
IDRs and Performance Fees. |
| o | We
considered a DCF approach given the availability of detailed projections as provided by Management,
and in consideration that earnings from realized Net Carried Interest is volatile and carries
increased risk. Furthermore, there is significant growth within the inherent projections
of Net Carried Interest due to limited realizations in the near-term resulting from the structure
of the ULC Spin Off which limits BAM ULC’s carried interest eligibility to 66.67% of
carry from New Funds created post-ULC Spin Off. |
| § | Balance
Sheet NAV Adjustments |
| o | We
considered the balance sheet for other assets and liabilities that were otherwise not required
for the core asset management operations, or were excluded from the value of FRE and Net
Carried Interest. This component of value captures any cash, debt, debt-like items, and other
assets / liabilities at FMV. |
The sum of the
FMV of FRE and Net Carried Interest represents the overall Asset Manager Enterprise Value (“EV”) of BAM ULC.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
To
arrive at the en bloc common equity FMV of BAM ULC, we adjusted the Asset Manager EV for the FMV
of the Balance Sheet NAV Adjustments, as at the Valuation Date.
Selected Approach
(BAM LTD)
BAM LTD is primarily
a holding company whose underlying value is largely represented by its investment in BAM ULC, in addition to other less significant balance
sheet components. As such, we considered the ANA approach in valuing the BAM LTD Class A Shares, as at the Valuation Date.
BAM ULC - SOTP
Valuation Approach
FMV of Net Management
Fees – Market Approach
We employed a Market
Approach as one of the methods to determine the FMV of the Net Management Fees, as at the Valuation Date. While we considered both the
fiscal 2024 (“2024E”) FRE multiples and the fiscal 2025 (“2025E”) FRE multiples, we ultimately utilized the 2024E
FRE multiples as the primary approach given the stability of the 2024E metric rooted in-part by actual performance, and visibility to
near term FRE growth for the comparable companies.
Specifically, we
selected a range of 2024E FRE multiples based on our analysis and review of implied FRE multiples for comparable public companies around
the Valuation Date, and further identified implied FRE multiples from precedent transactions. We then applied the selected 2024E FRE
multiples to the 2024E FRE metric of BAM ULC as at the Valuation Date to arrive at the FMV of the Net Management Fees under the Market
Approach.
Selected FRE
Metric
The selected 2024E
FRE metric is based on analyst consensus estimates of BAM ULC’s 2024E FRE around the Valuation Date. We observed significant analyst
coverage of the key comparable public company peers in the alternative asset management industry, which includes BAM ULC by virtue of
analyst coverage of the publicly traded share price of BAM LTD.
We view the analyst
consensus estimate approach to estimating the 2024E FRE to be more meaningful than the financial forecast as prepared by Management given
analyst consensus is based on publicly available information and reflects market FRE growth expectations in the short to medium term.
As a result, this approach increases comparability between public expectations of FRE growth and the implications on valuation between
key comparable public company peers.
The benefit of
this increased comparability is that our selection of FRE multiples is predicated on analyses of comparable companies’ implied
metrics and ratios around the Valuation Date that can be consistently applied to BAM ULC, along with other market data such as transaction
multiples which are derived based on publicly available information. As such, we consider the use of analyst FRE estimates for BAM ULC
to be on a consistent basis with our selection of FRE multiples to be discussed below.
In determining
the selected FRE metric, we reviewed coverage from analysts on BAM ULC around the Valuation Date and derived an average FRE metric for
2024E. We then deducted an estimate of IDR and performance fees (given it is a separate component of value) based on Management’s
financial forecast to arrive at an estimated net management fee metric of $2,010 million for 2024E.
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Selected 2024E
FRE Multiples
We selected a (combined)
2024E FRE multiple in the range of 27.6x to 31.6x, or 29.6x at midpoint for BAM ULC.
The selected FRE
multiple range on a combined basis was corroborated by a market multiples build-up approach for each of the five key asset strategies.
On an individual asset strategy basis, we selected 2024E FRE multiples in the range of 21.0x to 40.0x, primarily differentiated by the
underlying FBC and FRE growth trends (i.e. credit FRE benefiting from FBC growth tailwinds, justifying a higher FRE multiple within the
range outlined, and conversely real estate FRE multiples at the lower end of the range impacted by slower growth expectations), adjusted
for considerations such as BAM ULC’s market position, underlying asset quality, industry momentum, and an assessment of the risk
to achieving the projected growth.
Our selected 2024E
FRE multiples were predicated on the following analyses, which include, but are not limited to, comparable public company analysis, regression
analysis, precedent transaction analysis, analyst consensus analysis, and our review of BAM ULC’s operating results and financial
forecast as discussed in further detail below.
Comparable Company
Analysis
We reviewed the
financial and operating data relating to BAM ULC and certain publicly traded companies operating within the alternative asset management
industry and selected a set of comparable companies similar to BAM ULC. Although none of these comparable companies are identical to
BAM ULC, we are of the view that the implied FRE multiples of these companies are relevant and meaningful indicators of value.
As earlier discussed,
BAM ULC is a large, diversified alternative asset manager, which benefits from an asset-light operating structure. Given its limited
carried interest income stream, it is primarily a FRE stream business over the near-term which is generally viewed as less risky by the
broader market and is commensurate with higher FRE multiples all things being equal. Finally, BAM ULC is a leader in certain key asset
strategy verticals that are poised for growth (i.e. credit, infrastructure, and renewables / transition) as expected by industry experts.
As such, we identified
several characteristics that are key drivers of value for the purpose of assessing comparability within the comparable company set, including:
1) scale and diversification of the asset management platform; 2) asset-light operating model; 3) FRE-centric; and, 4) asset strategy
mix.
