BRP Inc. (DOO.TO) – Odd Lot Tender Offer – C$800 Upside

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.

 

BRP Inc.

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.

71 COMMENTS

  1. nuggy5

    If I buy the US ticker will they be eligible for a tender without withholding?

  2. dt

    The US ticker should be treated the same way as the Canadian one and the same withholding taxes will apply. That is my understanding, however, issuer bid circular will be released shortly and will clarify this.

  3. nuggy5

    I bought a share in my US IBKR account and don’t see an ability to tender for what it’s worth

  4. rc99ar

    Still not seeing an ability to tender / corporate action in IBKR. Called my other broker twice and they don’t know what to do. Looks like the instructions are on SEDAR under Notice of Guaranteed Delivery. Never had a problem with these before, anyone else have issues?

    1. rc99ar

      Got it sorted. Just needed to get the right person on the other end of the phone.

  5. Sean McMahon

    Question for US-based investors. Does anyone have experience doing these in an IRA? If so, were you successful in avoiding withholding, and which broker did you use? I hold a few Canadian dividend-payers in my IBKR account and have never had anything withheld, but haven’t tried with tenders. Thanks.

    2
  6. nuggy5

    Just got the notification in IBKR.
    “As per the Offering Document: Deemed Dividend – A Shareholder who disposes of Shares pursuant to the Offer will be deemed to receive a taxable dividend on a separate class of shares comprising the Shares so sold equal to the excess of the amount paid by BRP for the Shares, being the Purchase Price, over their paid-up capital for purposes of the Tax Act. BRP estimates that on the Expiration Date the paid-up capital per Share should not exceed $4.18 for purposes of the Tax Act. As a result, BRP expects that a Shareholder who disposes of Shares under the Offer will be deemed to receive a taxable dividend.”

    I’ll try a single share and see what my net comes out to be. I’m in a taxable account. If someone tries in a non-taxable account that would be appreciated…

  7. W51W52

    Every time there’s a Canadian tender offer, the same question pops up, so I thought it’d be good to provide a definitive answer here.

    Article XXI of the U.S. – Canada Tax Treatment, Paragraph 2 (originally written in 1980, amended in 2007):

    “…income referred to in Articles X (Dividends) and XI (Interest) derived by a trust, company, organization or other arrangement that is a resident of a Contracting State, generally exempt from income taxation in a taxable year in that State and operated exclusively to administer or provide pension, retirement or employee benefits shall be exempt from income taxation in that taxable year in the other Contracting State.”

    Furthermore, per IRS Letter 2010-0203 (https://www.irs.gov/pub/irs-wd/10-0203.pdf):

    “Certain U.S. entities that are generally exempt from taxation in a taxable year in the United States (such as IRAs) are exempt from taxation on dividend income arising in Canada in the same taxable year (Article XXI (Exempt Organizations) of the Treaty).”

    Now, specifically, Interactive Brokers follows this guidance to the letter, and all tender offers / dividends / interest in IRAs/Roth are not subject to the 15% withholding tax. Schwab, on the other hand, is a bit trickier, and you’ll have to call them and specifically inquire about tax withholding on a ticker-by-ticker basis. DOOO has a 0% rate at Schwab, whereas Fairfax India has a 15% rate.

    1
    1. Terence

      Thanks, WW for the useful tax provisions. This is what “should be”, and it’s good that IB strictly follows. However, as you’re beginning to allude to, some brokers don’t follow or are inconsistent, and if your IRA is hit with the w/h tax, it might be impossible or at least too time consuming to get corrected.

      1. W51W52

        Just do all tender offers at Interactive Brokers :). Schwab also charges a $9.95 per corporate action fee, which makes doing smaller tender offers (like BMNM) cost prohibitive.

        Honestly though, Schwab is actually better for buying large cap U.S. and OTC stocks since they don’t charge a commission, period. Interactive Brokers still charges $0.005 per share for OTC stocks. On the flip side, Interactive Brokers is vastly superior in terms of foreign stocks. Almost any market you can think of, you have access to.

        1
    2. Jim Davis

      Interesting . So in your experience , when doing these in an ira/roth at IB, the full proceeds are deposited with no withholding of any kind? And no hiccups.

      Also , in the case of dual listings (USA/ CAN), I presume tenders are accepted from positions in either location.

      1. W51W52

        I can confirm from HCG, XBIT, GAPFF, GMP, and ORC.B tender offers that there have been no CAD withholding tax in my IRA/Roth IRA. at IB I can also confirm that dividend payments received from Canadian stock that I own/owned (ORC.B, AIM.PR.C, NEO, DRA.UN) that no withholding tax have ever been withheld.

        In case of DOOO, I called the company to confirm that both TSE and Nasdaq shares are acceptable for tender. I have not called WSG yet, but I would presume the same treatment.

