Dundee Corporation (DC-PB.TO) – Odd Lot Tender Offer – C$139 Upside

Current Price: C$17.31

Offer Price: C$16.00-C$18.50

Upside: C$139 (if priced at the upper limit)

Expiration Date: 27th of August 2020

Substantial issuer bid

The idea was shared by Ali.

 

Dutch tender offer with an odd lot (<99 shares) provision and shares trading in the middle of the tender range.

On the 22nd of July, Dundee Corporation announced a substantial issuer bid for 76%-88% of its Series 2 preferred stock. Consideration stands at C$16-C$18.5/share (maximum C$44m in total) and the expiration date is set for the 27th of August. The offer will be financed by cash on hand (the company has recently raised C$151m from the sale of subsidiary shares).

Paid-up capital of the company is higher than the upper range of the offer, therefore both Canadian and non-Canadian "shareholders will not be deemed to receive a dividend as a result of the disposition of the Series 2 Shares pursuant to the Offer". This means, that there won't be any withholding taxes applied for non-residents.

On top of the offer consideration, shareholders will also receive 2/3rds of the Q3 dividend meaning additional C$0.22/share. Taking into account this dividend, the total gross upside for odd-lot shares exchanged at the upper limit stands at C$140 or a loss of C$107 if the tender gets priced at the lower limit.

So taking into account the size of the offer, it seems likely that most (or even all) of the tendered shares will be accepted and the offer has high chances of getting priced at the upper limit. I haven't been able to find information on the holders of the Series 2 pref. shares, however, it is stated that a certain director intends to participate in the offer with 3% DC-PB.TO ownership.

However, it should be noted that while the current owners of Series 2 are unknown, the company states liquidity issues as the main reason why shareholders should participate in the offer:

the Series 2 Shares have historically had an uneven pattern of trading, which may have made it difficult for Shareholders to dispose of substantial blocks of Series 2 Shares

Additionally, the offer (upper range) is set at a 5-year-high price, which might incentivize shareholders to cash out instead of holding it for the ~C$1.40/share annual dividends and a remote possibility (at the company's option) to get redeemed at C$25/share on the 30th of September 2024.

The offer comes following the company's turn around plan (see below) to simplify its investment portfolio and stabilize the financial position. This offer will also allow Dundee to significantly reduce the dividend costs - almost $5m/year is spent on Series 2 dividends (vs $2.5m on Series 3).

Worth noting that the company hints a possibility of further additional buybacks for other share classes in the future (PR).

The Board of Directors of the Corporation will continue to review various options for the allocation of capital, including any portion of the C$44,000,000 under the Offer remaining in excess of the aggregate purchase price payable pursuant to the Offer, with such options including, but not limited to, further repurchases of the Corporation’s securities, including without limitation, its Class A Subordinate Voting Shares and Cumulative Floating Rate First Preference Shares, Series 3 (“Series 3 Shares”).

 

Dundee Corporation

Dundee is a holding company currently mostly focused on mining sector:

dundee

The company was founded and is still controlled (76% voting power) by Canadian billionaire Ned Goodman and his family. Until recently, the company used to be run like a mess, after the financial crisis in 2008 it made a number of bad calls on commodities and got burned in the mid-2010s with the fall of commodity prices - share price was decimated from C$21/share in 2014 to C$0.80/share last year. In 2018 Ned's son Johnathan took over the role of CEO and started a turn-around of the company that is still ongoing - portfolio was simplified from over 100 investments to about 30, corporate expense and personnel reduced by over 2x, another class of preferred shares (Series 5) was turned into class A subordinate voting shares, etc.

 

7 COMMENTS

  1. Zulu Investor

    I think buying at prices in the middle of their tender range is risky because a lot of tenders (especially recently) have been priced at the lower end of the limit. Don’t get me wrong, the write up is solid and this will very likely close, just not at the price I think is optimal.

    1. dt

      If less than 76% of preferred holders tender then the tender price will be set at the upper limit. I do not think the results of other tenders have any relevance here. Dundee is buying back 76% of series 2 preferred holders and I have not seen a dutch tender similar to this one.

      So the question here is who are the holders of Series 2 preferred stock and how eager are they to tender. If the ownership is quite dispersed, then reaching 76% participation might prove hard (which is good for the likelihood of upper limit pricing).

  2. Brian

    DNDPF trades in U.S., I’ll investigate but not sure if this is same pref shares

  3. fishwithwings

    isn’t there a tax issue for US shareholders purchasing & tendering their shares?

  4. W51W52

    This one spiked to more than $19.00 per share today, hope everybody exited! 🙂

    1. DavidW

      They upped the bid to $19.5 for all of outstanding shares, and a slightly increased dividend to $0.26.

  5. Ilja

    As mentioned above, very nice development for this situation – the company has upped the price to $19.50/share + $0.26/share in dividends and decided to buy all of the Series 2 Pref shares, instead of the previously targeted 76%-88%. So there won’t be any proration for the tendered shares. The expiration date was extended to the 8th of September, however, shares are now trading above the offer price.
    http://dundee.financial/dc/-/media/DGC/DC/2020-08-24-SIB-Variance-Final.pdf

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