The selected comparable
public companies (“Comparable Companies”) include the following:
| § | Blackstone
Inc.(“Blackstone”) |
| § | Apollo
Global Management, Inc. (“Apollo”) |
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| § | Ares
Management Corporation (“Ares”) |
| § | The
Carlyle Group Inc. (“Carlyle”) |
Below we have summarized
our analysis.
| § | Blackstone
is highly comparable given its scale (FBC of ~$810 billion), asset-light business model,
and diversified asset mix. Specifically, Blackstone is a large publicly traded alternative
asset manager and is generally regarded as one of the market leaders in the alternative asset
management industry. |
| § | KKR
is moderately comparable given its similar scale (FBC of ~$490 billion) and diversified asset
mix. However, KKR is more asset-heavy and operates an insurance segment in addition to the
core asset management business. As such, the additional noise from the blended operating
model reduces comparability. |
| § | Apollo
is somewhat comparable given its asset-heavy business model, smaller scale (FBC of ~$520
billion), non-core asset management exposure, and a primary focus in public credit. |
| § | Ares
is highly comparable given its asset-light, FRE-centric business model and its market leading
position in the private credit segment. Ares has the highest FBC and FRE growth among the
Comparable Companies, which is somewhat offset by its smaller scale (FBC of ~$280 billion). |
| § | Carlyle
is somewhat comparable given its asset-heavy business model, smaller scale (FBC of ~$310
billion), and its primary focus in private equity and credit. We understand the FRE multiple
reflects a more challenging period of investment returns and lower projected FBC growth relative
to peers. |
| § | TPG
is moderately comparable given its asset-light business model. However, TPG is smaller in
scale (FBC of ~$140 billion), with a focus on private equity. |
In calculating
the 2024E FRE multiples of the Comparable Companies, certain adjustments to the market capitalization of the Comparable Companies were
needed to unwind the impact of non-fee generating investments held on the balance sheet, as well as the estimated value of other business
units within the consolidated operations. Specifically, certain Comparable Companies have insurance businesses operating alongside its
asset management business which combines other material income streams with FRE. As a result, the value associated with the insurance
businesses were removed as an adjustment to market capitalization, to arrive at an estimated implied value of the Asset Manager EV of
the Comparable Companies.
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Furthermore, we
then deducted a notional value of Net Carried Interest to arrive at the implied value of FRE for each of the Comparable Companies. The
adjustment for the value of the Net Carried Interest was determined on a relative basis to the value of FRE per the analysts’ consensus
estimate around the Valuation Date.
The FRE metrics
of the Comparable Companies is based on the 2024E FRE consensus estimate of our review of analysts’ coverage of the Comparable
Companies around the Valuation Date. We highlight this is consistent with the basis of BAM ULC 2024E FRE metrics selected for the Market
Approach as discussed previously. As a result, we arrived at the following implied 2024E FRE multiples for the Comparable Companies.
We observed the
2024E FRE multiples to be in the range of 7.4x to 32.7x, or a median of 25.3x, and average of 23.1x.
As outlined above,
based on our assessment of comparability, Blackstone and Ares being the most comparable have implied 2024E FRE multiples that are on
the higher end of the range. We note the following observations:
| § | Blackstone
– We are of the view that the premium observed in Blackstone’s implied FRE multiple
relative to the Comparable Companies is driven by the scale of its Asset Management platform
and diversification of its asset strategies managed. Furthermore, Blackstone’s asset-light
and FRE-centric business model, and market leading position in retail channels are factors
that reduce the risk associated with achieving its projected FRE growth. We note that analyst
consensus forecast a forward (“FWD”) FRE growth of 19.8% for Blackstone around
the Valuation Date. |
| § | Ares
– We are of the view that the premium observed in Ares’ implied FRE multiple
relative to the Comparable Companies is primarily driven by its leading position in private
credit, specifically direct lending, which is currently benefiting from significant capital
inflows and is expected to generate high FRE growth relative to the Comparable Companies.
We note that analyst consensus forecast a FWD FRE growth of 28.3% for Ares around the Valuation
Date. Furthermore, Ares is an asset-light and FRE-centric business model which contributes
to a premium to FRE multiples observed in its peer group. Offsetting the above positive factors
is the lack of significant scale in FBC, and lack of diversification, which is neutral point
against Ares in the current market environment given the favorable trends in private credit. |
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Relative to the
broader Comparable Companies, we view BAM ULC’s asset-light business model, stable and recurring management fees, scale of its
platform, and its leadership position in a diversified mix of strategies that benefit from secular tailwinds, to command a premium as
compared to the average 2024E FRE multiple of 23.1x observed around the Valuation Date. Furthermore, we would expect a FRE multiple at
the high end of the range observed, commensurate with the FRE multiples observed for Blackstone and Ares which are highly comparable.
Regression Analysis
We prepared the
following regression analysis whereby we regressed the 2024E FRE multiples implied by the traded share prices of the Comparable Companies
and the value implied for BAM ULC (by virtue of BAM LTD’s traded share price) against its respective FWD FRE growth around the
Valuation Date. Consistent with the analysis discussed above, we utilized the implied 2024E FRE multiples and FWD FRE growth rates based
on 2025E FRE estimates. A summary of the regression analysis is presented in the chart below.
Based on the regression
analysis, we observed a relatively strong correlation between FWD FRE growth and the implied 2024E FRE multiple, as indicated by the
coefficient of determination of 83.65%. By plotting BAM ULC’s FWD growth of 24.5% into the regression analysis, it implied a 2024E
FRE multiple of 29.6x, which we have selected as our multiple for BAM ULC as at the Valuation Date.
While for simplicity
our selection of the 2024E FRE multiple can be thought of as point estimate, we recognize that such precision is generally not possible.
Accordingly, our selection of multiples for the purpose of the Valuation should be thought of as being in a range around the indicated
point estimate. Specifically, we selected a range of plus or minus 2.0x around our midpoint. This range is corroborated by the implied
2024E FRE multiple of Ares of 32.7x, which helps inform the high end of our range as it reflects significant near-term growth of a pure-play
private credit asset manager as opposed to BAM ULC which has a more balanced and diversified asset mix.
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Precedent Transaction
Multiples Analysis
As a secondary
analysis, we conducted a search of precedent transactions involving the acquisition of target companies in the alternative asset management
industry over the past four years and noted limited information was available pertaining to implied FRE transaction multiples disclosed.
