Quick Pitch: Docebo (DCBO)

Odd Lot Tender Offer – $1000 Upside

This opportunity is mostly actionable for accounts that are not subject to Canadian taxes on deemed dividend distributions. Other shareholders will be taxed and, in turn, generate smaller returns (by my calculations around $300 per odd-lot). For more info on which accounts could participate see the previous posts on the recent Canadian tenders IMO and DOO.

Docebo has commenced tender offer and will buy back $100m worth of stock at US$55/share. The shares are trading at only $45. Odd-lot holders will be cashed out on a priority basis. The offer is for c. 6% of outstanding shares and proration will be high, so the setup is only for odd-lot accounts (99 shares or less). Expiration is on Dec 28. The company has listings in both the U.S. and Canada, but tender consideration will be paid in USD.

A $10/share spread, or more than 20%, is rather unusual and reminiscent of the early days of odd-lot arbitrage (2011-2015) when these setups were not as popular. If the tender closes at current terms, odd-lot holders stand to make $1000 per account before any taxes. The stock is already materially below the pre-announcement levels. The market likely expects DCBO shares to trade below the pre-announcement levels when the offer expires – during most of 2023 DCBO stock was under $40/share and only in November ran up to $50/share. While such a large spread on a tender offer seems suspicious, I do not think it is indicative of the likelihood of amendments/cancelation, which almost never happens anyway.

  • The tender was announced simultaneously with the management transition – the CEO/Founder Claudio Erba is stepping down to the Chief Innovation Officer’s role and the previous COO Alessio Artuffo is taking over the role of CEO. While this could be regarded as a negative sign, judging by the comments on VIC from a year ago, Alessio is the person who has actually been running the business already for a while:

We have not spoken with Claudio.  My impression from the calls is that he sortof fits the dreamer stereotype of a founder, with some grand goals and language.<…>In terms of the CEO, I would think of him as more of a CPO and encourage you to speak with Alessio Artuffo, I don’t believe its a stretch to call him exceptional, he is the rule leader of the business IMO.

  • Subsequently, the founder did not wait long and on the 27th of November sold 73% of his stake in the company at $44/share. In total that’s 900k shares or $40m worth of stock. Strangely this was done below the market prices ($46.25-$48.37 for the day) and way below the $55/share tender price. This has added further pressure on the DCBO stock price.
  • While dumping of the stock by the founder does not inspire confidence in the prospects of the company, this sale is the core reason why I think the tender is unlikely to get canceled/amended. If any changes were made, the company/management could be easily accused of stock market manipulation or insider trading.
  • The condition allowing the company to change the terms of the offer if there is a “decrease in excess of 10% of the market price of the Common Shares on the TSX or Nasdaq measured from the close of business on November 21, 2023” should no longer apply as it could be argued that stock dumping by management was the core reason that has driven down DCBO shares.
  • Intercap, the largest DCBO shareholder (43% stake), is also participating in the offer and will tender all of its shares.

The company has sufficient resources to carry out the tender with $170m of cash on the balance sheet as of Q3. This year Docebo has reached a sufficient scale in terms of recurring subscription revenues and is now operating at positive FCF. The large cash position is no longer needed to support the operations and Docebo has been spending this excess cash to buy back shares in the open market – since May’23 repurchased $51m worth of stock at an average of $38.5/share.

 

On taxation. DCBO paid-up capital stands at c. C$10.6/share and both resident and non-resident shareholders participating in the tender will be liable to pay taxes on the difference between the final tender price and C10.6/share. For non-resident shareholders, the withholding tax gets deducted automatically by the brokers. 15% withholding taxes on the deemed dividend part of the distribution would eat $7/share leaving $3/share upside – still a generous $300 per odd-lot account.

A Resident Shareholder who sells Common Shares to Docebo pursuant to the Offer will be deemed to receive a taxable dividend equal to the amount by which the amount paid by Docebo for the Common Shares exceeds the paid-up capital of the Common Shares for purposes of the Tax Act. Docebo estimates that the paid-up capital per Common Share on the date of take-up under the Offer will be approximately C$10.60

A Non-Resident Shareholder who sells Common Shares to Docebo under the Offer will be deemed to receive a dividend equal to the amount by which the amount paid by Docebo for the Common Shares exceeds the paid-up capital of the Common Shares for purposes of the Tax Act. Docebo estimates that the paid-up capital per Share on the date of take-up under the Offer will be approximately C$10.60

 

A bit of background on the company

Docebo provides corporate learning management software (LMS) allowing SMEs to train their workforce in areas of career development, sales training, and compliance. They are currently considered the leader in the enterprise LMS space and have been growing 2x the industry rate in the past several years.

dcbo

The company trades at 7.8x TTM sales, sporting 37% revenue CAGR during 2017-2022 and 80% gross margins. This is rather in line with industry peers – INST at 7.7x revenues (FCF positive but only mid-teens growth) and SKIL at 6.3x (faster growth, but still unprofitable). At the tender price of $55/share, Docebo would be valued materially above peer levels.

