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CFN - Carfinco


KCLarkin
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Banco Santander, S.A. enters into an Agreement to Acquire Carfinco Financial Group Inc. for CDN$298 million in cash

http://www.newswire.ca/en/story/1411950/banco-santander-s-a-enters-into-an-agreement-to-acquire-carfinco-financial-group-inc-for-cdn-298-million-in-cash

 

Santander is buying Carfinco for $CAD 11.25 per share in cash.

 

- CFN is now trading at $11.40 (above acquisition price)

- CFN will yield 4.21% until the acquisition closes later this year

- Before the acquisition closes, CFN will issue an undisclosed special dividend

 

Anyone have any theories on why CFN is issuing a special dividend? Is it just an adjustment for any cash that builds up prior to closing?

 

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Here's the other auto lender Santander got involved in:

https://www.santanderconsumerusa.com/about/overview

 

2- Personally I think Santander is making a mistake.

 

The investor relations firm listed in Carfinco's annual report is a stock promotion outfit.  That's a massive red flag.

 

3- It could be that the dividend is for the divestiture of PAC, an American subprime auto lender.  Because Santander owns a piece of NYSE:SC (another American subprime auto lender), there could be potential conflicts of interest.  That's just my guess though.

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Historical special dividends were $0.05/sh in 2011 and 2012 but there was ~$0.38/sh paid in 2010 and ~$0.17/sh paid in 2009. Some research analysts are speculating that the special dividend is linked to the sale of PAC and could represent upside of more than $0.50/sh. The business was acquired in September 2013 for USD$9.5mm and had USD$42.7mm in finance receivables at the time. At June 30, the US segment had $38.1mm in assets and $14.0mm in equity value. I am skeptical that Santander would have agreed to structure the transaction to allow CFN to pay out the majority of the proceeds from the US business (but could be wrong) and as such I don't view the risk/reward as being attractive here.

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Here's the other auto lender Santander got involved in:

https://www.santanderconsumerusa.com/about/overview

 

2- Personally I think Santander is making a mistake.

 

The investor relations firm listed in Carfinco's annual report is a stock promotion outfit.  That's a massive red flag.

 

3- It could be that the dividend is for the divestiture of PAC, an American subprime auto lender.  Because Santander owns a piece of NYSE:SC (another American subprime auto lender), there could be potential conflicts of interest.  That's just my guess though.

 

2 - Not sure why this is a red flag? Clearly they weren't very effective in promoting the stock since it was trading at less than 10x with a 6% dividend yield. Fun Fact: If you had bought and held $10,000 worth of Carfinco in 2002, your cumulative dividends alone would have been worth $144,000.

 

3 - I guess it could make sense for them to sell PAC to SC. I don't think PAC is large enough to represent any conflict. But if this was the scale of the special dividend (say $10-15m), that would be about $0.38-$0.57 per share. That would be a very nice return annualized over the next 2-3 months but probably not enough to take the risk of buying here. I was hoping for something like $1 per share. Still, the risk of a tiny deal like this not closing must be very small (less than 1%?). I will hold onto my current holdings.

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Ah so that explains why my position in Rifco (RFC) jumped today.  Has anyone looked at RFC.v? it's a competitor to CFN that mainly obtains its business from oil prosperous regions within Canada and has been growing like a weed in the past few years and management has a lot of skin in the game as well.

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CFN just put out the following press release:

 

"EDMONTON, Sept. 16, 2014 /CNW/ - Carfinco Financial Group Inc. ("Carfinco" or the "Company") announced that in conjunction with the Arrangement Agreement entered into with Banco Santander, S.A. on September 15, 2014, the Company agreed to declare and pay a special dividend.

 

The amount of the special dividend, if any, will be dependent on a variety of factors and there is no assurance that the necessary approvals will be obtained; however, any such special dividend declared will not exceed a maximum of $0.10 per common share of the Company.  The amount of any such special dividend will be determined prior to the effective date of the Arrangement."

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The amount of the special dividend, if any, will be dependent on a variety of factors and there is no assurance that the necessary approvals will be obtained; however, any such special dividend declared will not exceed a maximum of $0.10 per common share of the Company.  The amount of any such special dividend will be determined prior to the effective date of the Arrangement."

 

Thanks, just sold my position.

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Not sure why this is a red flag?

 

-It doesn't make that much sense from a capital allocation perspective.  If the company intends on selling shares or selling itself, then perhaps blatant stock promotion makes sense.  But then the dividends don't make a lot of sense if you want to sell shares.

 

-Identifying your shills kind of defeats the point of shills.

 

-It's often the case that promoted stocks go down.  Carfinco is definitely an exception though.

 

(I'm not saying that you should sell at this point because of that red flag.)

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