Based on our review,
we observed FRE multiples in the range of 20.0x to 29.0x. Notably, we highlight the acquisition of Global Infrastructure Partners (“GIP”)
by BlackRock, Inc.(“Blackrock”) announced in January 2024 and closed in October 2024, which implied a FRE
multiple between 25.0x to 29.0x based on Blackrock’s investor presentation. GIP is a leading global infrastructure asset manager
and a direct peer of BAM ULC within the Infrastructure asset class. We consider this transaction to be a meaningful indicator of value
for a leading alternative asset manager (primarily focused on one asset strategy), as well as increased relevancy due to the recency
of the transaction. Given BAM ULC’s scale and diversification across various asset strategies, we are of the view that a premium
to the GIP implied FRE multiple is supportable.
Analyst Consensus
Multiples
In reviewing analyst
coverage of BAM ULC around the Valuation Date, we observed a similar SOTP approach (i.e., sum of the value associated with the FRE, net
carried interest, and other balance sheet adjustment components) utilized by analysts to arrive at a target price for BAM LTD. Furthermore,
analysts typically perform valuation analysis that is one year out to establish future target prices for the target securities. As such,
we found that the FRE multiples referenced in each analyst report would represent an FRE multiple as at the target price date, which
would correspond to a current year FRE multiple for purposes of our analysis as at the Valuation Date. Based on our review of the analyst
reports, we observed analysts utilized FRE multiples in the range of 20.0x to 27.0x (adjusted for outliers).
Market Approach
Conclusion – FMV of Net Management Fees
Based on the foregoing
market multiples analysis, we arrived at a FMV of the Net Management Fees in the range of $55.5 billion to $63.5 billion, or $59.5 billion
at midpoint.
FMV of Net Management
Fees – Income Approach
In addition to
the market approach, we applied an income approach, more specifically a DCF methodology in determining the FMV of the Net Management
Fees of BAM ULC, as at the Valuation Date.
The DCF approach
was applied on an unlevered basis, where expected future cash flow is determined prior to interest expense and related interest tax shields.
The projected free cash flow for each fee stream was discounted based on a discount rate that adequately reflects the nature of the subject
fee stream and the risk of the underlying future cash flows, i.e., the weighted-average cost of capital (“WACC”). The WACC
represents a weighted average of the cost of debt and cost of equity, measured on a market basis.
We utilized the
five-year projections prepared by Management and as communicated in its 2024 Investor Day Presentation, which we understand reflects
the most recent outlook for the business, as the basis of our valuation analysis. Below we have set out the assumptions used in determining
the free cash flow, discount rate, and terminal value utilized in our DCF analysis for the Net Management Fees.
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Free Cash Flow
– Net Management Fees
The free cash flow
used in the DCF approach represents the level of cash flow that is reasonably expected to be achieved over the projection period, and
is determined based on projected Net Management Fees, less cash taxes, capital expenditures (“Capex”) and working capital
investments, described further below.
| § | Net
Management Fees– Projected Net Management Fees over the forecast period is based on
the financial projections prepared by Management and reflects the most current five-year
projections. Projected Net Management Fees is based on the growth earlier outlined in FBC,
as well as broad FRE growth and margin expansion trends expected for BAM ULC. |
| § | Cash
Taxes – Cash taxes were derived based on taxable income and the long-term blended income
tax rate of 18.4% for
BAM ULC. In arriving at the tax rate, we have utilized the tax rate implicit in Management’s
projections, which considers the effective tax rates in the jurisdictions where BAM ULC operates.
Taxable income for the forecast period is determined based on net fees less any tax depreciation
(nominal given asset-light nature of the business). |
| § | Capital
Expenditures – Given the capital-light nature of the business, future sustaining capital
expenditures were assumed to be nil based on very minimal ongoing requirements. |
| § | Net
Working Capital – the projected change in net working capital over the projection period
was based on annual net working capital requirements of 1.3% of Net Management Fees, with
the assumption that working capital levels as at the Valuation Date were at normal levels.
In general, we note that the change in net working capital levels is nominal and not a material
driver of value. |
Discount Rate
– Net Management Fees
In order to assess
the appropriate discount rate to be applied to the unlevered free cash flow for the Net Management Fees component of value, we determined
the WACC for the subject fee stream. We determined the WACC to be in the range of 8.2%
to 10.4%, or a midpoint of 9.3%.
The WACC was derived based on two main components, the cost of equity (“CoE”) and the cost of debt (“CoD”).
In determining
the CoE at midpoint of approximately 9.7%, we considered both the Capital Asset Pricing Model (“CAPM”) and the Build Up Approach.
We assessed the following in arriving at our selected CoE for the FMV of the Net Management Fees:
| § | Current
economic trends and long-term expectations in financial markets; |
| § | Observable
market inputs to inform on a base rate of return for equity investments; |
| § | The
industry volatility of performance and returns relative to market fluctuations; |
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| § | Our
professional experience as it relates to rates of return and risk profiles of alternative
asset managers in the industry; and, |
| § | The
inherent projection risk, specifically in relation to the achievability of the cash flow
projections. Key factors that were considered in assessing the reasonability of this range
are summarized below: |
| i. | The
Net Management Fees are earned from a stable base of FBC and is generally contractual and
predictable in nature given the fund structure / lifecycles for which they relate. As such,
investors tend to view the management fee stream as being fairly low risk, associated with
low volatility in earnings and typically less susceptible to market fluctuations. |
| ii. | The
majority of Net Management Fees are derived from long-term or perpetual strategies, further
providing a consistent, recurring fee base. As noted previously, the projected five-year
CAGR for FRE and FBC growth is relatively aligned with the historical CAGR observed for BAM
ULC from 2020 to 2024, establishing that the company is able to maintain a stable growth
pattern in various market cycles. Furthermore, the projected five-year FBC CAGR is also relatively
aligned with the historical alternative AUM CAGR since 2007 at 13% to 17%. |
| iii. | BAM
ULC generates its Net Management Fees from a diverse set of asset strategies, and across
geographies. This diversification provides a natural hedge against sector-specific risks
and variations in market cycles. As at the Valuation Date, BAM ULC is aligned with several
favorable trends that are projected to spur FBC and FRE growth in verticals it has scale
such as Infrastructure, Credit, and Renewable Power and Transition. |
| iv. | BAM
ULC is asset light which maximizes operating flexibility and reduces liquidity risks that
face the business given limited capital requirements. |
| v. | A
significant portion of BAM ULC's FBC is sourced from Brookfield controlled affiliates, including
its publicly-listed partnerships (BEP, BIP, BBU). While the affiliated entities provide a
true perpetual source of capital to BAM ULC, this reliance on internal affiliates for its
FBC pipeline creates the potential risk of over concentration and reliance on BN and the
broader Brookfield group of entities. |
| vi. | BAM
ULC has a long history of delivering strong performance for its investors through disciplined
management, high-quality assets, and value creation across various investment cycles. The
strength of the Brookfield brand enhances its ability to attract fundraising and deepen relationships
with its clients, providing access to diverse capital sources and enabling it to scale efficiently
across multiple asset strategies and regions. |
| vii. | Projection
risk is based on BAM ULC’s ability to keep pace with its FBC growth targets which could
be negatively influenced by a variety of unpredictable factors, including deteriorating market
conditions, increased competition, and changing LP preferences (i.e. insourcing asset management
function). |
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We determined the
pre-tax CoD to be in the order of 5.1% based on an assessment of the long-term A-rated corporate
debt yields for U.S.-based issuers. We assumed an optimal capital structure in the range of 5.0%
to 10.0%
debt-to-total capital given the asset light nature of BAM ULC’s operations.