So it does not seem to be one of those tenders where the company is buying back an undervalued stock. Rather the company is distributing the excess cash to shareholders at a premium to market prices. Stock dump by the ex-CEO and participation in the tender by the largest shareholder, suggest the same. However, it does not mean the tender will not go through at the current terms.

142 Comments

142 thoughts on “Quick Pitch: Docebo (DCBO)”

  1. Is there a concern that the wife spread will attract attention from many odd-lotters and cause the odd lot priority to be amended, I recall this happened before?

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    • I do not think this is a real risk. There would need to be 18k odd-lot accounts to fill this tender – I doubt we will end up anywhere close to that figure. Due to Canadian taxation issues a far lower number of arbitrageurs would be able to participate in this one compared to the usual tenders in the U.S.

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      • I didnt understand taxation. If I buy at 50 and sell at 55, is the taxation on the gain of $5 or on the $50? Because a 15% tax on the 50 would be 7.5 which would put the trade in the red.

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      • You do not sell at US$55, you submit your shares to tender at US$55.
        The tender consideration will be split into US$7.8 (or C$10.6) return of capital and the remaining US$47.2 deemed taxable dividend.

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      • Ok, I get the ROC and the $47 taxable dividend.

        But then is there a short term capital loss on the $50 paid for each tendered share?

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      • If I’m understanding this correctly (please correct me if I’m wrong):

        You start off with your cost basis ~$45, tender offer is $55. In the tender offer c$10.6 is Return of Capital or $7.8. This leaves $47.2 left on the tender. In real terms, what’s left is the difference between original price and the remainder of the tender which would be $2.2. Pre-taxes, we make $7.8 + $2.2 = $10 (this much was obvious :D).

        However, now the difference between cost basis and what’s left on the tender is treated as a taxable dividend. This will be the difference between $37.2 (Original tender – RoC) and $47.2 which is $10.

        I’ve delved into the dividend tax code and it states this is a qualified dividend if “The investor held the underlying stock for more than 60 days during a 121-day period beginning 60 days before the ex-dividend date.” I don’t believe we would be eligible so we use this chart for rate based on income. (https://www.fool.com/terms/n/nonqualified-dividends/). I hope someone can correct me and say this is a qualified dividend as this would reduce our tax basis by a significant margin.

        Now, we have $10 – ($10(X)) where X is your tax rate. For me, it’s 24% — leaving $7.6/sh on the table. This would be $10 in an IRA to my knowledge.

      • Actually upon a second look, “A redemption of stock owned by a shareholder of a corporation may be characterized as a “sale or exchange” under IRC Section 302 or as a “dividend” payment under IRC Section 301”. In our case, it counts as a sale or exchange if we dispose all of our shares in the tender. This means that the $10 difference between adjusted cost basis and the remainder of the tender would be taxed as short term capital gains and NOT an unqualified dividend.

        Source: https://www.lexology.com/library/detail.aspx?g=39e500d7-5264-4bb2-8a7c-6ace8395de83

        This is US tax law, DCBO is based in Canada, but is listed on NASDAQ so unsure how it all comes together with the 15% withholding for non-CA shareholders. I think it replaces the capital gains rate but unsure.

    • The spread looks optically wide, but if we consider taxes it is around 6%+ for US shareholders.

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  2. would tfsa be taxed in the same manner – i.e. broker taking up the 15%

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  3. Thank you for the idea. How should you implement this? Buy 99 shares and tell the broker to tender the shares?

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    • If the tender terms do not change, buying and tendering 99 shares would be a way to guarantee your whole position is accepted in the tender. But please check the tax consideration as per the pitch above.

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  4. when will we know the proration and when does this have to be bought by? thanks!

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    • Proration will be announced together with the tender results. The tender expires on the 28th of December and you would need to check with your broker as they will most probably have a different deadline. For IB, it is usually at the noon on the expiration day.

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  5. The withholding tax for non-residents will be (55$ – 10.6$) * 15% = 6.66$, right?
    Dividend payout will be 55$ – 10.6$ = 44.4$ per share, in which way is the paid-up capital per Share (10.6$) paid out?

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    • You are mixing up currencies. C$10.6 paid up capital is in Canadian dollars, whereas $55 tender price in US dollars.

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      • Ah right, that’s where the difference to your calculation comes from.
        Do they pay a dividend for the full 55$ tender price and the tax only applies to the difference between the final tender price and C10.6/share, or do they only pay a dividend of this difference and the paid-up capital will be paid out in another way?

      • The second part of your sentence is correct “they only pay a dividend of this difference and the paid-up capital will be paid out in another way”. It will be a single payment combining both, but the paid-up capital portion will be treated as a return of capital and not taxed.

