Shareholders of RONA gather in Montreal Thursday to vote on the $3.2 billion takeover by Lowe’s.
For common shareholders, the situation seems a no-brainer. There isn’t any real option to tendering towards the $24 a share offer, a cost that represents a proper premium towards the shares’ recent trading price. And the price is almost $10 greater than the offer the same buyer made about three . 5 in the past.
For preferred shareholders – and RONA has 6.9 million outstanding for a face value of $172.5 million – the situation would also seem clear: tendering isn’t an option given they’re being offered $20 a share, or a $5 a share haircut to the original purchase price.
According with a holders, agreeing to that low cost would set a bad precedent considering that there are a slew of rate-reset prefs which are trading at a substantial discount for their purchase price. If one issuer gets away with such a deal, others follows suit.
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Accordingly, it’s not within the interests of pref share holders, who put up $25 once the issue found market within the expectation they’d get $25 of value when the time rolled around for that rates to be reset, to inspire such behaviour. So Lowe’s bid $20 C which represented reasonably limited towards the recent trading price but a total acquisition savings of $34.5 million C understanding that if it’s rejected it will be required to remain a reporting issuer.
James Hymas, of Hymas Investment Management, includes a different take, arguing RONA pref shareholders could tender and redeploy the proceeds in other rate reset prefs that generate comparable income.
Hymas, who does not own RONA preferreds either personally or through the funds he manages, argues when the $20 a share offers are turned down, the cost of the RONA prefs will fall below $20. Quite simply: make the trade.
On Monday, RONA reported the results of the conversion options taken by pref shareholders: holders of approximately two thirds of them chosen the floating rate option with the rest opting for the fixed interest rate pref that will see them receiving 3.324% annually for the following five years.
For RONA’s pref shareholders, it’s been rather traumatic since the acquisition was announced in early February. After recovering from the shock from the $20 a share offer, they have had to endure two plenty of comments made by London-based The Stirling Funds. But there’s been no public follow-up, an instance of over-promising and under-delivering. (Maybe it’s keeping its powder dry until Thursday.)
One month back, it said Lowe’s bid was “opportunistic as well as an egregious attempt by these to circumvent the correct takeover provisions of the preferred shares,” and said it would “seek out other preferred shareholders to garner adequate remedies for those shareholders.” It followed those statements by having an “open letter” to Lowe’s and termed the $20 a share bid “oppressive.”
Numerous attempts happen to be designed to reach Stirling and it is Swedish-based advisor ?stV?st Advisory to find out its next steps. The first call elicited the response that it had received numerous responses from holders. Since that time nothing.
But there may be another twist considering that as of no more 2015, Fidelity Investments owned a lot more than 10 per cent of the issue – a lot more than three times what it really owned after the very first quarter of 2015. We couldn’t reach Fidelity for any comment.
bcritchley@nationalpost.com
