XBiotech (XBIT) – Tender Offer – $469 Upside

Current Price: $24.33

Offer: $26.52-$29.07

Upside: $217-$469 for odd-lots

Expiration date: 12th of February

Offer document

This idea was shared by Martin.

 

XBIT is a British Columbia biotech company that trades on NASDAQ in US dollars. On the 14th of January they've announced $420m dutch tender offer with odd-lot provision for 30-33% of outstanding shares at $30-$33/share. Despite large size of the offer, it comes at significant premium to pre-announcement levels (61%) and an all time high for the XBIT. It is expected that the tender will be oversubscribed and priced at a lower limit.

Aside from likely oversubscription, tax treatment is also a potential issue. According to Canadian rules shareholders will be deemed to receive a taxable dividend equal to the difference between the offer price ($30-$33/share) and paid-up capital (estimated to be $6.82/share). At the 15% withholding tax rate US holders should end up paying $3.48-$3.93/share of withholding taxes, meaning the actual post-tax consideration is $26.52-$29.07. This is still a meaningful 9%-19% upside (or $217-$469 for odd lots) from the current price.

There might be no withholding tax for US IRA etc. accounts, but I do have definitive information on this.

Management owns 38.5% (16m) of the outstanding shares and may tender (final decision is not made yet) up to 2/3rds of it (11m shares). Other major holders (Rennes Fondation - 12%, Thomas Gut - 8%, Josef Gut - 7%) have owned shares for several years already and sit on significant profits (maybe except Thomas Gut, who acquired a majority of his stake at around $26/share).

The offer will be funded by the proceeds received from the recent sale ($750m) of company's investigational True Human antibody Bermekimab that is currently in Phase 2 trials.

7 COMMENTS

  1. jwestern

    At this stage, what are the odds of the terms being modified before Feb 12? Also could you clarify why Canadian rules relevant here? Company is based in Texas and trades on a US exchange, with no “XBIT.TO” or similar dual Canadian ticker.

    1. dt

      XBIT is Canadian company. From the offer document:

      I am a United States shareholder. What are the Canadian income tax consequences if I tender my Shares?

      Generally, holders of Shares who are non-residents of Canada for Canadian income tax purposes will be deemed to receive a dividend in an amount equal to the excess, if any, of the amount paid by the Company for the Shares over the paid-up capital of such Shares. Any such deemed dividend will generally be subject to Canadian non-resident withholding tax at a rate of 25% unless the recipient is eligible for a reduced rate of withholding tax pursuant to the terms of an applicable income tax treaty. In order to benefit from a treaty-reduced withholding tax rate, holders of Shares who are non-residents of Canada will need to comply with the certification process set out in the Letter of Transmittal. We urge you to consult your own tax advisor as to the particular tax consequences to you of the Offer, including the applicability of any Canadian or other tax laws. See Section 14.

      and

      Any such dividend will be subject to Canadian withholding tax at a rate of 25% or such lower rate as may be substantiated under the terms of an applicable tax treaty. For example, a dividend received or deemed to be received by a Non-Canadian Resident Shareholder that is a resident of the United States for the purposes of the Canada-United States Income Tax Convention (the “US Treaty”), is eligible for benefits under the US Treaty, and is the beneficial owner of such dividends will generally be subject to withholding tax at a treaty-reduced rate of 15% (or 5% if the beneficial owner of the dividends is a company that owns at least 10% of the voting shares of the Company).

  2. YVRtrader

    Investor FAQ

    GENERAL/CORPORATE

    Where is XBiotech’s corporate headquarters?
    XBiotech’s corporate headquarters are located at 8201 E Riverside Dr, Austin, TX 78744

    Where is the company incorporated?
    XBiotech Inc. was incorporated in Canada on March 22, 2005. XBiotech has four wholly-owned subsidiaries: XBiotech USA, Inc., incorporated in Delaware; XBiotech Switzerland AG, incorporated in Zug, Switzerland; XBiotech Japan K.K., incorporated in Tokyo, Japan; and XBiotech Germany GmbH, incorporated in Germany.

  3. jwestern

    For those who are new to tender offers (like me), and who trade through a broker: you can tender your shares by calling your broker and speaking to a trader. They know what a tender offer is. Typically it is a few days after the tender offer is announced when they’ll receive a “bulletin” about it, which then allows them to execute the tender for you. Your trade also has to settle first before they can tender the shares for you (although they offered to post-date mine, given that the deadline is well into the future Feb 12). My broker does this for free, but yours may charge a fee, so inquire first about that.

    Could someone comment on the risks of these tender offers? To narrow the question down, let’s assume we own an odd lot and expect the lower limit of the offer range (i.e. the most conservative play).

    As far as I can see, the risk is that the deal is either cancelled or amended after you bought your odd lot. According to the SEC filings, an outright cancellation can only take place given something extreme happens (like WWIII breaks out) or if something more mundane happens (like a -10% move of the stock… not sure if with respect to pre- or post-announcement level). An amendment of the offer, on the other hand, can take place for any reason. This seems to leave open the possibility of a nefarious pump-and-dump by insiders.

    Based on other posts on this website, it looks like a steady track record of successful tender offers in the past would be an indication that the current one would also go as planned. In the case of XBIT, I don’t see any past tender offers in a quick google search.

    Any words of advice from members is appreciated.

  4. Random Deals

    For each XBIT share, Canada is going to withhold 15% on the imputed dividend of at least $23.21 (which is $30 minus the “paid-up capital” of $6.79 /share. Will the imputed dividend of $23.21 reported as foreign income on our 1099-DIV? If it is, will we have to pay taxes on that instead of just paying capital gain taxes based on our actual cost basis and the final tender price?

    Let’s say the imputed dividend is not reported as foreign income. So our foreign income is zero. But our foreign tax credit is limited to the “Foreign Tax Credit Limit” = total U.S. tax * foreign income / total income = 0. That means we cannot take the foreign tax credit? https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit-how-to-figure-the-credit

  5. Jamal.Sydney

    Anybody have a view on:
    1) If you do this from a US IRA account, are you still subject to the withholding?
    2) The chances of high subscription by odd lots causing a bluebird situation?

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