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      • dt, can you post where you got the 15% tax rate for US shareholders? thanks!

  6. DT, thanks a lot for this idea. I hope this goes smoothly.

    What are your thoughts on just buying the common here? There is usually a lag before the price goes up since arbs will be driving this a lot closer to the offer price.

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    • I do not think arbs will drive the price upwards – only 6% of the outstanding shares will be acquired and only a small percentage of tendered shares will be accepted (except for odd-lots, which will get 100% allocation). So the current market price – which probably reflects the expected DCBO price post tender – is much more relevant for larger-than-odd-lot positions, than the $55 one.

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  7. 7. Certain Conditions of the Offer
    …the Company shall not be required to accept for purchase, to purchase or, subject to any applicable rules or regulations, to pay for any Deposited Common Shares, and may withdraw, terminate, extend, vary or cancel the Offer or may postpone the payment for Common Shares deposited, if, at any time before the Expiration Date, any of the following events shall have occurred…
    (d)(v) a decrease in excess of 10% of the market price of the Common Shares on the TSX or Nasdaq measured from the close of business on November 21, 2023;

    Price of the US ticker closed at 50.42 on that date. The 10% level has now been breached so although tender may still proceed as is, the company may cancel or change the price.

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    • The 10% decline in price language seems fairly standard – I found it in IMO and DOO’s issuer bid circulars too. What’s the likelihood it actually get used by DCBO to get out of the tender?

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      • As I explained in the pitch above, I do not think the company can use this condition for cancellation anymore as the founder of DCBO used this tender window to offload majority of his stake.

      • dt, can you elaborate why the founder can offload the shares during this period of time? Or otherwise he is prohibited from doing so?

      • I am saying he was prohibited, but how can the company now cancel/amend the tender due to -10% condition when the decline in stock was at least partially driven by the founder/ex-CEO dumping $40m of stock? That’s why I do not believe the tender will get cancelled.

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      • Thanks. I am trying to learn the ropes so bear with me. You said the founder used this tender window to sell the shares. I wanted to know, if there is no tender, could the previous CEO still sell the shares without restrictions? I am trying to understand why the tender has anything to do with his ability to sell the shares. Thanks in advance.

  8. If this is done in a non-taxable account (IRA, for example). does this tax get withhold regardless? Not sure how it works for a foreign company and who the tax is being paid to. Thanks!

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    • See the linked posts at the beginning of the write-up (IMO and DOO) – the topic of non-taxable accounts has been discussed in the comments section.

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  9. If you purchased 99 shares of DCBO.to and 99 shares of DCBO.nasdaq in the same account at the same broker, might you slip through or would you likely get picked up as not being an odd lot holder?

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    • No idea if this could work, but if someone tries this, drop us a note if it worked or not.
      All will depend if your broker will aggregate holdings across both listings or submit these as separate odd-lots.

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    • I have not tried this before but can confirm if you tender shares in multiple brokers using the same identity, those tenders will be treated as odd lot. Also if you own for example, a RRSP, a TFSA and a joint RRSP then those are considered to be different beneficial owners. The gatekeeper is the broker, not the clearing system.

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      • “Also if you own for example, a RRSP, a TFSA and a joint RRSP then those are considered to be different beneficial owners.”
        Was this using IB?
        Thanks!

      • I need to double check it today to make sure the policy has not been changed. I specifically asked them before about it and they confirmed those account types I mentioned are treated as different beneficial owners.

        Before that I can’t share the name but it is a Canadian broker.

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      • hey frank, i see you addressed what i was saying below

        i assume then it’s pretty safe to buy in the TFSA/RRSP/RESP and margin account and still be treated as an odd lot?

      • Frank, just so I understand this correctly. A TFSA/RRSP/individual account and possibly even a corporate account, all tendering at the same broker would not have the shares aggregated ?

  10. As someone new to the odd lot play, what proactive steps do you need to take to ensure the 99 stock are tendered? What / how do you give instructions to your brokerage?

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    • It depends on the broker you are using, but, at least with Interactive Brokers, a message/notification usually arrives asking for a decision on the tender. That often happens a couple of weeks after the launch of the tender. If there is no notification, just write/call your broker to check the necessary steps to be taken.

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  11. In the words of Peter Parker at the beginning of “Into The Spider-Verse”: All right, let’s do this one last time.

    99 shares per broker. That is spread across all your accounts. Brokers track your aggregate holdings by Social Security Number, but they don’t share Security Security Numbers with other brokers, that’d be against the law. Taxable account, brokerage account, revocable trusts, all share the same SSN = aggregated.

    For example, you buy 99 shares in your Roth IRA. You’re golden.

    Example 2: you buy 99 shares in your taxable account and 99 shares in your Roth IRA, that’s 198 total shares, no longer an odd-lot, you’re screwed, DO NOT DO THAT.

