Odd Lot Tender Offer – C$350 Upside
This opportunity is actionable only for Canadian shareholders and accounts that are not subject to Canadian withholding taxes.
Imperial Oil has commenced a Dutch tender for a C$1.5bn worth of stock at C$78.5 – C$94.0/share. IMO shares currently trade below the lower limit. Odd-lot holders will be cashed out on a priority basis. The offer is for c. 3.2% of outstanding shares and will expire on the 8th of Dec. The stock is listed in both the U.S. and Canada.
On top of the tender consideration, shareholders will also receive the already-declared C$0.5/share quarterly dividend that will be payable to Dec 1 record holders.
At the current price of C$75.5/share, odd lot holders are set to generate an almost-risk-free C$350 in a month with additional upside in case IMO trades upwards during the next month or the tender gets priced above the lower limit.
ExxonMobil owns c. 70% of IMO and will tender on a pro-rata basis – i.e. to maintain the same ownership percentage after the transaction.
Imperial Oil has already carried two similar tenders last year and the risks of transactions getting canceled or terms amended are very low. At the same time, while there is a chance the offer gets priced above the lower limit, I would not put much hope into that.
- May 2022 – C$2.5bn, 5-6% of shares outstanding, C$62 – C$78 range. The final tender price was set at C$77/share, i.e. close to the upper limit. Exxon participated on a pro-rata basis. Covered on SSI here.
- Nov 2022 – C$1.5bn, 3% of shares outstanding, C$72.50 – C$87 range. The final tender price was set at the lower limit. Exxon participated on a pro-rata basis. Covered on SSI here.
The current tender comes at a premium pricing to the two previous transactions and is of identical size to the Nov’22 one. The almost 2x larger size of the May’22 offer as well as the materially lower tender range might have been the key drivers for why the final tender price ended up almost at the upper limit. Another factor, that might affect shareholders’ willingness to participate in the offer, is the prevailing WTI price, which is one of the key drivers of Imperial Oil’s profitability. WTI stood at $97-122/bbl during May-Jun 2022 and at c. $90/bbl during Nov 2022. This compares to $75/bbl currently with 2024 futures at similar levels. As such, I do not believe that there is a high chance of a surprise here.
Why this is actionable for Canadian shareholders only? The IMO paid-up capital stands at c. C$1.75/share and non-resident shareholders participating in the tender will be liable to pay withholding taxes on the difference between the final tender price and C1.75/share. From the offer document:
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 Imperial for the Shares, being the Purchase Price, over their paid- up capital for Canadian income tax purposes. As a result, Imperial expects that Non-Resident Shareholders who disposes of Shares under the Offer will be deemed to receive a dividend. Imperial estimates that on the Expiration Date the paid-up capital per Share should not exceed $1.75 for purposes of the Tax Act.