Atlantic Power (TSX: ATP) announced yesterday they are doing a dutch auction tender for up to 12% of its shares (US$25 million) between US$1.95 to US$2.20/share.
If they gave it out as a dividend it would be approximately 23.7 cents per share.
During the tender period (which expires on April 30) they are prevented from buying back stock on the open market or buying back convertible debentures. They are still free to purchase preferred shares, however, which I suspect they are still buying back to maximize the NCIB.
Atlantic Power, by virtue of the nature of its business and contracted cash flows, has ample amounts of disposable cash in addition to being able to pay off its term facility.
This tender offer is right in the middle of the CoronaPanic and I’ll have to commend management for striking while things are at a panic low. They clearly were bored of buying shares on the open market.
Up until March 24, 2020, year-to-date they bought back 2.63 million common shares and 564,159 preferred shares (all classes, so $14.1 million par value). At the mid-point this tender offer will retire another 12 million shares.
This is a constructive dividend – shareholders that want to tender can cash out and receive capital, while those that remain on will own about 12% more of a company. It will also likely serve as a floor for the common share price until the end of April.
How do you think the tender will go today? Hoeing for the long term it’s fully subscribed at the low end but think it might be undersubscribed.
My suspicion is that they will do it at US$2.20 and it will be mildly oversubscribed, primarily due to market arbitrage. I ask myself who is willing to hold the stock in this company for the last five years, which has gone nowhere, and presumably whoever wanted to sell would have done so a long time ago (especially after the dividend went to zero). It is slightly like watching paint dry.
I guess we were both wrong! Perhaps more SIBs to come over time given the success.
https://www.newswire.ca/news-releases/atlantic-power-corporation-announces-preliminary-results-of-substantial-issuer-bid-862458852.html
“Based on the Depositary’s preliminary count, approximately 28 million Common Shares were tendered to the Offer. As the Offer was oversubscribed, shareholders who made auction tenders at a price of US$2.00 or less per Common Share and purchase price tenders are expected to have approximately 81% of their successfully tendered Common Shares purchased by the Company, other than “odd lot” tenders, which are not subject to proration. Shareholders who made auction tenders at a price in excess of US$2.00 per Common Share will have their Common Shares returned by the Depositary.”
Let’s do some math.
12.5 million shares were purchased, and 81% of those shares deposited at $2.00 and under will be accepted. So 15.4 million shares were tendered at $2.00 and below (and 12.5 million were bought back), and 12.6 million were tendered at $2.05 and above. So there’s about 2.9 million shares of “overhang” that presumably want to sell at $2.00 or under.
So thus far they have bought back $20 million common share this year.That’s great. I’m curious why they don’t place a greater emphasis on buying back the preferred shares? they could even do a SIB for the preferreds… Wouldn’t that be of greater value? they could use the money they save on dividend payments to pay off debt.
They bought back a lot more with the SIB included. Their rationale is pretty simple – they believe the common stock at this price gives mid-teens returns, while the returns on the prefs are limited to the yield after-tax. The most alluring part of the CC was when they said they didn’t pull the trigger on a potentially transformative acquisition. I’d be curious what they passed on.
Yes – it would interesting to know the factors that determined why they did not proceed with the acquisition. I also found what the CEO said about inflation to be very interesting. Specifically that he views inflation to be very positive for the company.
In general the PPAs yet to expire will get CPI (or some equivalent index) increase, Williams Lake has one, for example. But the opportunity there would be for plants that are uncontracted, presumably the uptake price will increase simply because you have a real asset (power) in an inflated environment, so nominally you’d do better than in a government-regulated environment.
Guessing the analysts went over the reports this weekend and issued positive remarks and hence the price action today. Moore also said that the NCIB would stop until the end of September to build cash, so it isn’t buyback related.
ATP has reached my buying range. As there is no dividend, any reason not to buy on the US side instead of CA?
Price-wise the two are locked in currency. Perhaps there are some margin considerations with holding one of them (ATP.TO is on the IIROC list of securities eligible for reduced margin, for example). Or stock commissions will likely be different depending on the broker between the US and Canadian exchanges.
Thanks for that….sitting on a lot of US cash at the moment (My tangerine 2.8% USD 6 month promotion just expired)
In fairness to Tangerine, 2.8% was more than you would have received in Atlantic Power over the past 6 months! Let’s hope that changes (for the better).