    Example 3: you buy 99 shares at Interactive Brokers, and 99 share at Charles Schwab. You do the tender at both, you’re golden. Keep your mouth shut and don’t let Broker A know you own the same shares at Broker B. If you do, you deserve what you have coming to you.

    Canadian tender offers SHOULD have no withholding tax for “deemed dividend” in U.S. retirement accounts (i.e. IRAs and Roth IRAs), but not all brokers “respect” that, and some brokers only “respect” it on a case-by-case basis. Furthermore, some brokers charge a “corporate action” fee (i.e. Robinhood?), others don’t. Given the size of the P&L here, the fee shouldn’t be a deterrent. If your broker is confused, slap them with below and be forceful (“you are breaking guidance given by the IRS, and I do not believe you would want me to file a complaint with FINRA”):

    Here is IRS Letter 2010-0203:

    https://www.irs.gov/pub/irs-wd/10-0203.pdf

    Key passage: “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 that same tax year (Article XXI (Exempt Organizations) of the Treaty).”

    Interactive Brokers, respects it all the time. Never been an issue, no worries. No fees. No need to call, they are golden.

    Charles Schwab, respects it most of the time, but definitely call them to make sure that there is no withholding.

    Vanguard, respects it most of the time, but definitely call them to make sure. Have patience with them because they are a non-profit so their support staff doesn’t get paid a lot.

    E*Trade, no experience, have heard that they respect it most of the time, but definitely call them to make sure.

    Fidelity, no experience, but I have heard from other sources that they are NOT good. They might even ask you if you are doing the odd-lot at a different brokerage (not cool of them, but not illegal either; it would probably be illegal for you to lie). Avoid if possible.

    Every other brokerage: pick up the phone and find out for your damn self.

    I don’t think there is a strict legal prohibition for a soon-to-be CEO to sell his/her shares immediately after the announcement of a tender offer. It is stated in the 11/22/23 press release: “Such individuals may sell Common Shares on the TSX or Nasdaq while the Offer is outstanding.” Nor do I think there is a strict legal precedent in saying that such an action (selling of shares by management/board) would null and void the “10% drop from announcement date price” condition in standard tender offers. However, I do agree that it would not be a good look.

    At the end of the day, we know the 43% owner, InterCap Equity, intends to participate in the tender offer in with the goal of maintaining an approximate 40% ownership interest in the company. InterCap is the entity owned by Jason Chapnik, who is the Chairman of the Board of DCBO. He knew that Claudio wants to step away. He knew that Claudio probably wants to sell his shares. Yet, he and the rest of the board, as an mechanism to stabilize the stock price, pushed out a tender offer at a price that is higher than the all time highs for the stock. It sounds like he wants to take some chips off the table. The question is: would he negotiate against himself and cost himself however many millions of dollars by re-cutting the tender price lower, or suffer a significantly higher Mark-to-Market loss by pulling the tender offer all together due to the breach of the 10% condition. If you are cool with that risk, then this is the best odd-lot tender offer opportunity since CMLS during May of 2022. If you are not cool with that risk, stay on the sidelines.

    Another interesting tidbit is that the odd-lot is actually mentioned in the press release. “If Common Shares with an aggregate purchase price of more than US$100,000,000 are properly tendered and not properly withdrawn, the Company will purchase the Common Shares on a pro rata basis except that “odd lot” tenders (of holders beneficially owning fewer than 100 Common shares) will not be subject to pro-ration.” Along the same lines that “it would not be a good look for the Company to pull the tender offer due to the 10% drop condition because that was caused by Management selling the stocks themselves”, it would also not be a good look for the company to “eliminate the odd lot provision just so that slightly larger / institutional investors / InterCap can get a slightly larger piece of the tender offer pie.”

    Lastly, keep your mouth shut. Don’t call the company and specifically ask if they are going to cancel the tender offer. Try to play it cool and pretend that this is not your first rodeo.

    @DT: please mention this comment for all future U.S. and Canadian Tender Offers. You’re a good man for writing the same answers OVER and OVER and OVER again throughout the years, but eventually I can imagine that this gets to be a little bit annoying for you.

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    • Also, never post or discuss odd lot ideas anywhere else off this board. People underestimate how easily these provisions get dropped. It has happened several times when such ideas made it to Seeking Alpha and VIC.

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      • Google, “DCBO odd lot Seeking Alpha”…. The key paragraph is publicly available….

    • Thank-you for the detailed reply, much appreciated.

      Is there any way that the same company holder can be linked up across different brokers?

      Eg: if my company, ABC LLC, purchases 99 shares of DCBO in IB and also purchases 99 shares of DCBO in Schwab, can they link up my company’s holdings using my tax number, address, legal identifier number etc? “

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    • Semi-valuable data point about Merrill Edge IRAs.

      I checked my foreign dividend history there (eg $FNV) and they do not withold tax. In fact, in the statement it’s listed under the “Tax Exempt Dividend” section.