Based on the aforementioned
considerations, the concluded WACC for the Net Management Fees is determined to be in the range of
8.2% to 10.4%,
or a midpoint of 9.3%. Our selected
discount rate is commensurate with our midpoint WACC of 9.3%.
Terminal Value
– Net Management Fees
The terminal value
of the Net Management Fees was determined by using the Gordon Growth Model and capitalizing the terminal free cash flow at a rate that
reflects the expected future risk and growth potential of this subject fee stream. This rate is based on the selected discount rate less
expected future growth.
A terminal growth
rate of 4.5% was selected for the Net Management Fees upon consideration of long-term inflationary
growth and an element of real growth in connection with long-term industry trends. Specifically, the selected terminal growth rate captures
excess real growth over and above the inflationary rate for a period beyond the five-year discrete projection period, until a normalized
state is reached in the medium-to-long term.
BAM ULC benefits
from consistent and substantial fund inflows, driven by its long-term and perpetual fund backing and also the global expansion of institutional
capital, pension funds, and private wealth. Furthermore, we note that the leading alternative asset managers, including BAM ULC, consistently
generate higher returns and FRE/FBC growth over the long term, driven by innovative strategies and access to niche markets. BAM ULC’s
brand is also synonymous with reliability and consistent returns, which plays a significant role in attracting new inflows and retaining
its existing investor base. As such, BAM ULC’s ability to continuously source and effectively deploy capital, and generate returns
to repatriate to investors who will then reinvest with the business, creates a cycle that we view to perpetuate long term FBC growth
above inflation.
The terminal value
is based on projected free cash flow for the terminal period, capitalized in perpetuity at a rate of 4.8%
(which equals the discount rate of 9.3%,
at midpoint, less the terminal growth rate of 4.5%), resulting in a terminal cash flow multiple
of 20.9x.
DCF Approach
Conclusion – FMV of Net Management Fees
Based on our procedures
and analyses under the DCF approach, we determined the FMV of the Net Management Fees to be in the range of $59.0 billion to $65.2 billion,
or $62.1 billion at midpoint, as at the Valuation Date. The FMV range was selected based on a +/- 5% of the midpoint.
FMV of Net Management
Fees – Average of Market and Income Approaches
Based on an equal
weighting of the Market and Income approach, we determined the FMV of the Net Management Fees to be in the range of $57.3 billion to
$64.4 billion, or $60.8 billion at midpoint, as at the Valuation Date.
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FMV of IDRs
and Performance Fees – Income Approach
We applied the
DCF methodology in determining the FMV of the IDRs and Performance Fees of BAM ULC, as at the Valuation Date.
Similar to the
DCF approach for the Net Management Fees, the DCF approach for the IDRs and Performance Fees was applied on an unlevered basis, and the
projected free cash flow was discounted based on a discount rate that adequately reflects the nature of the subject fee stream and the
risk of the underlying future free cash flows.
We utilized the
same five-year projections prepared by Management as communicated in its 2024 Investor Day Presentation. Below we have set out the assumptions
used in determining the free cash flow, discount rate, and terminal value utilized in our DCF analysis for the IDR and Performance Fees.
Free Cash Flow
– IDRs and Performance Fees
| § | IDRs
and Performance Fees – Projected IDRs and Performance Fees over the forecast period
is based on the financial projections prepared by Management and reflects the most current
five-year projections. |
| § | Cash
Taxes – Cash taxes were derived based on taxable income and the long-term blended income
tax rate of 18.4% for
BAM ULC. In arriving at the tax rate, we have utilized the tax rate implicit in Management’s
projections, which considers the effective tax rates in the jurisdictions where BAM ULC operates. |
| § | Capital
Expenditures and Net Working Capital – Capex and changes in net working capital (beyond
what is already incurred to generate Net Management Fees) was determined to be nominal. |
Discount Rate
– IDR and Performance Fees
We selected a discount
rate for the IDR and Performance Fees of 8.2%, which represents the low end of the discount rate range determined for the Net Management
Fees. In selecting the discount rate we considered the lower growth trajectory observed for the IDRs and Performance Fees relative to
the Net Management Fees which we view to reflect a lower degree of projection risk. Moreover, distributions are not subject to claw back,
and are paid by publicly listed affiliates BEP and BIP, both of which have had a long-standing track record of growing distributions
annually within their target range of 5% to 9%, increasing the predictability of future distributions and in our view warranting a lower
risk profile.
Terminal Value
The terminal value
beyond the discrete projection period for the IDRs and Performance Fees were determined by using the Gordon Growth Model.