        2
  8. Aidan

    Is there anyone here from Australia who has an understanding of the foreign tax offset rules?
    From what I can understand the first $1000 or foreign tax can be credited back, and we pay 10% foreign tax on Canadian dividends.
    So if there was only one odd lot offer per FY valued at $10,000 AUD then we would potentially be eligible to claim back all of the foreign tax?
    thanks

  9. Brian

    I just talked to Vanguard corporate actions and they said that IRAs are exempt from any witholding. Didn’t use to be the case but is now. BTW deadline is today for submitting shares, and it takes a day to load, so not advisable to buy there if you don’t already own it.

  10. Ilja

    BRP tender offer was completed around the middle of the price range (C$103.5/share). The idea is closed with a nice C$795 (8.7%) gain in 1 month.

  11. dt

    Posting this under the previous BRP thread, which can serve as a background on the company.

    BRP Inc (listed in US and Canada) launched a tender for $C250m (c. 3% of outstanding shares) at C$103-C$120/share. BRP shares currently trade below the lower limit. There is an odd-lot priority for owners of 99 shares or less. The offer expires on the 6th of May 2022.

    This is a Canadian tender and substantial withholding taxes will apply to non-residents (paid-up capital only at C$5.37). Therefore, this trade is applicable for accounts that are not subject to Canadian withholding taxes.

    As in the previous tender, two major shareholders (Beaudier group) owning 27.6% of shares will make proportionate tenders to maintain their proportionate stake in BRP.

    The tender last year was similarly sized (C$350m) and closed in the middle of the range at C$103.5/share. Quick glance at the guidance:
    – 2021 guidance at the time of the tender last year – 25%-30% revenue growth and EPS of C$7.25-C$8.00 (actual result 28.5% revenue growth and EPS of C$9.92);
    – 2022 guidance today – revenue growth of 24%-29% and EPS of C$10.75-C$11.00.

    The company produces plenty of cash from operations (albeit a lot of that gets reinvested in working capital and as capex) and has repurchased 25% of the outstanding shares over the last 5 years. The risk of company backing off from this offer seems very low.

    Betting on this with the odd lot position in an account not subject to withholding taxes should be a no-brainer. If tender gets priced in the middle of the range again, odd-lot holders are looking at almost C$1,000 gains. The only risk seems to be the opportunity cost of capital.

    https://news.brp.com/news-releases/news-release-details/brp-reports-fourth-quarter-and-full-year-2022-results-and
    https://news.brp.com/news-releases/news-release-details/brp-announces-terms-250000000-substantial-issuer-bid

    1
  12. Mike

    rookie question but where would you guys tender this to get the best possible price but also ensure you get your price?

    1. simcha123

      I would tender at no specified price, or lowest possible price in range. This is because you automatically get the higher price if that if where the tender prices at. On the other hand, if you specify a higher price, you will not get filled and the shares likely decline after tender expires

  13. jwestern

    Due diligence today includes checking whether this is an April Fool’s joke. Seems legit.

    8
  14. mishaba

    What the problem with withholding taxes? Have to file for foreign tax credits often anyway.

    What am I missing?

    1. spmcmahon

      You are taxed not based on your gains, but based on the “paid-up capital.” So, in this case, when you tender you’d be taxed as if your cost basis was C$5.37, not C$105 (or whatever you paid for it). If you are in the US, this trade needs to be in an IRA.

      2
    1. spmcmahon

      Yes, but make absolutely certain you’re doing it in a tax-advantaged account or else you will lose a lot of money on the trade.

      1
  15. blades

    1. Buy in IRA/401k, and there will be no Canadian withholding

    2. Based on past experience, US listed shares not a problem

    1
    1. bigdaddy85

      Meaning if you buy US listed shares in non-IRA account you don’t have to pay paid up capital tax?

    2. HomeSpunoff

      Thanks Blades. Another question about withholding…in IRA/401k, are dividends paid out by a Canadian company subject to withholding? Same with German?

    1. TravelerMSY

      We’re watching it. If I see it come up I will try to post it here.

      1
  16. dyuster

    DOOO, at the current price of $84 USD, translates to $104.66 Canadian $. Being that the tender is at C$103-C$120/share range, current price is within range, thus you can lose money on this trade, assuming the tender is at the low end of the range. Do I understand this correctly?

    Furthermore, did anyone try to do this in a TD Ameritrade IRA/ROTH IRA account in the past and had no withholding apply?

    1
  17. HomeSpunoff

    If I buy 99 shares of DOO.TO as well as 99 shares of DOOO in the same Interactive Brokers’ IRA account, will each be its own odd lot?

  18. THCap

    Does anyone know if you can tender 99 shares from multiple IRA accounts at different brokers?

    1. JoelHornstein

      You can. But there’s a significant risk that the company links by tax ID and doesn’t give your shares odd lot preference

      4
    2. HomeSpunoff

      Thanks Joel!

      Do you know if it will be treated as a separate odd lot if my wife buys 99 shares in her own Interactive Brokers’ IRA account (and I buy 99 shares in my separate Interactive Brokers’ IRA account)? Note that IBKR knows we are “married filing jointly” for U.S. taxation.

      1
    3. W51W52

      Brokers do not share TAX IDs with each other, and companies do not check the individual social security numbers of each one of their holders. I have done odd lots via multiple brokerages for years, never had an issue.