      So I’ll roll the dice there too.

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      • But Merrill Edge charges a relatively high amount for corporate actions

    • Is this different for Canadian accounts? Several times I have done an ODD LOT tender at IB in my TFSA, corp account and RRSP and it’s worked fine.

      Also what is the worse case scenario here if you don’t get the tender?

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  12. Thanks for the insights. Truly appreciated it. I kind of disagree with the example two as I have been doing this over the years with the broker I use with no issues. But you actually reminded me that the policy could have changed. I will double check with them before I tender the shares.

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    • Who is your broker and when was the most recent time this worked? Total over 99 shares between 2 accts, correct?

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    • Asking your broker about a policy like that seems like a sure way to kill the geese with the golden eggs. If you indeed have a broker that doesn’t aggregate positions across accounts I would treasure it and stay quiet.

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      • That is a really good tip. I am actually gonna tender them today. In the past, after a few business days they would send me a message saying the instruction has been carried out. Let’s see if they raise any objections this time.

        Thanks all for the tips and feedbacks.

      • Customer reps are messengers at any retail broker – asking about it is making sure you don’t get pro-rated and lose money instead of making a relatively safe $1000.

  13. Naive question about the whole witholding tax concern.

    Any tax paid to Canada is recoverable as a tax credit via form 1116. Deal closes in Dec 23, so at most we’d be loaning money to the IRS (or RevCan) until May ’24. Why is that a problem?

    This is not *extra* taxation, after all, just *misplaced* taxation.

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    • I am not sure you are correct. The issue here is not whether Canadian or U.S. authorities charge the tax, but that the majority of the tender consideration will be considered as dividend distribution and therefore taxed accordingly. This differs from most of the tender in US, where tender consideration is treated as return of capital.

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      • yes, but at the end of the day, I apply US taxation rules to my transactions, regardless of what Canada believes or withholds.

        For example, Canada does not have long term vs short term capital gains taxes; I apply US rules on those holding periods. I’m not a professional here, but it seems to me that the withheld tax appears as a foreign tax credit.

        I suppose I can consult a professional, though the involved amounts seem small.

    • Form 1116 limits the deduction per year to your U.S. Federal tax rate. For example, if you have $700 in Canadian dividend withholdings, made $100K last year and paid $10K in federal taxes, you can only deduct 10% or $70, the rest carries over. It would take 10 years at that rate to recover the full amount. Even if you are in the highest tax bracket, it would take 3-4 years to recover since your overall tax rate is less than your marginal rate.

      It is clearly worth buying under $45 in a taxable account. The question is at what price do you sell vs tendering.

      https://www.irs.gov/pub/irs-pdf/f1116.pdf
      Line 21 is the maximum credit allowed and is essentially Foreign Income * Tax Paid / Taxable Income

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  14. Another naive question – Are there any deadlines concerning the purchase date that we need to be aware of here, e.g. the shares needed to be own on/prior to the Nov 22 announcement? I assume not since it was posted here on 11/30, but I saw in the press release they described sending info on instructions for tendering to shareholders around Nov 23.

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    • You only have to worry about your broker’s internal tender deadline

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      • The expiration date is December 28th, 2023. Most brokers will have a deadline earlier than that, probably before Christmas, say December 22nd or so. Interactive Brokers’ deadline is 1 PM ET on 12/28/23, so you can literally buy on the morning of the expiration date and still be eligible to participate.

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  15. has anyone tried odd lots on kids accounts (under 18) – with a custodial account? Is that considered a separate account?

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  16. also, for other canadians – can you make the transaction under your tfsa, rrsp and margin account and get the odd lot provision for all of them? I know it’s the trustee account (ie computershare) for registered account but i was wondering if they look at the beneficiary

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  17. Naive question #3. What prevents a “short against the box” strategy for protecting the tender?

    Buy 99 shares in each of 5 accounts, short 495 shares in another account. If the tender fails, close both sides at the same price.

    Tender succeeds, close the short position either on the last day, or right after, when the stock will possibly drop as everyone dumps their non-pro-rated shares.

    I must be missing something obvious here.

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    • Yes, I’m an idjit; can’t short at the tender price, can I. Sure wish there was a way to delete dumb comments.

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      • Say you buy at $45 USD, and the tender is at $55 USD. You do your 99 at 5 accounts, and short 495 in a sixth account (the sixth account is a taxable account; you can’t short shares in an IRA/Roth IRA in the U.S., not sure about Canada). Normally, I’d be worried that if the stock recovers to >=$55, then the loss on the short will offset the gain in the tender offer.

        HOWEVER, given the specific situation here: low % of shares outstanding being tendered, 43% holder pro-rata participating for liquidity at a specific price -> no near-term catalyst that would necessarily drive the stock up from now till expiration date; I wouldn’t say shorting the 495 is worst idea in the world. If anything, you are protecting yourself on the Mark-to-Market drop in the stock for dipping below your cost basis. It’s a slightly “greedier” derivative of the original trade.

