Odd-lot tender offer: C$61 upside (at C$3.88)
Computer Modelling Group is running a C$20m tender offer, equal to ~6% of shares outstanding, at a price range of C$4.00-C$4.50/share. Odd lots (fewer than 100 shares) will be accepted on a priority basis. The stock trades at C$3.88/share. For odd lots, that’s a free option on the final price clearing above the C$4.00 floor. The offer expires on September 21. Paid-up capital is C$1.02/share, and any amount above this will be treated as deemed dividend and taxed accordingly (as withholding taxes for non-residents).
The two largest shareholders, EdgePoint (31%) and Fidelity (12%), have not indicated any intention to tender. Management will not participate either, though its combined ownership of CMG is minimal.
The tender carries the usual conditions. CMG can walk away if its shares fall more than 10% from the pre-announcement price of C$3.75/share, if the S&P/TSX, S&P 500 or Dow declines more than 10% from its August 11 level, if a material adverse change hits the business, or if someone launches a competing bid or proxy fight. In practice, companies rarely use these conditions to cancel tender offers.
CMG sells software and consulting services to the O&G sector. It provides reservoir simulation software, which is used to predict and optimize production. Recurring revenue makes up 70% of sales, and the business runs with high gross margins and low capex. The company is profitable and carries limited net debt, though it is spending most of its cash on acquisitions. The plan is to use aggressive M&A to turn CMG into a large multi-product energy software platform.
Management believes the shares are cheap and blames the decline (40% over the last year and 70% from the mid-2024 peak) on the broad sell-off in software stocks. The underlying business, however, has been performing poorly lately with organic revenue in accelerated decline and the acquisitions pipeline moving too slowly to offset that. The company also lost a sizeable contract in FY26.
On an EV/EBITDA basis, CMG now trades at COVID lows (see the chart below). However, the stock, and possibly tender participation, will be driven by sentiment around AI disruption and CMG’s ability to revive organic growth.
(Source: TIKR)
CMG has already used up its regular buyback program and cannot renew it until November. The current tender will be funded from its C$100m credit facility.