      2
  19. Bob

    As long as it’s different brokers you are good. Just don’t buy 99 shares from different accounts under the same broker.

  20. HomeSpunoff

    Besides Interactive Brokers (where corporate actions are free, such as this one…electing to tender one’s shares), does anyone know of other U.S. brokers that don’t charge a fee for corporate actions?

    1
    1. bigdaddy85

      Fidelity doesn’t but you need to call them to complete corporate action

      1
  21. Benjamin Perley

    Are y’all seeing the tender election on IB yet? Mine still missing. Started a ticket.

    1. HomeSpunoff

      Hi Benjamin, for my IB accounts (one ROTH and one Traditional IRA) a few days ago I was able to do (and did) the tender election.

      1
  22. fishwithwings

    Besides google alerts any other way to find these?

    FYI, this idea is available to non members.

    1. HomeSpunoff

      Hi fishwithwings, for a fee the weekly KEDM “Kuppy’s Event Driven Monitor” has most (or perhaps all) of these as well as other special situations. Unfortunately, KEDM costs a lot.

    2. dt

      Or just check SEC and Sedar regulatory fillings on weekly basis – as tenders take usually a month this frequency will be more than enough.

      We try to flag all of those that seem attractive on SSI.

      2
  23. Benjamin Perley

    @homespunoff,

    Odd. IB also confirms it’s listed, but it’s not on my account. DOO.TO, right?

    1. HomeSpunoff

      @Benjamin, yes I just double-checked that it worked today (4/19/2022) for me. It worked. It is for DOO.TO in my IB IRA under the tab “Choice Actions”.

  24. HomeSpunoff

    Does anyone/any website have a comprehensive list of all tender offers outstanding? For context, I am trying to monitor on a daily basis for whenever the share price falls below the lower end of the tender price range. Particularly because of recent marketwide volatility, I want to be aware of all intra-day opportunities when the share price falls below the tender range for any U.S./international company.

    1
    1. DanX

      From Dt’s comment on this tender: “The only risk seems to be the opportunity cost of capital.”

      With all markets down materially during the month, I am quite happy I had C$10k parked idly in this tender. Obviously next time might turn out differently.

      3
  25. drdansil

    I was taxed also. I tried discussing it with a rep today but got nowhere. He gave me a contact number. Hopefully can resolve this in our favor.

    You can contact your Premium Services team by calling:

    800-544-4442
    8 a.m. to 11 p.m., Eastern time
    Monday through Friday

    1. HomeSpunoff

      Is the tax solely pertaining to Fidelity retirement accounts?…In other words, has anyone been taxed for this tender event in another broker?

      1
    2. fishwithwings

      Were you able to get in touch with Premium Services?
      I was told to speak with their Tax team:

      To discuss this tax matter further, we ask that you please connect with our Tax team directly by calling:

      800-544-5373
      8:00 a.m. to 8:30 p.m., Eastern time
      Monday through Friday

    3. fishwithwings

      I was told this was a deemed dividend and that I needed to fill out form NR301 prior to the tender offer expiring to avoid the withholding tax.

      A Non-Resident Shareholder who disposes of Shares pursuant to the Offer will be
      deemed to receive a dividend equal to the excess of the amount paid by BRP for
      the Shares, being the Purchase Price, over their paid-up capital for Canadian
      income tax purposes. BRP estimates that on the Expiration Date the paid-up
      capital per Share should not exceed $5.37 for purposes of the Tax Act. The
      exact quantum of the deemed dividend cannot be guaranteed. Any such dividend
      will be subject to Canadian withholding tax at a rate of 25% or such lower rate
      as may be provided under the terms of an applicable Canadian tax treaty.”

  26. W51W52

    Ever time a Canadian tender offer comes up, we have this issue in regards to taxes.

    According to IRS Letter 2010-0203 (google that), tender offer / dividends are tax free in retirement accounts in U.S. (IRAs and Roth IRAs). However, the ENFORCEMENT of this is subject to the individual custodian. IB follows the Letter specifically, and there has never been any taxes withheld on dividends or tender offers in the 8 plus years that I’ve been using Interactive Brokers. Other custodians are more selective in the enforcement of this. Schwab states that “sometimes” they withhold 15%, and “sometimes” they withhold 0%. You have to call them before each Canadian tender offer to see what the policy is. No idea what the policy is at Fidelity or Vanguard.

    2
  27. Nathan

    It’s four weeks since the offer expired and I still didn’t get paid by IB for tendering DOOO (USA ticker). It’s showing on my IB account as DO.DIV4 CORPACT BRP INC/CA- SUB – MERGER.

  28. W51W52

    Check your statement for 05/19, the dividend portion of the tender offer was paid on that date. The “principal” or “paid-up capital” portion was paid a few days earlier.

    1. Nathan

      Are you replying to me? My IB statement is still not showing the dividend payment yet. Maybe that’s because I tendered the US shares (ticker DOOO) and not the primary shares DOO.TO which are issue in Canada.

      P.S. Is there a way to get email notifications of new comments?

      1

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