    • First of all: it’s illegal: https://www.sec.gov/rules/2002/06/commission-guidance-application-certain-provisions-securities-act-1933-securities

      Exchange Act Rule 14e-4,73 commonly referred to as the “short tender rule,” is generally designed to preclude persons from tendering more shares than they own in order to avoid or reduce the risk of pro rata acceptance in a partial tender offer. A person may tender shares into a partial tender offer only if both at the time of tender and at the end of the proration period the person has a “net long position” in the subject security or an equivalent security equal to or greater than the amount tendered into the partial tender offer. Under Rule 14e-4, a person’s “net long position” in a subject security equals the excess, if any, of such person’s “long position” over a person’s “short position.” The calculation of the net long position must be done both at the time of tender and at the end of the proration period, or period during which securities are accepted by lot, including any extension thereof.

      Second: your short position can / will be adjusted by your broker to adjust for the tender offer. If the party who ends up with your sold shares tenders, you will have to pay your pro rata portion of the tender pride.

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      • “price”

        Also, judging by the number of comments here, the odd lot ‘game’ will be completely over within a year or so. It’s getting way to popular. A shame, but it is what it is, I guess.

        Here’s a suggestion to all of you who are new to this: keep quiet! You are making money at the expense of larger shareholders. The chairman of the board wants to get $40m in cash. If SSI members make $1m with this odd lot provision he loses out on $500k. Guess what he will do if he finds out what we are doing ..

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      • Thank you for the detailed response and the pointer. Rule 14e also discusses option-based hedging:

        “Rule 14e-4 requires a person tendering into a partial tender offer to include in the calculation of his or her short position the amount of subject securities that the person is obligated to deliver upon exercise of a standardized in-the-money call option that was sold on or after the date that a tender offer is first publicly announced or otherwise made known by the bidder to the holders of the security to be acquired.”

        OTM call options and puts appear to be excluded per my reading of the above.

  18. A question about tax for Canadian’s TFSA: For a Canadian company listed on the NASDAQ, the treatment can be a bit complex. If the company is considered a U.S. resident for tax purposes, dividends paid may be subject to U.S. withholding tax. However, if the company is merely listed in the U.S. but is a Canadian resident for tax purposes, the dividends might not be subject to U.S. withholding tax.

    Do you know if this shareholders would have to pay US withholding tax when tendering their shares in a TFSA?

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  19. What’s the worst case scenario on this? I usually don’t look to what the risk is on these but it seems prudent in this case

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  20. Yes, as Charlie Munger says, always invert. So, what is the risk/downside here, structurally/tax-wise, assuming the market price, even if the tender is cancelled wouldn’t drop much below 45

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    • I think it is taxable still in 2023, as tender expires and shares will be repurchased on Dec 28. Just the actual payout will be delayed by a few days.

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  21. Has anyone tried this with a corporate acct and an individual acct both at ibkr? Do they get blended together or are they separate?

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    • Last I checked with IB and Schwab, the totals are aggregated per SSN per broker. It’s been a while though if anyone can confirm?

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      • That would mean the corp and personal get combined, I guess – I’ll still do it in the tfsa and rrsp and hope nothing has changed

      • MikeH, have you tried doing this with TFSA+RRSP with IB, and did IB aggregate the shares?

    • MikeH, have you tried doing this with TFSA+RRSP with IB, and did IB aggregate the shares?

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  22. Has anyone got the Corporate Action option for tender yet? I use IB and it hasn’t shown up after quite a few days since I bought the shares (both USD and CAD shares).
    Is this still going to happen?

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      • Still not seeing corporate action option for tender yet in IBKR. Just want to see if I am perhaps looking in the wrong place. Is it up yet?

      • I messaged IBKR to see why it’s not there. MikeH, were you told it would update last wk?

      • I messaged IBKR last week and asked why the corporate action was not there. They just said they were working on it and I would get a message when it was available. Nothing yet.

      • I messaged them yesterday Dec18,2023, they said they are still processing it.

    • Would you mind updating E-trade deadlines to buy and submit? Normally they just have to settle by submission deadline – so you have to buy T-2 or Dec 22 in this case. But IB, for one, has had later deadlines to buy (last I remember, just a few hours before the submission deadline).

      Anyway, similar to IMO most recently, I think there could be a rewarding play last minute if you have the right broker. So I’m also sharing the couple broker deadlines I’ve heard from so far:

      Schwab
      We must receive your response by December 27, 2023, 7:00 p.m.
      (usually must settle by this date so Dec 22 buy deadline I’m presuming)

      Merrill Edge – $30 fee
      Final deadline to submit for tender Dec 27 5pm
      Dec 22 last day to buy

      Waiting on a few more but please do share if you have unnamed brokers.