The terminal value
is based on projected free cash flow for the terminal period, capitalized in perpetuity at a rate of 3.7% (which equals the discount
rate of 8.2%, at midpoint, less the
terminal growth rate of 4.5%), resulting in a terminal
cash flow multiple of 27.0x.
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DCF Approach
Conclusion – FMV of IDRs and Performance Fees
Based on our procedures
and analyses under the DCF approach, we determined the FMV of the IDR and Performance Fees to be in the range of $11.3 billion to $12.5
billion, or $11.9 billion at midpoint, as at the Valuation Date. The FMV range was selected based on a +/- 5% of the midpoint.
FMV of Total
FRE
Based on the aggregate
of the Net Management Fees and the IDRs and Performance Fees, we determined the FMV of the FRE to be in the range of $68.6 billion to
$76.9 billion, or $72.7 billion at midpoint.
FMV of Net Carried
Interest
We applied the
DCF methodology in determining the FMV of the Net Carried Interest of BAM ULC, given the availability of detailed projections as provided
by Management, and in consideration of the significant growth within the inherent projections of Net Carried Interest due to limited
realizations in the near-term stemming from the structure of the ULC Spin Off which limited BAM ULC’s carried interest eligibility
to 66.67% of carry from New Funds created post-ULC Spin Off. As a result, the FMV of Net Carried Interest is more future oriented and
reflects the platform value associated with the ability to generate future Net Carried Interest from a relatively newly formed carry-eligible
capital base. That being said, BAM ULC has a proven track record of generating net carried interest on the funds it manages, as evidenced
by the earnings stream contractually entitled to BN on legacy funds.
The DCF approach
for the Net Realized Carried Interest was applied on an unlevered basis and the projected free cash flow is discounted using an appropriate
discount rate, which was benchmarked against the discount rates selected for the FRE components of value (i.e., Net Management Fees and, IDRs
and Performance Fees).
We utilized the
five year projections prepared by Management as the basis of our valuation analysis. Below we have set out the assumptions used in determining
the free cash flow, discount rate, and terminal value utilized in our DCF analysis in determining the FMV of the Net Carried Interest.
Free Cash Flow
– Net Carried Interest
| § | Net
Carried Interest – Projected realized net carried interest at BAM ULC’s share
over the forecast period is based on the financial projections prepared by Management as
at September 2024. |
| § | Cash
Taxes – Cash taxes were determined based on taxable income and the long-term income
tax rate of 18.4% for
BAM ULC consistent with Management’s projections. |
| § | Capital
Expenditures and Net Working Capital – Capex and changes in net working capital (beyond
what is already incurred to generate FRE) was determined to be nominal. |
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Discount Rate
– Net Carried Interest
We selected a discount
rate for the Net Carried Interest in the order of 16.0%, based on an assessment of the underlying risk profile of the projected net carried
interested relative to the risk profile of the various fee streams.
For asset managers
in general, net carried interest reflects future performance related value that has yet to be realized, which is often linked to the
ability of the asset manager to achieve target returns, which may be influenced by various external factors and market conditions. As
a result, this earnings stream is subject to higher degrees of volatility and carries a higher risk profile. Risk is further increased
by the fact that Net Carried Interest realization is typically harvested at the fund’s exit or end date, thereby increasing the
risk associated with the timing of the projected cash flows. Furthermore, carried interest income may be subject to claw back.
Accordingly, we
are of the view that a discount rate applied to the Net Carried Interest should warrant a risk premium over and above that of the discount
rate applied to the Net Management Fees, and IDRs and Performance Fees, given the other fee streams are largely comprised of predictable,
established and recurring fees and/or exhibit a more stable and lower growth over the projection period.
Terminal
Value – Net Carried Interest
The terminal value
beyond the discrete projection period for the Net Carried Interest was determined by using the Gordon Growth Model.
A terminal growth
rate of 6.0% was selected for the Net Carried Interest upon consideration of inflationary growth, and real growth in connection with
long-term industry trends. Specifically, the selected terminal growth rate captures excess real growth over and above an inflationary
rate beyond the five-year discrete projection period. A higher terminal growth rate would be required to reflect the substantial generation
and realization of the net carried interest beyond the projection period once the earnings stream has been established on New Funds that
reflect the new vintages of legacy flagship funds.
The terminal value
is based on projected free cash flow for the terminal period, capitalized in perpetuity at a rate of 10.0%(which equals the discount
rate of 16.0%, at midpoint, less the
terminal growth rate of 6.0%), resulting in a terminal
cash flow multiple of 10.0x.
DCF
Approach Conclusion – FMV of Net Carried Interest
Based on our procedures
and analyses under the DCF approach, we determined the FMV of the Net Carried Interest to be in the range of $4.2 billion to $4.6 billion,
or $4.4 billion at midpoint, as at the Valuation Date. The FMV range was selected based on a +/- 5% of the midpoint.
We note that our
concluded FMV of Net Carried Interest implies 5.7% of the total Asset Manager EV based on the FMV of FRE. We note that the implied composition
is on the lower end of the range of Net Carried Interest Value as a percentage of total Asset Manager EV of the public comparable companies,
which we view to be reasonable given the realization of net carried interest on BAM ULC’s New Funds is still in its infancy and
will need to be established over a longer period of time.
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Asset Manager
EV Conclusion
Based on the sum
of the FMV of the FRE and the Net Carried Interest, we determined the FMV of the Asset Manager EV to be $72.8 billion to $81.5 billion,
or $77.1 billion at midpoint, as at the Valuation Date.
Balance Sheet
NAV Adjustments
We further adjusted
the Asset Manager EV by adding the FMV of $3.0 billion in net balance sheet positions that are non-core to operations and/or are incremental
to the asset management operations of BAM ULC, as at the Valuation Date. We have assumed that the financial position of BAM ULC as at
June 30, 2024 (most recent publicly available financial information available for BAM ULC) reasonably approximates the financial
position as at the Valuation Date, unless otherwise noted.
