Category: Equity

Dorel’s going private takeover bid increased

Dorel (TSX: DII.B) was in the process of going private. Their previous bid had been CAD$14.50, but today they announced this will rise to CAD$16.00.

This post is not to discuss the valuation of the offers, but to highlight a trend of increased bids:

Rocky Mountain Equipment: CAD$7.00 -> CAD$7.41
Great Canadian Gaming: CAD$39.00 -> CAD$45.00
Dorel: CAD$14.50 -> CAD$16.00

Dorel’s bid was already somewhat anticipated by the market, where at around Christmas they started to trade over the CAD$14.50 threshold:

One can have hope for Atlantic Power, but I’m not holding my breath!

Clarke / Slow-motion privatization

Clarke (TSX: CKI) is George Armoyan’s publicly traded holding company. On September 15, 2020 he owned 10,399,101 shares of 15,697,324 outstanding (66.25%).

Since then, the company has managed to retire 639,432 shares through buybacks and 363,893 of those shares was through a creative 1:1000 reverse split and split, repurchased at $5.60/share on October 20, 2020. Shares outstanding has been reduced to 15,057,892.

As a result, Armoyan’s ownership has risen to 69.1%.

Letko, Brosseau & Associates Inc. owns 2,345,308 shares, or 15.6%.

Thus, the public float available is 2,952,915 shares.

Today, Clarke announced:

HALIFAX, NS , Jan. 21, 2021 /CNW/ – Clarke Inc. (“Clarke” or the “Company”) (TSX: CKI) (TSX: CKI.DB) today announced its intention to commence a substantial issuer bid (the “Offer”) pursuant to which the Company will offer to purchase up to 1,150,000 of its outstanding common shares (the “Shares”) at a purchase price of $7.00 per Share in cash (the “Purchase Price”).

The Purchase Price represents a 6.3% premium over the 30-day volume weighted average closing price of the Shares on the TSX for the period ending on January 20, 2021, being the last full trading day prior to this announcement. The number of Shares subject to the Offer represents approximately 7.64% of the total number of Shares outstanding.

Considering that Clarke last traded today at C$7.04/share (all of 500 shares), I have my doubts whether this offer will be subscribed to any real extent unless if Letko wants to get liquidity on its stake (which will be nearly impossible to unload in the open market).

My impression is that this is a continuation of a slow-motion takeover before Armoyan decides to just buy everything at a modest premium. Maybe the minority shareholder fleas will get another dollar or two out of the stock, but the time for Clarke as a publicly traded entity is soon coming to a close.

Atlantic Power – Counter-bid?

Today, Atlantic Power had trades above US$3.03 (the proposed cash merger price):

At 11:04am (pacific time) somebody pumped in an order for 400k shares.

Although I have expressed my doubts at the feasibility of a counteroffer scenario, we will see. The past couple trading days saw the stock trading at a relatively high merger arbitrage (roughly 3-4% for a half year) and I was expecting this to close a little. However, trades above the US$3.02 point are highly suggestive that somebody is gambling on a superior bid coming.

I haven’t sold any of my shares since the initial merger announcement.

Atlantic Power – Goodbye!

January isn’t even half way done, and I’ve already had two of my companies receive takeover offers. The first one was FLIR Systems (Nasdaq: FLIR). Now it is Atlantic Power’s turn.

Atlantic Power (TSX: ATP / NYSE: AT) has been one of my longer term holdings, most of it purchased around the US$2 point.

I’ve written a lot about it in the past including my July 2018 post about a great company in a terrible industry.

This evening, they agreed to be acquired by i Squared Capital for US$3.03/share in cash, which is about a 44% premium to their last trade today. I Squared Capital, according to Wikipedia, has about $13 billion in assets under management, so this isn’t going to be an Input Capital type situation where the counterparty is questionable.

Other Atlantic Power securities will participate – the convertible debentures (TSX: ATP.DB.E) will be redeemed at 113.5, about a 10% premium at last trade; their preferred shares (TSX: AZP.PR.A/B/C) will all be taken out at CAD$22/share which is 27%/16%/29% above their last trade. This translates into a yield of 5.5% for the As and a 5.26% rate reset yield for B/Cs.

Until now, Atlantic Power has been one of the laggards in my portfolio. The way that this ended is somewhat bittersweet, but I’ll find a place to reallocate the capital. The power purchase agreements that were expiring would have become an issue in the next few years and I was expecting a strategic acquirer to come along.

There is a faint chance that there will be a higher bid, so I will not be selling immediately. However, I will not get my hopes up.

One thing I will be doing, however, is try to track where CEO James Moore goes to. If it is another publicly traded company I’d give it very good consideration – he was masterful.

The short squeeze of the year (to date) – Gamestop

GameStop has had very high short interest as a percentage of its float, and it was obviously the recipient of a short squeeze over the past two days that saw its stock price double:

Share volume yesterday was 144 million, which is over double the approximate 70 million shares outstanding. In other words, every day trader on the planet was flipping shares like pancakes. Today, about halfway through the market open, 53 million shares have been traded.

For the brave, the cost to borrow has also increased:

As readers here know, I do not speculate on these high volume issues – there are plenty of other intelligent (and not so intelligent) actors that are putting their two cents (or perhaps US$41) into the matter. But from a trading mechanics perspective, this one is an incredibly fascinating story considering that as far as I can tell, the underlying business is this decade’s version of Radioshack for gamers.