Current Price: $13.09
Offer Price: $12.50-$15
Upside: $189 (if priced at the upper limit)
Expiration date: 6th of August, 2021
On the 15th of June, Fairfax India Holdings announced substantial issuer bid (tender offer) for 6%-7% of its outstanding shares at $12.50-$15.00. Shares currently trade close to the lower limit. Odd-lot priority is included. Paid-up capital is $11.55/share, so net of potential withholding taxes (for non-Canadian residents) the consideration would be c. $12.36-$14.48/share offering $137 upside if the tender gets priced at the upper limit and $72 downside if priced at the lower limit.
Given the small size of the tender, odd-lot position sizing might be necessary to ensure acceptance in the offer. However, at current prices the company seems to be relatively cheap and management is doing their best to communicate that to shareholders. So there are some chances that majority of shareholders will decide not to participate in the tender and the offer will get prices at the upper limit.
A bit of background
Fairfax India is a subsidiary of Fairfax Financial Holdings, founded by a legendary Canadian investor Prem Watsa. Historically, before 2019 FIH used to trade around its book value, however, with the impact of the pandemic, the discount has widened considerably. Current BV stands at $17.98/share and the offer comes at 0.7x – 0.83x BV.
Prem Watsa himself has commented on the cheapness of FIH at the current level:
The Offer will allow us to return capital to our shareholders at what we view as an attractive price given our belief that the Company’s recent trading price does not fully reflect the value of our business and future prospects
Hence, FIH directors, parent (Fairfax Financial Holdings) and its affiliates, who own a combined 22% of shares, will not tender.
The company takes a long-term value approach towards investments in the Indian region. Portfolio consists mostly of stocks (public and private) and bonds (2% of the portfolio). The largest asset (around 50%) is a stake in Bangalore National Airport (the 3rd busiest in India), around 30% is in the financial industry and around 20% is in the chemical and related products industry.
Since its IPO (at $10/share in 2015) FIH grew its BV at 10.7% CAGR, outperforming broad Indian indexes. At the moment, FIH trades at pre-COVID levels, whereas the indexes are trading at 30%+ premium to pre-COVID levels:
The company has also been buying shares in the open market – 1.36m since Sept’20 slightly below $10/share average price. Another 2.1m shares were authorized for open market purchases as of Sept’20.