Dundee Corporation (DC-A.TO) – Odd Lot Dutch Tender Offer – 14% Upside

Current Price: C$1.40

Offer Price: C$1.40 – C$1.60

Upside: 14% (if priced at the upper limit)

Expiration Date: 11th of January 2021

Issuers bid circular

 

Dundee Corporation has announced another dutch tender offer with an odd-lot (99 shares) provision. This time the company intends to buyback 12%-14% of subordinate voting shares (class A) at prices of C$1.40 – C$1.60/share. The offer will be funded by cash on hand and will expire on the 11th of January. A certain director (Sinclair) holds 3.10% of class A shares and will tender all or a portion of his shares. Besides that, there is no information on the intentions of other shareholders. Polar Asset Management holds 17.45% of class A shares. Shares current trade at pre-announcement price.

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”. This means, that there won’t be any withholding taxes applied for non-residents.

Upside for odd-lot shareholders is only C$20 here, however, after a quick look, it seems that participating with larger positions could also be an option:

• This year the company has sold 2/3rds of its main holding Dundee Precious Metals raising C$150m and carried out (September) a tender for Series 2 pref shares (C$25 liquidation preference, were trading under $18 with low liquidity). Even after the offer price got increased from C$16-C$18.50/share to C$19.50, the offer was still substantially undersubscribed (63%). See the write-up here. The current offer is for common rather than preferred shares, but I think the previous offer signals on market’s sentiment towards the company.
• Dundee is still in the process of a turnaround initiated by the new CEO (founder’s son) back in 2018. Since then, a number of successful initiatives have already been carried out – aside from the above-mentioned divestment of Dundee Precious Metals, the company refocused on its mining portfolio and simplified the number of investments from 100 to around 30. Staff was reduced from 70 to around 30. Corporate expenses were also cut significantly. In October, Dundee has raised further C$60m by running a discount program in respect of Dundee Precious Metal warrants, while C$33m of further proceeds are still expected by May’21. So overall, the company is moving in a positive direction, holds a substantial amount of cash (C$140m), and has previously indicated intentions of further buybacks.
• Dundee currently trades at 60% discount to its book value of C$3.47. While this is a much smaller discount to BV than during previous years (85% in 2019 and 76% in 2018), the company has taken a clear direction of asset monetization return of cash to investors. As of end of September, the company had C$80m in cash and C$170m in publically traded securities, while debt and preferred shares stood at C$126m. So currently Dundee trades close net cash + publicly listed investments attaching almost no value to other private investments. Most of the company’s holdings are seemingly risky early-stage mining/pharma companies, so some of the discount is definitely warranted.
• The downside seems negligible as the company currently trades at the post-COVID recovery levels (since July). Until the offer expiration, no further quarterly results or substantial news are expected, so even if the offer is canceled, or oversubscribed, I don’t see the price falling significantly below current levels.

 

Dundee Corporation

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

The company was founded and is still controlled (76% voting power, mostly through super-voting class B shares) 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.