It literally can’t be any more plain. There’s a lot of smart money that’s crunched the numbers and sees huge values among good Canadian income trusts—and it’s willing to pony up big time to acquire them.

Bell Aliant’s (BA.UN, BLIAF) CD13-per-share offer for Amtelecom has been trumped by private capital firm Bragg Communications’ CD14-per-share offer. Algonquin Power Trust’s (APF.UN, AGQNF) stock and cash bid for Clean Power Income Fund (CLE.UN, CEANF) has been bumped by about 20 percent by Macquarie Power & Infrastructure Income Fund’s offer of 0.5881 trust units plus roughly 19 cents Canadian in cash. And UE Waterheater (UWH.UN) has abandoned its bid for a smaller company in order to be bought out by Alinda Capital Partners for CD23 per share.

That last is a premium of 50 percent to the 30-day average price of UE Waterheater, which now goes to hold from buy in How They Rate. It’s by far the biggest premium ever paid for a Canadian trust, and it’s certainly not going to be the last hugely profitable offer to emerge.

Usually when an acquirer gets outbid for a prize, it’s not good for its shares. In the case of Bell Aliant and Algonquin, however, the effect has been just the opposite.

For Algonquin, there are clearly tangible benefits to being outgunned on this one. As I wrote in the April issue of Canadian Edge, Clean’s fourth quarter results were disappointing and pretty much forecasted a challenging transition period after the deal.

I still like the combination’s long-term promise. But Algonquin will now avoid those adjustments and capture a break-up fee for the friendly deal, as well as a profit on whatever shares it’s already purchased.

Because Bell’s offer was hostile to begin with, there are no similar rewards other than profitable sale of already purchased shares. Yet the real benefit to both trusts is from something more subtle: the now-demonstrated private capital interest in their operating sectors.

Both trusts have gained ground in the past few days but are still exceptionally cheap, attractive takeover candidates. In UE’s sector, we’re seeing similar interest in buy-recommended Consumers’ Waterheater (CWI.UN, CSUWF) for much the same reason.

Private capital interest is a major reason why it makes sense to keep holding onto shares of good Canadian trusts. That certainly applies to all of the Conservative and Aggressive Portfolio holdings, as well as to any buy-rated trust in How They Rate.

The group that’s been rumored to be next on private capital’s list is oil service trusts. My two favorites here are Portfolio picks Precision Drilling (PD.UN, NYSE: PDS) and Trinidad Energy Services Income Trust (TDG.UN, TDGNF). The latter is now well ahead of my entry price back in December. The former is still well off its highs, but a reasonable takeover offer will move it back there in a hurry.

Even weaker fare, such as Essential Energy Services (ESN.UN, EEYUF), Peak Energy (PES.UN, PKGFF) and Wellco Energy Services Trust (WLL.UN, WLLUF), are worth holding. Note that Peak has already soared nearly 20 percent from my re-entry buy target of USD3.50.

We’re currently in the process of running down information on private capital buys of all the How They Rate trusts. The May issue will have a full-length feature article on the best candidates for takeover, keeping in mind that we still don’t want to bet on anything we wouldn’t want to own if there’s no deal.

In the meantime, don’t be deterred by the back and forth about trust taxes, either in Canada or the US. My view is there’s still a very good chance the Canadians are going to change the tax legislation, possibly well before 2011. The political issue is explored further in this week’s Maple Leaf Memo, which again I implore you to take the trouble to sign up for by going to http://www.mapleleafmemo.com/.

I’m also deeply skeptical any bill in the US Congress to codify trusts’ tax status as “ordinary income” will have any impact on share prices, even in the extremely unlikely event that it should pass. For one thing, judging from the 1099s I’m hearing about, many investors are already (incorrectly) paying the higher rate.

However the tax issues come out, it’s painfully obvious the best trusts are good businesses selling for a song. Any bad news on taxation is far more than priced in, and there’s a growing parade of smart money looking to buy them.

That’s why you want to keep holding positions in good trusts—unless someone makes us a very good offer to sell.