Quick Pitch: Imperial Oil Limited (IMO.TO)

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.

25 Comments

25 thoughts on “Quick Pitch: Imperial Oil Limited (IMO.TO)”

  1. Warning to Canadian shareholders: the difference between the offer price and the paid-up capital will also be treated as dividend income, and thus be taxed, unless you do this trade inside a tax-sheltered account like TFSA or RRSP.

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    • Any idea how US retirement accounts (i.e. IRAs) will be taxed?

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      • I have done many Canadian issuer bids in my IRAs and have never had an issue

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      • Hi loudmenshiner. Have you ever done a Canadian issuer bid in a Fidelity IRA? (I know that in my IBKR IRA I’ve had no issues, but unsure about my new Fidelity IRA.) Thanks!

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      • Which broker did you use? I’ve used Fidelity and Vanguard and had no issues until the ILLM offer in which tax was withheld for both accounts.

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    • I bought shares in my IBKR account and I’m from Europe. If I buy less than 100 shares it is profitable as a trade. I have not received the formulary yet and I ask IBKR support and they have not received anything. Is a good trade for me? Would I received the price of 94$/share or it’s not worth.

      I’m new and I’d like to know if it’s a good option. Thanks a lot.

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      • The C$94/share cash-out is not guaranteed. The tender amount (percentage of shares being bought out) is relatively small. The market appears to be hovering close to the lower limit, suggesting a higher likelihood of execution near or at the low limit of C$78.5/share. It’s advisable to discuss withholding taxes with your broker, especially considering your European location. If the tender is completed at the lower limit and withholding taxes apply to you, the return from this trade will be negative.

      • Read the article:

        “Why this is actionable for Canadian shareholders only? The IMO paid-up capital stands at 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.”

  2. I’m a little confused on the IMO.TO deal. I don’t have access to the Canadian listing, just the US (IMO). Is the odd lot still available? Is it still mostly risk-free? Tax differences? Retirement account considerations?

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    • Both American and Canadian listings will be treated the same way and US holders can even elect to receive consideration directly in USD – however, keep in mind large withholding taxes for non-residents. From the offer document:

      “Shareholders owning an aggregate of fewer than 100 Shares whose Shares are purchased pursuant to the Offer not only will avoid the payment of brokerage commissions, but will also avoid any odd lot discounts, each of which may be applicable on a sale of their Shares in a transaction on the TSX or NYSE American.”

      “The Purchase Price will be payable in Canadian dollars; however, Shareholders may elect to receive the Purchase Price in United States dollars as described in the Offer.”

      I am not able to advise on the usage of IRA accounts and whether withholding taxes will be charged in that case (please check with your tax advisor), but have heard people using IRA accounts for similar Canadian transactions.

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  3. Would we be able to buy the NYSE listed shares instead of the Canadian one?

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  4. Might be an odd question but do you think we would have the proceeds in time from this tender offer to immediately participate in the DBCO tender offer? I don’t have enough in my IRA to participate in both at the same time it seems.

    It seems like the time to actual payout varies by brokerage and tender offer deal…

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    • Based on experience in summer 2022 on IMO’s tender, cutoff was June 10th, and in their press release June 15th indicating that everything was finalized – estimated the balance would be deposited to tendering shareholders on or around June 21st.

      Placing this overtop of the current offer, I’d anticipate payment Dec 19th, though your broker may not reflect the cash until later in the week, but would then back-date the transaction.

      Reply
  5. Tender results: C$78.50, or U$58, minimum price as expected. Has been trading around this level for a whole month, but surprisingly dropped to U$53 on Dec 7, one day before the tender deadline. (withholding tax of about U$8.50 on non-canada residents)

    Bigger buyers will get only 20% of tendered shares purchased.

    Reply
    • This is similar in pattern to IMO’s previous tender offer that expired on December 9th, 2022. Canada is T+2 settlement (similar to the US), so one day before the expiration date, people (in cash accounts) can’t buy to participate in the tender offer anymore, so it is not a surprise that it dropped. In a lot of ways, for a brief moment in time, this was an even better opportunity than DCBO right now. For a U.S. investor, with an IRA/Roth IRA at Interactive Brokers, margin account, you buy @ USD $53 on Dec. 7 (IB’s deadline was 11:30 AM EST on Dec. 8), and participate in the tender offer via guaranteed delivery, and you get $58 ~10 days latter, the IRR is pretty dope, and no hand wringing about the 10% drop from offer date price condition (it came close, but not quite breaching it).

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  6. W51W52, you wrote “… with an IRA/Roth IRA at Interactive Brokers, margin account …”.

    A margin account (a non-IRA) will have the 15% withholding tax, making the trade/tender a loss. Isn’t it?

    Thanks for all your informative posts!

    Reply
    • An IRA/Roth IRA can also be a margin account. Margin account here just means you are borrowing against the broker for instantaneous settlements. For example, in a cash account, I sell 100 shares of AAPL, then I’ll need to wait 2 days before the cash is available, and then two days later, I can use the cash to buy however many shares of NVDA. In a margin account, I sell 100 shares of AAPL, then after the trade is executed I can immediately turn around and use the proceeds to buy however many shares of NVDA. The AAPL proceeds are “lent” to you from the brokerage for that T+2 interval, interest free. Of course a Cash Account IRA/Roth IRA also works, but a margin account is just more flexible.

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  7. I received 76.75 per share. I thought the lower range is CAD 78.5. I submitted 99 shares without specific price. does anyone know why would this happen? Just want to find out for future trades.

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    • I think the rest will come as a separate payment. The missing piece is the same as the paid-up capital of $1.75/share

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