The adjustment
was primarily comprised of: a) excess cash as at June 30, 2024 less cash used to fund new acquisitions closed post June 30,
2024 that are reflected in the Asset Manager EV; b) the FMV of non-fee generating investments/NAV positions that are not otherwise reflected
in the Asset Manager EV; c) FMV of tax assets relating to net operating losses; and, d) preferred equity liabilities which are debt-like
instruments.
SOTP
Conclusion – BAM ULC Equity Value
Based on the scope
of our review and subject to the assumptions, restrictions and limitations noted herein, we have determined the en bloc Equity Value
of BAM ULC to be in the range of $75.8 billion to $84.5 billion,
or $80.1 billion at midpoint, under
the SOTP approach, as at the Valuation Date. Based on the total BAM ULC Common Shares outstanding of 1,635.4 million, our FMV range equates
to a per share value of $46.35 to $51.67, or $48.98 at midpoint.
The conclusions
under each component of value under our SOTP approach is further outlined below:
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
BAM ULC – Implied Trading Price
Comparison
We understand that
as at the Valuation Date, shares of BAM LTD traded on the New York Stock Exchange (“NYSE”) under the ticker BAM. As mentioned
earlier, BAM LTD’s cash flows are predominately sourced from its underlying ownership of 26.7% of BAM ULC. Given that the market
capitalization of BAM LTD reflects the collective market perception of its assets and operations (most notably, its ownership of BAM
ULC), we view the share price of BAM LTD and our ability to imply the value of BAM ULC as an additional indicator of value which can
be used to corroborate our independently determined range of FMV for BAM ULC. A such, we benchmarked our valuation conclusions from our
primary approaches to the implied value from the BAM LTD share price as a supplementary reasonability assessment.
Assessment of
Reliability of BAM LTD Share Price
In conducting the
aforementioned benchmarking analysis, we first considered if BAM LTD’s share price represents a reliable market indicator of value.
For the share price to be reliable, we note that an assessment of liquidity is critical as a liquid market ensures that the price reflects
true market demand and supply, minimizing the risk of distortions that may be caused by infrequent or low-volume trading. As a reference
for criteria which indicate sufficient liquidity in an equity market, we referred to the guidance in MI 61-101, which states that a liquid
market in a class of securities exists at a particular time only if certain tests surrounding market value, trading volume, and free
float are met. An overview of these factors, along with other common indicators of share price reliability, is shown below:
M1 61-101 “Liquid Market”
Factors
| 1. | During
the period of 12 months before the date the transaction is agreed to… |
| a) | The
number of outstanding securities of the class was at all times at least 5 million (excluding
securities beneficially owned / related-party shares / not freely traded shares); |
| b) | the
aggregate trading volume of the class of securities on the published market on which the
class was principally traded was at least 1,000,000 securities; |
| c) | there
were at least 1,000 trades in securities of the class on the published market on which the
class was principally traded; and |
| d) | the
aggregate value of the trades in securities of the class on the published market on which
the class was principally traded was at least $15,000,000. |
| 2. | The
market value of the class of securities on the published market on which the class was principally
traded for the month prior to the month of the transaction date (based on end of month outstanding
shares and average share price during the month) was at least $75,000,000 for the calendar
month preceding the calendar month in which the transaction is agreed to. |
Based on our analysis
(with all related data being obtained from Bloomberg LP), we note that the shares of BAM LTD satisfies all of the M1 61-101 liquidity
criteria mentioned above.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
Other Factors Considered
| 1. | Frequency
of trades: In addition to the aggregate trading volume, we also considered the median
daily trading volume for the 12-month period preceding the Valuation Date, which was calculated
as 1.1 million shares. We find this to be indicative that the shares of BAM LTD has a high
level of market participation, in turn leading to the share price to be more reflective of
current market conditions and informed investor sentiment. |
| 2. | Bid-ask
spread: We assessed the average bid-ask spread of BAM LTD over the 12-months preceding
the Valuation Date, which was determined to be $0.01, or 0.04% (calculated as dollar spread
/ mid-price). The narrow or tight bid-ask spread of BAM LTD indicates a minimal difference
between the price demanded by sellers, and the prices buyers are willing to pay. This implies
a strong market consensus and efficient pricing, further evidencing a high level of liquidity
of the entity’s shares. |
| 3. | Reactivity
of share price: Lastly, we considered if the share price of BAM LTD is reactive to public
news and changing market sentiments through an assessment of historic price swings. As illustrated
in the graph below, the share price quickly reacts to various forms of company news, thereby
indicating a high sensitivity to market information. This reactivity demonstrates that the
market efficiently processes new data, adjusting the share price accordingly. |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
Conclusion on Share Price Reliability
Pursuant to our
assessment of the factors considered above, we consider the share price of BAM LTD to be trading in a liquid, efficient market, and thus
appropriate for use for the purposes of our reasonability assessment.
Implied Trading
Price Comparison
We implied the
market capitalization of BAM LTD based on the diluted total shares outstanding and the traded share price as at the Valuation Date. We
then adjusted the market capitalization of BAM LTD for any assets and liabilities held at the BAM LTD level that are unrelated to the
assets and operations (and therefore value) of BAM ULC and have subsequently grossed up that value based on BAM LTD’s 26.7% interest
to arrive at an implied value for the en bloc equity of BAM ULC.
We compared the
resulting value to the concluded en bloc FMV of equity of BAM ULC determined under the Income and Market approaches and noted that the
BAM ULC value implied from the traded share price of BAM LTD is within the ranges concluded for both approaches, and is in line with
our overall concluded Valuation Range (~3% away from our midpoint), therefore corroborating our overall Valuation Conclusion. A summary
of this assessment is shown below:
BAM LTD –
Adjusted Net Asset Approach
Overview
As mentioned previously,
BAM LTD is primarily a holding company whose underlying value is largely represented by its investment in BAM ULC, in addition to other
less significant balance sheet components. As such, we considered the ANA approach to be the most appropriate method to use in valuing
the BAM LTD Class A Shares, as at the Valuation Date.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
Adjusted Net
Asset
We have conducted
the ANA approach on the premise that the financial position of BAM LTD as at June 30, 2024 reasonably approximates the financial
position as at the Valuation Date, unless otherwise noted. We assumed that the net book value of the assets and liabilities of BAM LTD
approximates to the FMV as at the Valuation Date, with the following exceptions:
| i. | FMV
of its 26.7% interest in the BAM ULC Common Shares (refer to the FMV of the en bloc Common
Shares Equity Value as referenced in our Formal Valuation above), determined to be in the
range of $20.2 billion to $22.6 billion, or $21.4
billion at midpoint; and, |
| ii. | Certain
due to / from affiliates, as well as other assets were adjusted to FMV due to intercompany
eliminations resulting in a total reduction to net assets of $140 million. |
Excluding the FMV
of BAM LTD’s equity interest in BAM ULC, the remaining items on the balance sheet of BAM LTD result in net liability position with
a FMV of $160 million.
