Auction Buyback Announced

[MMM20]

At this point I'm just jealous of anyone who isn't already maxed out into the deadline. 

[StubbleJumper]

23 minutes ago, MMM20 said:

At this point I'm just jealous of anyone who isn't already maxed out into the deadline. 

 

With a T+2 settlement, anyone who isn't already maxed out had better get their ass in gear!

 

 

SJ

[KPO]

20 minutes ago, StubbleJumper said:

 

With a T+2 settlement, anyone who isn't already maxed out had better get their ass in gear!

 

 

SJ

I haven’t really followed this auction closely, but intrigued now that we’re near the deadline and the stock is where it is. What’s the purchase cutoff date.

[sfbm21]

Dec 23 - cut off

Dec 21  - Noification to Broker cut off

 

[TwoCitiesCapital]

I purchased more shares today and tendered 100% of my position. 

 

3 hours ago, KPO said:

I haven’t really followed this auction closely, but intrigued now that we’re near the deadline and the stock is where it is. What’s the purchase cutoff date.

 

Same things happened with FIH. Never got anywhere near the auction price until after the auction had closed. And even then, it still went back to $12-13 shortly thereafter. 

 

Was a quick buck, improved BV, and allowed me to buy back into the position with more money, but didn't close the NAV gap at all. I'm expecting something similar here. 

Edited December 20, 2021 by TwoCitiesCapital

[Xerxes]

Great move there TCC
That said, i think FIH is a bit of a different beast than FFH. It is hard to see FIH discount ever close meaningfully (unless something happens transactionally; best hope is that BV inches higher and pulls its MV kicking and screaming higher inch by inch even with its yawning gap), but it is not hard to see FFH discount to eventually collapse (especially in a higher rate environment)

[KPO]

5 hours ago, sfbm21 said:

Dec 23 - cut off

Dec 21  - Noification to Broker cut off

 

Thank you. I’d be interested in how folks are tendering. At $500, slightly less (e.g. $495, $490, etc.) or at the prevailing offer? I’ve obviously spent no time on this idea, but it became too good to pass up mid-day today….

[MMM20]

20 minutes ago, KPO said:

Thank you. I’d be interested in how folks are tendering. At $500, slightly less (e.g. $495, $490, etc.) or at the prevailing offer? I’ve obviously spent no time on this idea, but it became too good to pass up mid-day today….

$500 or bust!

Edited December 21, 2021 by MMM20

[StubbleJumper]

1 hour ago, KPO said:

Thank you. I’d be interested in how folks are tendering. At $500, slightly less (e.g. $495, $490, etc.) or at the prevailing offer? I’ve obviously spent no time on this idea, but it became too good to pass up mid-day today….

 

FFH is an undervalued security.  We don't fully know what Q4 book will be, but odds are that it will be US$600+.  So, if you bought FFH at, say US$460, with the intention to tender, would you blindly accept a purchase price tender and risk the tiny chance that the tender could go through at US$425?  Or would you tender at US$480 or US$490 or something?  If you are "wrong" and the final price is below what you've tender it at, you end up holding FFH through the new year.  But, on January 20-ish it'll trade X-D and you'll get US$10 in divvies, and then Q4 results will be released around Valentine's Day.  Chances are there'll be a pop around that earnings release, or alternatively, there could be a pop at Easter when the annual meeting will be held.  There's no real reason to tender cheaply with a stock that is already ridiculously priced.

 

As Monish Pabrai might say, Dhando.  Heads I win, tails I don't lose.

 

SJ

[KPO]

10 minutes ago, StubbleJumper said:

 

FFH is an undervalued security.  We don't fully know what Q4 book will be, but odds are that it will be US$600+.  So, if you bought FFH at, say US$460, with the intention to tender, would you blindly accept a purchase price tender and risk the tiny chance that the tender could go through at US$425?  Or would you tender at US$480 or US$490 or something?  If you are "wrong" and the final price is below what you've tender it at, you end up holding FFH through the new year.  But, on January 20-ish it'll trade X-D and you'll get US$10 in divvies, and then Q4 results will be released around Valentine's Day.  Chances are there'll be a pop around that earnings release, or alternatively, there could be a pop at Easter when the annual meeting will be held.  There's no real reason to tender cheaply with a stock that is already ridiculously priced.

 

As Monish Pabrai might say, Dhando.  Heads I win, tails I don't lose.

