Home Capital Group (HCG.TO) – Tender Offer – C$150 for Odd Lots

Current price: C$32.73

Tender Price: C$34.15 - C$37.25

Upside: 4% - 13%

Expiration Date: 15th of Jan, 2020

Issuer Bid Circular

 

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.

4 COMMENTS

  1. Martin Hernon

    dt, I am hearing at another site that taxes are not withheld on US IRA accounts, e.g. were not withheld on shares tendered in the Aima TO. Do you or any of your readers have any information on that? I didn’t see any exception in the HCG tax disclosures.

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