Based on the scope
of our review and subject to the assumptions, restrictions and limitations noted herein, we have determined the en bloc Equity Value
of BAM LTD to be in the range of $20.1 billion to $22.4
billion, or $21.2 billion at midpoint,
under the ANA Approach, as at the Valuation Date.
Diluted Share
Count
In assessing the
FMV of BAM LTD Class A Shares on a per share basis, we have considered the total diluted share count reflecting the impact of options
that have been issued to BAM LTD employees, are the sole liability of BAM LTD, and are expected to be settled through the issuance of
BAM LTD Class A Shares.
The quantum of
the diluted share count adjustment is a function of the settlement value of the options as at the Valuation Date, divided by the FMV
share price of the BAM LTD Class A Shares, which derives the expected number of shares required to settle the option liability.
Given the settlement of the option liability is expected to be completed through share issuances by BAM LTD (as opposed to cash settled),
the share count is increased from the total base of 421.0 million, as earlier described, to reflect its dilutive impact to the existing
BAM LTD Class A Shares.
Due to the fact
that we have concluded on the FMV of the Equity of BAM LTD as a range of values, the number of shares added to the diluted share count
will vary dependent on the underlying FMV share price. Such is the interrelationship between the FMV share price, the option settlement
value, and expected number of shares required to settle the option liability. As such, we have estimated the diluted share count based
on our range of values accordingly.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
BAM
LTD Conclusion
As noted
previously, BAM LTD’s share capital consisted of mostly BAM LTD Class A Shares and a nominal amount of BAM LTD Class B
Shares, as at the Valuation Date. We further understand that BAM LTD Class B Shares have the same distribution rights as the BAM
LTD Class A Shares. As such, we have allocated the concluded en bloc Equity Value of BAM LTD to the BAM LTD Class A Shares
based on its proportionate share relative to total shares outstanding, inclusive of BAM LTD Class B Shares.
Based
on the scope of our review and subject to the assumptions, restrictions and limitations noted herein, we have determined the FMV of the
BAM LTD Class A Shares to be in the range of $20.1 billion to
$22.4 billion, or $21.2 billion at midpoint, as at the Valuation
Date. Based on a total diluted share count in the range of 432.2 million to 433.7 million, or 433.0 million at midpoint, the FMV range
equates to a per share value of $46.43 to $51.63, or $49.01 at midpoint.
Based
on the scope of KPMG’s review and subject to the assumptions and limitations as noted herein, KPMG is of the opinion that the FMV
of the BAM ULC Common Shares is in the range of $75.8
billion to $84.5 billion, or $80.1 billion at midpoint (or $46.35 to $51.67, or $48.98 at midpoint on a per share basis), as at
the Valuation Date, and that the FMV of the BAM LTD Class A Shares is in the range of $20.1 billion to $22.4
billion, or $21.2 billion at midpoint (or $46.43 to $51.63, or $49.01 at midpoint on a per share basis), as at the Valuation Date.
Executive Summary
Based
on the scope of KPMG’s review and subject to the assumptions and limitations as noted herein, KPMG is of the opinion that the Arrangement
is fair, from a financial point of view, to holders of the BAM LTD Class A Shares (other than BAM LTD Class A Shares held,
directly or indirectly, by an “interested party” within the meaning of MI 61-101 or otherwise required to be excluded under
the requirements of MI 61-101). As at the Valuation Date and using the midpoint of our FMV conclusions on a per share basis for both
BAM ULC and BAM LTD, there is a de minimis FMV exchange differential of $10M which is 0.017% of the implied Arrangement value. Based
on the FMV range, BN should receive between 0.9998 (low) and 1.0002 (high) shares of BAM LTD for each BAM ULC share exchanged pursuant
to the Arrangement.
Factors Considered
In considering
the fairness of the Arrangement, from a financial point of view, to the holders of BAM LTD Class A Shares (other than BAM LTD Class A
Shares held, directly or indirectly, by an “interested party” within the meaning of MI 61-101 or otherwise required to be
excluded under the requirements of MI 61-101), we principally considered and relied upon the following:
| A) | A
comparison between the FMV of the Subject Shares received by BAM LTD to the FMV of the Consideration
given up by BAM LTD as determined in our Formal Valuation; |
| B) | An
analysis of the sensitivity between the FMV of the Exchanged Shares and any benefit or loss
conferred to the Minority Shareholders arising from the Arrangement; and, |
| C) | A
consideration of other financial factors arising from the execution of the Arrangement. |
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
A. Comparing the Subject
Shares to the Consideration
Overview
The
Arrangement, as described herein, assumes a 1:1 exchange of shares, whereby for every share of BAM ULC that BN (and its subsidiaries)
transfers to BAM LTD, BN (and its subsidiaries) will receive an equal number of BAM LTD Class A Shares in return. Given the exchange
constitutes a fixed and equal quantity of shares, the value per share of the Subject Shares as compared to the value per share of the
Consideration will dictate any financial benefit or loss for the Minority Shareholders multiplied by the number of shares exchanged.
Specifically, BN and its subsidiaries intend to exchange approximately 1,194.0 million BAM ULC Common Shares to BAM LTD and in return,
BAM LTD will issue approximately 1,194.0 million BAM LTD Class A Shares to BN and its subsidiaries.
As discussed
previously, BAM LTD is a holding company that does not have its own operations, with its primary asset being its investment in BAM ULC.