 

SJ

Thanks for the response. That’s my view as well. I already have a position I intend to hold, but bought more specifically for the tender, which I’m also fine to hold short-term for the reasons you outlined if the tender doesn’t work out. 

[value_hunter]

2 hours ago, MMM20 said:

$500 or bust!

+1

[CharlesMunger]

I just received the notification from my broker.

 

Since I am from Europe, I dont know if this tender makes sense for my taxable account. Are all of you guys doing it in tax advantaged accounts?  

[MMM20]

52 minutes ago, CharlesMunger said:

I just received the notification from my broker.

 

Since I am from Europe, I dont know if this tender makes sense for my taxable account. Are all of you guys doing it in tax advantaged accounts?  

I don’t know about Europe but I believe pg 44/45 of the offering document walks through tax issues for US, in case that points you in the right direction generally. Apparently it’ll be treated as capital gains vs Canadian deemed dividend withholding in various scenarios that they outline. Not a tax guy though.

[StubbleJumper]

50 minutes ago, MMM20 said:

I don’t know about Europe but I believe pg 44/45 of the offering document walks through tax issues for US, in case that points you in the right direction generally. Apparently it’ll be treated as capital gains vs Canadian deemed dividend withholding in various scenarios that they outline. Not a tax guy though.

 

 

The problem of not using a tax-advantaged account might be the Canadian withholding tax. The Canada Revenue Agency will withhold 15% of the resulting deemed dividend for shareholders resident in countries that have a tax treaty with Canada, and higher for countries without a tax treaty.  So, even before your national revenue agency takes its slice of the pie, the Canadians will withhold at least US$37/sh (based on a hypothetical US$500 tender price and paid-up capital of US$252/sh).

 

 

SJ

[wisowis]

Several people mentioning they bought on Monday to tender...

 

But doesn't it take the trade 2 days to settle, then an additional 2-3 business days for the broker's deadline to perform the corporate action? At least that's how I thought it works in Canada...

[spartansaver]

50 minutes ago, wisowis said:

Several people mentioning they bought on Monday to tender...

 

But doesn't it take the trade 2 days to settle, then an additional 2-3 business days for the broker's deadline to perform the corporate action? At least that's how I thought it works in Canada...

I purchased yesterday. Spoke to several Schwab brokers who seemed confident everything would be good. Always a chance they're wrong. I took the plunge and made it a big purchase. Tendered at $440. I don't want to remain an owner if the tender falls flat. 

[KPO]

58 minutes ago, StubbleJumper said:

 

 

The problem of not using a tax-advantaged account might be the Canadian withholding tax. The Canada Revenue Agency will withhold 15% of the resulting deemed dividend for shareholders resident in countries that have a tax treaty with Canada, and higher for countries without a tax treaty.  So, even before your national revenue agency takes its slice of the pie, the Canadians will withhold at least US$37/sh (based on a hypothetical US$500 tender price and paid-up capital of US$252/sh).

 

 

SJ

For the avoidance of doubt, does the 15% Canadian withholding apply to tax advantaged accounts in the US (I.e Traditional IRAs, Roth IRAs, etc.)?  I didn’t see a reference to this in the offering document. 

 

[MMM20]

The Company’s purchase of Shares from a U.S. Holder pursuant to the Offer will be treated either as a sale of the Shares or as a distribution by the Company, depending upon the circumstances at the time the Shares are purchased. The purchase of Shares from a U.S. Holder will be treated as a sale if (a) the purchase results in a “complete redemption” of the U.S. Holder’s equity interest in the Company, (b) the receipt of cash by the U.S. Holder is “not essentially equivalent to a dividend”, or (c) as a result of the purchase there is a “substantially disproportionate” reduction in the U.S. Holder’s equity interest in the Company, each within the meaning of Section 302(b) of the Code, as described below (referred to as the “Section 302 Tests”). The purchase of Shares from a particular U.S. Holder will be treated as a distribution if none of the Section 302 Tests is satisfied with respect to such holder.

 

 

 

46

 

In applying the Section 302 Tests, the constructive ownership rules of Section 318 of the Code apply. Thus, a U.S. Holder is treated as owning not only Shares actually owned by the U.S. Holder but also Shares actually (and in some cases constructively) owned by others. Under the constructive ownership rules, a U.S. Holder will be considered to own Shares owned, directly or indirectly, by certain members of the U.S. Holder’s family and by certain entities (such as corporations, partnerships, trusts, and estates) in which the U.S. Holder has an equity interest, as well as Shares that the U.S. Holder has an option to purchase.

