Current Price: C$102.36
Offer Price: C$103 – C$120
Upside: C$800 (if priced in the middle of the range)
Expiration date: 6th of May 2022
Imporant: The write-up below refers to BRP tender carried out back in 2021. For the information on the current 2022 tender please refer to this comment.
Due to high withholding taxes, this idea is suitable only for Canadian residents or others who are not subject to these taxes.
On the 15th of June, BRP Inc. announced intentions to launch a substantial issuers bid (tender offer) for C$350m. Consideration stands at C$94-C$113/share and the company expects to buy c. 4% of its shares. Odd lot priority is included with C$140 downside vs C$1700 upside. Non-Canadian investors will be subject to substantial withholding taxes. In 2019, paid-up capital used to be C$4.21/share and has likely remained at similar levels at the moment. Net of withholding taxes the consideration would be C$80.6-C$96.7/share. More precise information should be included in the upcoming issuer bid circular.
As the shares are currently trading close to pre-announcement prices and close to the lower limit, odd-lot arbitrageurs have a cheap (downside capped at C$140 or -1.5%) one-month option to wait for any positive developments or improvement in BRP share price. There might also be a play with BRP July options (for U.S. listing, ticker DOOO) assuming the share price remains within the tender offer range during this time – however, options trading volume is very limited.
The offer is likely to end up oversubscribed. Two major shareholders (Beaudier group) owning 27.7% of shares will make proportionate tenders to maintain their proportionate stake in BRP. Overall, arguments in favor of the upper limit pricing seem limited and it’s quite possible that the final price could be set at the lower half of the price range.
BRP Inc. has already done a similar tender in June’19 for 6%-7% of the outstanding shares at C$44-C$52/share. Beaudier Group, which owned 29% at the time and another major shareholder Bain Capital (21.3%) also tendered their shares proportionally. The offer ended up slightly prorated – 95.8% of the tendered shares were accepted at C$47.3/share. This time, however, the press release did not mention Bain Capital’s (currently owns 19%) intentions, so maybe the shareholder will abstain from tendering.
As the shares are currently trading close to pre-announcement prices and close to the limit, odd-lot arbitrageurs have a cheap (downside capped at C$170) one month option to wait for any positive developments or improvement in BRP share price.
The company designs, develops, manufactures and distributes powersports vehicles and marine products. Portfolio of products includes Ski-Doo and Lynx snowmobiles, Sea-Doo jetskis, Can-Am on- and off-road vehicles, Alumacraft, Manitou, Quintrex, Stacer and Savage boats, Evinrude and Rotax marine propulsion systems as well as Rotax engines for karts, motorcycles and recreational aircraft.
Due to covid induced shift to all kinds of outdoors-related activities and products, BRP saw a material boost in revenues, margins and earnings. Revenue growth is expected to continue this year at 25%-30% and EPS are guided to C$7.25-C$8.00. Results for the last two quarters show that the company is on-track of achieving these targets. So in a way, current tender prices BRP at only 12x-14x forward EPS, which is very cheap if current growth rates are set to continue.