As such, any differences in value per share between the Subject Shares and the Consideration would be attributed to two factors: (1) net
assets (liabilities) specific to BAM LTD and distinct from BAM ULC, and (2) differences in the number of shares outstanding between
BAM LTD and its ownership in BAM ULC, which we understand arose due to the granting of share-based compensation awards to certain employees
and directors of BAM LTD, which contain certain service or performance requirements related to the asset management business, in line
with the long-standing culture of the business of alignment with its shareholders. In the absence of these differences, we would expect
the value per share of the Subject Shares to otherwise be identical to the Consideration.
Calculating
Differences
| 1. | Net
assets (liabilities) specific to BAM LTD |
We observed
from BAM LTD’s financial statements that it has a net liability position of approximately $160 million that are not related to
its ownership in BAM ULC, which consists of the following:
| a) | Other
investments – BAM LTD owns Class A Preferred Shares of BUSHI; |
| b) | Other
net assets (liabilities) – BAM LTD has a net payable balance that is not related to
the operations of BAM ULC. |
| 2. | Difference
in share count |
The
total number of BAM LTD Class A Shares outstanding (after adjusting for the settlement of share options as previously discussed)
is approximately 433.0 million at midpoint, compared to its holdings in BAM ULC, which is approximately 436.5 million shares. In assessing
this exchange, we have calculated the following:
Value
of BAM LTD Class A Shares pre-Arrangement
In our
Formal Valuation, we have calculated a FMV per share for BAM LTD pre-Arrangement to be in the range of $46.43 to $51.63, implying a total
value of $20,070 million to $22,390 million, based on a total diluted share count range of 432.2 million shares to 433.7 million shares.
Value
of the Subject Shares
In our
Formal Valuation, we have determined the FMV per share for BAM ULC to be between $46.35 and $51.67, which translates to a total value
of approximately $55,342 million to $61,694 million, based on the transfer of approximately 1,194.0 million shares from BN to BAM LTD.
Value
of BAM LTD Class A Shares post-Arrangement
We have
calculated the total FMV of BAM LTD post-Arrangement to be between $75,412 million and $84,084 million, based on the FMV of BAM LTD pre-Arrangement
plus the FMV of the Subject Shares. Additionally, we estimate the total diluted number of BAM LTD Class A Shares post-Arrangement
to be in the range of 1,626.3 million to 1,627.7 million, combining the existing pre-Arrangement total diluted share count range with
the new BAM LTD shares expected to be issued to BN, totaling approximately 1,194.0 million. Consequently, the FMV per Class A share
of BAM LTD post-Arrangement is calculated to be in the range of $46.37 to $51.66.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
Value
of the Consideration
Based
on a post-Arrangement value per share of $46.37 to $51.66 for the Consideration and the issuance of approximately 1,194.0 million Class A
Shares to BN, we have calculated the total FMV of the Consideration given to BN to be between $55,368 million and $61,681 million.
Difference in Value Exchanged
We have
determined that the difference in the net value exchanged for the Minority Shareholders would be nominal from the Arrangement (the “Exchange
Differential”). This is based on a FMV of $55,342 million to $61,694 million for the Subject Shares as compared to $55,368 million
to $61,681 million for the Consideration. Noting that at the high end of our range of values that the Subject Shares received nominally
exceeds the Consideration given up, and that on the low end and midpoint values that the Subject Shares received are nominally lower
than the Consideration given up.
For
illustrative purposes, the following tables demonstrates the value exchanged at our low, high and, midpoint FMV of the Exchanged Shares
on a post-Arrangement basis.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
B. Sensitivity of Fair Market Value
We have evaluated
the sensitivity of the Exchange Differential by analyzing how changes in the fair market value of the Exchanged Shares impact it. For
illustrative purposes, the following table shows the sensitivity of the Exchanged Differential under different scenarios of fair market
value.
Based on our sensitivity
analysis, we have observed that the Exchange Differential is relatively insensitive to changes in FMV. A shock in FMV to the Consideration
by approximately plus or minus $4 billion results in the Exchanged Differential changing by only $20 million to $21 million or $0.04
to $0.05 per share. As a point of reference in assessing the significance of the observed change, the average 12-month intraday trading
range for BAM LTD shares is $0.85. Given that the FMV of the Consideration is significantly linked to the FMV of the Subject Shares,
the observed sensitivity results are both expected and reasonable.
C.
Other financial considerations
In addition to
the Exchange Differential calculated above, we have assessed whether there are other potential financial factors, including any net benefits
or costs that may accrue to the shareholders of BAM LTD upon the completion of the Arrangement.
As highlighted
during the 2024 Investor Day, Brookfield have been actively engaged in various reorganizations aimed at expanding their shareholder base.
Strategically, Brookfield spun-off their asset management business to create a pure play asset manager in order to streamline their business,
align their interests with clients and expand their investor base.
Following this
reorganization, Brookfield expects to establish a more robust platform for accessing both U.S. and global capital markets, and positioning
BAM LTD for potential inclusion in various U.S. and global indices.
While we recognize
the inherent risks associated with executing this strategy and realizing its anticipated benefits, we believe there is reasonable basis
for it to be successful. Consequently, the likelihood of success would not only enhance value for the Minority Shareholders, but to the
extent that this initiative is successful we are of the view it could also contribute positively to all the shareholders of BAM LTD post-Arrangement.
There has been
no value ascribed to the shares of BAM LTD or BAM ULC with respect to the potential benefits of this strategy.
Brookfield Asset Management Ltd.
Privileged & Confidential
October 31, 2024
| 15.0 | Fairness
Opinion Conclusion |
Based
on the scope of KPMG’s review and subject to the assumptions and limitations as noted herein, KPMG is of the opinion that the Arrangement
is fair, from a financial point of view, to holders of the BAM LTD Class A Shares (other than
BAM LTD Class A Shares held, directly or indirectly, by an “interested party” within the meaning of MI 61-101 or otherwise
required to be excluded under the requirements of MI 61-101).
Yours very truly,
/s/ KPMG LLP
KPMG LLP
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