Odd Lot Tender: C$45 upside (at C$22.55)
Tender in Canada with an odd lot priority for a bit of ice-cream money. It’s only actionable for accounts not subject to Canadian withholding tax.
Chorus Aviation is repurchasing about 8% of its outstanding shares at C$23.00–C$25.00. Odd-lot holders (99 shares or fewer) will be accepted on a priority basis. The offer was announced on September 22, formally opens today, and expires on November 10. CHR is trading at C$22.55, below the lower end of the tender range. This offers around C$45 of “risk-free” upside, plus some optionality on the final price coming in above the minimum.
Paid-up capital is C$15.75/share – consideration amount above this would be treated as dividend and taxed accordingly. That’s why the opportunity is only actionable for those exempt from these taxes. See this comment from W51W52 for details on which accounts might subject/not-subject to Canadian withholding taxes.
Management owns only a minimal number of shares and does not intend to tender. The sole major holder is Brookfield, with a 14% stake. Its current intention is not clear. CHR completed another tender earlier this year, and management did not participate in it.
That earlier tender was half the size of the current one (C$25m vs. C$50m) and was priced at C$17.50–C$21.00/share. It cleared at the upper limit of C$21.00/share and was strongly undersubscribed, with only about 40% of the intended amount purchased. Notably, CHR was trading above the lower limit during the whole tender period. The company has also bought back another 4% through NCIB (open market buybacks) this year at around C$20.5/share average price.
The only major operational update since the last tender was Q2 earnings, which were solid with reiterated outlook for 2025 and 2026 (aside from FX changes). Management has been constantly saying that CHR is undervalued. For example, here’s from the latest conference call when referring to the previous tender:
With the announcement of a substantial issuer bid, which is currently active for investors to consider, the offer to buy back up to 25 million shares in value is in addition to the $53 million in shares already purchased since we commenced our NCIB program in 2022. Altogether, these 2 streams represent a meaningful effort to address the undervaluation of our shares. We continue to view our shares as undervalued and believe these programs are a prudent use of capital.
I can’t add much on the company’s valuation or outlook, but there’s a non-zero chance the tender could end up getting priced above the lower limit.
The business of CHR is fairly complex. It provides a range of aviation services, including aircraft leasing, operating regional flights under contract for Air Canada, providing specialty aviation engineering and certification services, and running an aviation academy. Looking at historical EBITDA valuations on TIKR, the multiples appear to be at historic lows right now:
Good find. Would have been helpful to have had this write-up one or two days before the official commencent day (today).
Surveying the group: The tender is not showing up in the Corporate Actions Manager in IBKR. I don’t recall this ever happening in other SIBs. I assume I’ll just need to call and request, but wondering if anyone has experienced this before.
Shares will be tendered at $24.25 for a gain of C$168. The offer was slightly oversubscribed (proration is 98.6%). Thanks for sharing this one.