Current price: $4.0
Tender Price: $4.70 – $5.40
Upside: 4% or $60 for odd lot holders
Expiration Date: 14th of August, 2019
Another dutch tender offer with odd lot provision, but this time trading below the lower tender limit. Just quick thoughts as upside is tiny in absolute value.
Encana – Canadian O&G producer dual-listed in US and Canada – is buying back 3% of outstanding shares at $4.7-$5.4 per share. The stock is currently trading at all time lows and recently dropped further following Q2’19 results. The offer is likely to be oversubscribed and thus potentially interesting for odd-lot holders only.
Tender is not conditioned on financing and Encana will fund the purchase of shares ($230m) using cash on hand ($137m as of Q2’19) and existing credit facilities.
The company could cancel the tender as shares declined more than 10% since the announcement (one of the conditions). However, I do not think this is likely as Encana has already spent $1bn buying back shares since Mar’19 at higher prices than the current offer.
Non-Canadian residents might be charged with withholding tax on deemed dividend portion of the distribution, however, as paid-up capital (equivalent to US$6.31/share) is higher than the purchase price, my understanding is that deemed dividend will be zero.
A Non-Canadian Holder who sells Shares to Encana pursuant to the Offer will be deemed to receive a dividend equal to the excess, if any, of the amount paid by Encana for the Shares over their paid-up capital for purposes of the Tax Act. However, a Non-Canadian Holder who sells Shares to Encana pursuant to the Offer will not be deemed to receive a taxable dividend as a result of the sale if the paid-up capital for the purposes of the Tax Act at the time of the sale is equal to or in excess of the amount paid by Encana for the Shares pursuant to the Offer. Encana estimates that the paid-up capital per Share on the date hereof is approximately Cdn$8.39 (and following the Expiration Date, Encana will advise Shareholders of any material change to this estimate, including the U.S. dollar equivalent of the paid-up capital at that time).
The main risk here is that odd lot provision gets amended if too many odd lot accounts participate – unlikely to happen as the upside is small.