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      • Etrade due date: Dec 26 ; T+2 ; $38 voluntary corp action.

        Sold my shares ~$49 owing to the w/h tax issues.

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    • I have completed a Canadian tender in a Fidelity IRA. They initially did withhold taxes, but after I called to complain they agreed the withholding should be removed because it’s an IRA. So ultimately it worked out but required an extra call. I didn’t have the NR301 on file though so curious if that would prevent the issue.

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      • Was this for the DOO tender offer? Did you speak to a manager or something?

  23. I’m out at $51.29 taking my chips off the table in this mysterious upswing. My guess is DCBO tender has locked up so many shares there aren’t any sellers left, so probably got out too early. Would be hilarious if it started trading over $55.

    I had been worried about odd lot provision being stripped or being forced to pay withholding even though I was holding in IRAs, so derisking here even though I think those risks are pretty low.

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    • Most if not all professional parties can submit their tender instructions at the very last minute, so there is no reason to believe a significant amount of shares are locked up at this moment.

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      • Anyone planning to tender who isn’t an odd lotter should be selling now. Odds are that full lot tenders won’t get most of their shares accepted, and then there is withholding for taxable accounts. So this price action is just getting more and more mysterious.

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  24. I am quite surprised by the DCBO price upswing over the last two weeks – this seems to coincide with a general spike in tech stocks during the same period (NASDAQ is up 6%).

    At these prices, I think it makes sense to hold only for those that have: odd lot positions (guaranteeing acceptance in the tender) in a tax-sheltered accounts (ensuring withholding taxes will not be charged).

    All the others should exit now. Betting on the continued rise of DCBO stock seems futile when the company trades at 8x revenues and its largest shareholder will reduce its stake in the tender offer.

    The $700 return for non-tax-sheltered accounts is already materially above the initially expected c. $300 from the participation in the tender offer.

    That’s why I like playing these seemingly small upside tenders – in some cases, random price swings during the tender period can result in quite material gains, and the downside is always well protected.

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      • I thought that and agree – but also it’s easy to short in a somewhat liquid options market. I sold a call just for shits. Borrow is low so getting assigned prob not an issue.

      • I sold OTM calls (at 55); selling ITM calls while tendering violates SEC rules.

      • can you quote that SEC rule? I didnt say i sold ITM calls but just curious.

      • I posted it here in the comments just a couple of days ago.

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    • My apologies if the answer to this question is obvious, but why would it be in our best interest to sell in this upswing (at for example $52 per share) when we know it will very likely be tendered/sold in a few days for $55? Thanks!

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      • I closed this out. As a non Canadian/ non US investor it was easier to avoid the tax by riding it up & closing out early. Left a few dollars on the table, but nice idea still. Happy Holidays all !

      • If I understand correctly, it’s because it is taxed differently. A normal sale of a stock is taxed as a gain between your sale price and purchase price. A tender offer is taxed such that all of the money you receive is taxed. From a comment above from dt:

        “You do not sell at US$55, you submit your shares to tender at US$55.
        The tender consideration will be split into US$7.8 (or C$10.6) return of capital and the remaining US$47.2 deemed taxable dividend.”

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      • I see, but IBKR says the following:
        “A Shareholder who sells Common Shares to Docebo pursuant to the Offer will be deemed to receive a taxable dividend equal to the amount by which the amount paid by Docebo for the Common Shares exceeds the paid-up capital of the Common Shares for purposes of the Tax Act.”

        Doesn’t this mean that the taxable event is the difference between the price you bought at and the tender priced (so $10 or so)?

      • Good question. That would seem to contradict what dt said. So I guess we’ll have to see if someone more informed about this can clarify. It’s unfortunate because this sort of question comes up every time there’s an odd-lot quick pitch, but I haven’t found a definitive answer — presumably because there isn’t one and it’s specific not only to the country but also (perhaps?) the offer.

      • @Charles No, read your own quote carefully. The tax is the difference between the price the company is paying you for your shares, and the paid of capital of the company. What you paid for your shares / what your cost basis is, is not a part of the equation.

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      • Thanks AV. Just to add to this, because I didn’t understand the reasoning until now: The idea is that “paid-up capital” is generally the amount that the *company* received for the stock initially, whenever that stock was issued. https://www.investopedia.com/terms/p/paidupcapital.asp

        So you are paying for the gain from the initial share price to the current offer. How this makes sense because it’s not actually what your capital gains are is beyond me, but those are the rules.

  25. Tax aspects for consideration (sale, tender, etc)
    – Canadian Tax Withholding is not LOST but instead a credit on one’s tax return
    – Sale will result in STCG
    – Thinking (not sure) that the entirety of the ‘deemed dividend’ may be subject to preferential dividend taxation rate/treatment
    – Thinking that after accounting for the deemed dividend the remainder of the tender proceeds (‘sale’ proceeds) generate a sizeable STCL vs the purchase (basis) in the position. THIS has positive tax reporting attributes

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  26. Anybody know Fidelity’s deadline to buy shares which are still eligible to tender? And deadline to tender shares?

