Current price: C$32.73
Tender Price: C$34.15 – C$37.25
Upside: 4% – 13%
Expiration Date: 15th of Jan, 2020
This situation likely applies for Canadians due to large withholding taxes for non-residents.
Home Capital Group has launched dutch tender offer to buyback c. 7.5% of outstanding shares (C$150m in total). There is odd-lot priority for those owning less than 100 shares. Currently HCG shares trade below the lower limit, offering ‘risk free’ C$150 for odd-lots.
However, majority of consideration received in the tender offer will be considered as ‘deemed dividend’ and any non-resident shareholders will have to pay withholding taxes on that portion. This probably explains why the shares are trading below the lower limit.
A Non-Canadian Resident Shareholder who sells Shares to Home Capital pursuant to the Offer will be deemed to receive a dividend equal to the excess, if any, of the amount paid by Home Capital for the Shares over their paid-up capital for Canadian income tax purposes. Home Capital estimates that the paid-up capital per Share on the date hereof is approximately $2.96.
The risk of transaction getting cancelled is very low. HCG ran similar tender offers with odd lot provisions back in 2016 (C$150m at C$37.6, 99% proration) and 2018 (C$300 at C$16.5/share, 83% proration). Additionally, so far during 2019 the company purchased another 4.7m shares in the open market at an average price of C$19.85.
Proposed tender range is above the stated book value (C$28.64/share). When similar premium to BV was paid back in 2016 tender, HCG sold off 25%+ during subsequent months. Thus shorting HCG post expiration (or buying put options now) might be interesting as well.
Pre-announcement price stands at C$29/share.