Clarke’s (TSX: CKI) interest in Terravest (TSX: TVK) shares was about 40% of its market capitalization.
Today, Clarke made the decision to spin off the shares to shareholders.
This decision does not come without consequences – for shareholders, they will be paying a tax bill of an increase in income of $5.49 per Clarke share, in the form of an eligible dividend. For non-Canadian holders, this does mean there will be tax withholdings in most cases.
Most holding companies do not do this primarily for such reasons – more movement of capital usually means more taxation. There are a few exceptions – tax-free spinoffs (which require significant amounts of ownership of the company in question), for instance. Inter-corporate dividends of after-tax income is another. Finally, if you are lucky enough to have the capital sheltered in a registered account or TFSA, you’re covered.
Otherwise, when money moves, prepare to pay taxes.
I have one friend cursing Armoyan’s name to me right now. The tax was going to be paid ,whether by Clarke when they sell the shares or by shareholders this way. Assuming they were going to sell the Terravest position at some point of course. This way ought to result in less total taxes paid given at least some shares are held in registered accounts. If Clarke doesn’t see Terravest as an attractive investment moving forward (I have no opinion), this is likely one of the better ways to liquidate it.
Should also be possible for shareholders to get it into a registered account before the ex-dividend date. That won’t work for many (constrained by volume, unrealized capital gains, etc), but it’s an option for a subset of shareholders.
I just skimmed CKI’s report today and what’s left are two companies that are dependent on an oil comeback in the west…
Yeah Clarke is definitely a different company now. It would not surprise me if the market hates the Clarke shell that’s left over.
[…] structured as a stock dividend, so if you hold it in a taxable account you are going to be facing a somewhat large tax bill. The dividend is being valued at $5.49 per Clarke share as per the press release. If you are in […]