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  27. The tender was not cancelled after all.

    This again proves the value of SSI in terms of ROI. Besides I learned a lot from knowledgable individuals. Keep up the good work Dalius!

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  28. dt is getting a bit too popular!

    19.35m shares were tendered, 1.81m were accepted. That suggests proration of ~9.40%. However, according to the PR: “As the Offer was oversubscribed and there were a SIGNIFICANT (emphasis mine) number of “odd lot” tenders (which are purchased on a priority basis and not subject to pro ration), shareholders, including Intercap, are expected to have approximately 6.77% of their successfully tendered Common Shares purchased by the Company”.

    I think that implies that about 533k shares were tendered using the odd lot priority. Intercap received $50m instead of $70m. My guess is they won’t be doing this again! It would actually not have surprised me if they had changed the tender offer rules to exclude odd lot priority after seeing this.

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  29. It looks like Fido withheld again for IRA’s. It’s preliminary and they did make good on the last CAD tender they withheld after complaints were filed, but it took a long time to straighten out.

    Date 01/08/2024
    Symbol 256TND054
    Symbol Desc. DOCEBO INC COM NPV TENDER FROM CUSIP 25609L105
    Type Cash
    Shares -99.000
    Price 8.00
    Amount $792.00

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    • Yup, and in my self directed 401k as well. Sooo looking forward to complaining for months.

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  30. Let’s see what the Fido reorg / div pending entry looks like before jumping to any conclusions, that’s the other $47 worth. Hoping when that dividend entry gets redeemed and paid, we get the full $47/share and not just 85% of it with 15% going to tax withholding. That’s what happened with DOOO and it took a few months to straighten out.

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  31. What is the $8 portion from Fidelity supposed to represent? In other words, why split out $8 from the other potential $47?

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  32. $10.60 CAD / 1.33 = ~$8.00 USD = paid-up capital, the non-dividend portion.

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  33. The 47 cash out still not paid at IB ?

    Isn’t this taking an awfully long time ?

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  34. Welcome to the world of Canadian tender offers! I didn’t get the dividend proceeds of IMO until 01/02/24 or so, and they announced final results on 12/13/23. You get a higher total return, generally speaking, in Canadian Tender Offers, but the trade-off is how much you have to wait.

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    • What happened to the THREE days ??? That was Yesterday, based on their filing of the 4th .

      WHEN WILL DOCEBO PAY FOR THE COMMON SHARES DEPOSITED?

      Docebo will publicly announce the number of Common Shares validly tendered to the Offer, the number of Deposited Common Shares to be purchased and the aggregate purchase price promptly after the Expiration Date and will take up Common Shares to be purchased pursuant to the Offer promptly after the Expiry Time (which is required to occur no later than 10 days after such time). Docebo will pay for such Common Shares promptly after taking up such Common Shares (which payment is required to occur no later than *** THREE *** business days after the Common Shares have been taken up). See Section 9 of the Offer to Purchase, “Taking Up and Payment for Deposited Common Shares”.

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      • Haha, relax. I’m guessing you are new to this. It can take a while before the proceeds actually hit your brokerage account. Others have the money already and IB is a very solid broker so I’m sure you’ll have it within a week.

        Don’t buy 99 shares and then start bothering your broker 1 day after you expected to be cashed out completely – that’s a sure way to kill this opportunity set in the long run.

      • 3 Days is the time period when the company (DCBO) pays the money to Cede & Co., the proxy for DTCC. At that point in time, the DTCC then distributes the money to all the different custodians. The hold-up is usually on the DTCC side, not on the Company side.

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      • Trust me, I’m not new, unless doing this for 30 years is new. 😉 . Where does it say I’ve bothered the broker ?

        IB is usually quite prompt about these if the money is there. They paid the $7 part days ago .

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      • Gotcha, sorry for making that assumption. Still, I’m pretty sure it’s going to be fine within a few days or weeks.

  35. I received $47/share late yesterday in my Fidelity IRA, which in addition to the $8/share from several days ago equals the full $55/share without any tax withholdings. Thanks dt!

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  36. Etrade withheld and only paid $47.95/share in total via two payments ($39.95/sh and $8/sh). Looks like they withheld as if it was a dividend. Will they clear this up internally or should I give them a call?

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  37. Charles Schwab withheld foreign taxes in my Individual 401(k). Even after sharing the IRS letter and making several messages and phone calls, they still wouldn’t reverse the withholding.

    In my E*Trade Roth IRA, there was no withholding for the same offer.

    Is foreign tax treatment for 401(k)s different from IRAs? I don’t think it should be.

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    • Tell them you are going to switch brokers if they don’t fix it, and do it.

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