Orca Exploration (ORC-B.V) – Expected Tender Offer – 5% Upside

Current price: C$6.46

Offer price: TBD

Upside: TBD

Expiration Date: by the 7th of Feb'20

Press Release on Outcome of Strategic Review

This idea was hinted by Chris.

 

Orca Exploration (natural gas assets and supply agreements in Tanzania) announced intentions to launch dutch tender offer for over 20% of its class B shares as a result of strategic review. The pricing range has not been determined yet. I expect the offer to be priced at least at small premium to current share prices which in turn should result in a share price pop upon announcement. That's where the trade rests currently - merits of participating in the tender itself will be assessed after the release of tender documentation.

Liquidity is limited. Pre-announcement price stands at C$6.24/share.

 

Further Considerations

  • In mid 2019 ORC rejected an unsolicited offer from Swala Oil & Gas at C$7.50/share. The buyer then sweetened the proposal to C$8.25/share, but ORC stated that it still significantly undervalues the company. Subsequently management started a strategic review and finally rejected Swala's offer once again with the current announcement.
  • During 2019 ORC has repurchased about 3% of class B shares at average price of C$6.43/share in the open market.
  • Paid up capital stands at around C$90m or c. C$2.6/share - significantly below the expected tender prices. As with other Canadian tenders, the difference between tender prices and paid-up capital will likely be treated as deemed dividend and taxed accordingly.
  • The company has two types of common shares - Class A voting shares (1.75m) and Class B shares (32.6m). Shaymar Trust (entity of the founder and ex-chair, ex-CEO David Lyon who deceased in mid 2018) holds 21% fully diluted shares of ORC and 59% of voting shares. Currently the beneficiaries of the trust are the children of the David Lyon, who also have seats on the board.
  • The company intends to fund the offer from the existing cash balance.

18 COMMENTS

  1. nostradamus

    Do you believe it would make sense for Orca to do a tender below the price offered by Swala, considering Orca itself said that price supposedly undervalued the company? I’m hoping for a rather large premium to be honest

    Also, I believe the paid up capital-thing isn’t relevant here. Orca’s ISIN suggests they’re from the British Virgin Islands, not Canada. Also, their dividends are not taxed (with Canadian witholding or anything else), which would confirm this. So not 100% sure, but I think the tender would be tax free.

    1. Writser

      Well, if they can pick up shares there it’s obviously good for the remaining shareholders. Shaymar limited, the estate of the founder of the company, is going to tender 1.7m shares, for whatever reason. So they will return at minimum C$11 to shareholders. Seems like a perfectly fine strategy. Maybe not for you, if you are trying to make a quick buck ..

      And yes, the distribution will not be taxed as if it is a dividend.

  2. YVRtrader

    Range is $6.50 to $7.50

    Shaymar plans to tender approx 1.7M Class B shares.

    Appears to be no dividend treatment as the company is based in BVI.

    “Disposition of Class B Shares
    A Resident Shareholder will realize a capital gain (or capital loss) on a disposition of Class B Shares under the Offer equal to the amount by which the proceeds of disposition of the Class B Shares exceed (or are exceeded by) the adjusted cost base to the Resident Shareholder of such Class B Shares, plus any reasonable costs of disposition.”

    1. YVRtrader

      That quote above was for Canadian Resident shareholders.

      For Non-residents of Canada:

      Disposition of Class B Shares
      A disposition by a Non-Resident Shareholder of Class B Shares will not be subject to tax under the Tax Act unless such Class B Shares constitute “taxable Canadian property” (as defined in the Tax Act) to the Non-Resident Shareholder at the time of the disposition and relief from taxation is not available under an applicable income tax treaty or convention.
      Assuming the Shares will be listed on a “designated stock exchange” for purposes of the Tax Act (which includes TSXV) at the time of the disposition, Class B Shares generally will not constitute taxable Canadian property to a Non- Resident Shareholder at that time unless at any time during the 60-month period that ends at that time, both (i) 25% or more of the issued shares of any class of the Company were owned by or belonged to one or any combination of (A) the Non-Resident Shareholder, and (B) persons with whom the Non-Resident Shareholder did not deal at arm’s length (as defined for purposes of the Tax Act), and (ii) more than 50% of the fair market value of the Shares was derived directly or indirectly (otherwise than through a corporation, partnership or trust the shares or interests in which were not themselves taxable Canadian property at the particular time) from one or any combination of real or immovable property situated in Canada, Canadian resource properties, timber resource properties, options in respect of, interests in, or for civil law rights in, any of the foregoing properties whether or not such property exists.

  3. YVRtrader

    Assuming Shaymar tenders at the bottom of the range, I’m not sure how they’ll get another 6M shares tendered at $6.50, so I would guess pricing at the bottom of the range is unlikely.

    There is currently a hidden seller at $6.50 selling a good chunk of stock (80,000 shares sold today so far), so we’ll see if liquidity and selling pressure dries up once he’s filled.

  4. jwestern

    Tender offer already out, $6.50-$7.50 with 100-share odd lot priority. But the price is currently parked at $6.50.

  5. jwestern

    Company seems to be a decent hold anyway. They’re making money, and trade at a low multiple to free cash flow. Also as YVRtrader said, the daily volume looks quite low, I don’t see how they could fill up the $50M allotment in the tender offer.

    Might be worth buying more than an odd lot, and tendering at $7.50. Pre-announcement levels were around $6-$6.50 for the past 6 months anyway. Heads you win, tails you don’t lose much kind of situation.

    1. Writser

      Agreed. I have a decent position. Already had one, and added when the tender was announced.

    1. Writser

      That is literally the same share, just another stock exchange listing. So: yeah.

  6. blades

    IB doesn’t offer ORCA.B in its corporate action tool. Does it work to do this by ticket, or am I missing something?

    1. nostradamus

      they sometimes add it late. i’d wait if i were you and open a ticket when the deadline is closer.

    1. Ilja

      Did not expect it to be oversubscribed by this much.
      The company still has a lot of cash left. Maybe we can expect another offer coming up in short term?

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