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