Take-under – Stuart Olson

Shareholders of Stuart Olson (TSX: SOX) got a surprise today when they woke up to the following headline: Bird And Stuart Olson Join Forces To Create A Leading Canadian Construction Company.

This was a takeover proposal from Bird Construction (TSX: BDT). After cutting through all of the self-congratulatory sentences, the salient terms and details are the following:

$40 million cash and $30 million in BDT stock (valued at $6.32/share) will go to the senior secured creditors;
$22.5 million in BDT stock goes to the unsecured debentureholders;
$4 million in BDT stock (0.02006051 BDT per SOX) goes to the shareholders.

Notably, this works out to 13 cents of value per SOX share.

Something was definitely off when SOX announced last month they would pay the semi-annual interest to debentureholders with 10.6% of the company (equity) instead of cash. Now we know – they were in the middle of a negotiation to sell shareholders out.

Not to say that SOX was in a good financial position – indeed, SOX was in a poor position (they were likely to blow their covenants which had been relaxed for COVID-19), and Covid was not making matters better.

SOX apparently got 31% of shareholders to agree to this take-under, and they need a 2/3rds vote in favour to approve this. The market right now is trading SOX at 39 cents, which can only mean that either stock is hard to borrow (it is) and/or they anticipate some sweetening to get over the 2/3rds threshold.

Bird Construction, however, is in better financial shape. Operationally, however, they will still be suffering from the effects of Covid and margins are quite thin.

No positions in any of these companies, but just following this financially interesting story.