Two shareholder votes to watch out for this week – Canfor and Pengrowth

Two shareholder votes happening this week which will be of interest:

Vote #1: Canfor

Canfor (TSX: CFP) will vote on Wednesday, December 18, whether they want their minority shareholders (49%) to be taken out by the majority (51%), which is currently owned by entities controlled by Jim Pattison. The proposed takeout price is CAD$16/share, which was higher than its trading range for most of 2019, but lower than last year when things were looking a lot better in the forestry sector. The majority of minority shareholders is required for the vote to pass.

My guess is that this will pass. The only significant shareholder other than Pattison’s entity is through director Barbara Hislop, who controls about 2.5 million shares (out of 125.2 million shares outstanding). The rest of the shareholder base is likely to be institutional in nature and I do not think they will put up much of an opposition. At Friday’s closing price of $15.45, this seems like an easy 3.5% gain in two days of trading for those that are brave to place a bet.

Most other forest companies have gotten killed – WFT, IFP, WEF and especially CFF – picking look slim right now.

I think Pattison’s sense of market timing is excellent with this one – buy low and collect the cash when the times are better again, and they will be. The fact that this isn’t a no-brainer suggests that he’s getting a good price on the acquisition – indeed, if 99% vote to agree to it, he probably paid too much. But if 60% of the minority agree to the deal? That’s a perfect price.

(Update, December 16, 2019: The deal was rejected with 45% of the minority in favour of the deal, with 50% required. Guessing that Pattison wished that he added another 50 cents on this one to seal the deal!)

Vote #2: Pengrowth Energy

Pengrowth Energy (TSX: PGF) will also be voting December 18. The proposed acquisition price is 5 cents a share, mainly because the company has debt maturities outstanding that will likely be defaulted on if the vote goes negative. The only real question mark at this juncture is why Seymour Schulich, who owns 28% of the common shares, all of which have been purchased at significantly higher prices, is going along with this. He purchased a couple million shares as late as July of this year (for approximately 50 cents a piece) and owns 159.4 million shares out of the 560 million outstanding. Is this going to be the mother of all capital losses? Or did he cut a deal with Cona Resources (the acquirer) that will take place after the transaction concludes?

For somebody with patience, I think Cona is getting an excellent deal. With the debt eliminated, Pengrowth is very highly leveraged to ambient oil prices and if there is any revival in the market, the pain that these companies have gone through in the past half decade will be nowhere close to the rewards that will be gained in the future.