 

(a)

Complete Redemption. A purchase of Shares pursuant to the Offer will result in a “complete redemption” of the U.S. Holder’s interest in the Company if, immediately after the sale, either (1) the U.S. Holder owns, actually and constructively, no Shares; or (2) the U.S. Holder actually owns no Shares and effectively waives constructive ownership of any constructively owned Shares under the procedures described in Section 302(c)(2) of the Code. U.S. Holders who desire to file such a waiver are urged to consult their own tax advisers.

 

(b)

Not Essentially Equivalent to a Dividend. A purchase of Shares pursuant to the Offer will be treated as “not essentially equivalent to a dividend” if it results in a “meaningful reduction” in the selling U.S. Holder’s proportionate interest in the Company. Whether a U.S. Holder meets this test will depend on relevant facts and circumstances. In measuring the change, if any, in a U.S. Holder’s proportionate interest in the Company, the meaningful reduction test is applied by taking into account all Shares that the Company purchases pursuant to the Offer, including Shares purchased from other Shareholders.

 

The IRS has held in a published ruling that, under the particular facts of the ruling, a small reduction in the percentage share ownership of a small minority shareholder in a publicly and widely held corporation who did not exercise any control over corporate affairs constituted a “meaningful reduction”. If, taking into account the constructive ownership rules of Section 318 of the Code, a U.S. Holder owns Shares that constitute only a minimal interest in the Company, and such holder does not exercise any control over the affairs of the Company, then any reduction in the U.S. Holder’s percentage ownership interest in the Company should constitute a “meaningful reduction”. Such selling U.S. Holder should, under these circumstances, be entitled to treat the purchase of such holder’s Shares pursuant to the Offer as a sale for U.S. federal income tax purposes. Shareholders are urged to consult their own tax advisers with respect to the application of the “not essentially equivalent to a dividend” test in their particular circumstances.

 

(c)

Substantially Disproportionate. A purchase of Shares pursuant to the Offer will be “substantially disproportionate” as to a U.S. Holder if the percentage of the then outstanding Shares actually and constructively owned by such U.S. Holder immediately after the purchase is less than 80% of the percentage of the outstanding Shares actually and constructively owned by such U.S. Holder immediately before the purchase. Shareholders are urged to consult their own tax advisers with respect to the application of the “substantially disproportionate” test in their particular circumstances.

 

It may be possible for a tendering U.S. Holder to satisfy one of the Section 302 Tests by contemporaneously selling or otherwise disposing of all or some of the Shares that such U.S. Holder actually or constructively owns that are not purchased pursuant to the Offer. Correspondingly, a tendering U.S. Holder may not be able to satisfy one of the Section 302 Tests because of contemporaneous acquisitions of Shares by such U.S. Holder or a related party whose Shares are attributed to such U.S. Holder. Shareholders are urged to consult their own tax advisers regarding the tax consequences of such sales or acquisitions in their particular circumstances.

 

[StubbleJumper]

14 minutes ago, KPO said:

For the avoidance of doubt, does the 15% Canadian withholding apply to tax advantaged accounts in the US (I.e Traditional IRAs, Roth IRAs, etc.)?  I didn’t see a reference to this in the offering document. 

 

 

For certainty, you would have to check the tax treaty.  But, my recollection of the treaty is that retirement accounts are exempt from the withholding tax.  So, in Canada, we have several different types of tax-advantaged accounts (some are specifically for retirement, and some are for education savings or general savings purposes), and when we invest in US securities, not all of them are exempt from the withholding tax, but I have never had an IRA of any flavour.  When FFH pays out its annual dividend, do you get the full US$10 in your IRA/Roth, or is a portion typically withheld?

 

 

SJ

[KPO]

2 minutes ago, StubbleJumper said:

 

For certainty, you would have to check the tax treaty.  But, my recollection of the treaty is that retirement accounts are exempt from the withholding tax.  So, in Canada, we have several different types of tax-advantaged accounts (some are specifically for retirement, and some are for education savings or general savings purposes), and when we invest in US securities, not all of them are exempt from the withholding tax, but I have never had an IRA of any flavour.  When FFH pays out its annual dividend, do you get the full US$10 in your IRA/Roth, or is a portion typically withheld?

 

 

SJ

Yes, I get the full dividend and when I’ve sold in the past they’ve not withheld the 15%, so I think I’m good. Thanks!

[TwoCitiesCapital]

18 hours ago, Xerxes said:

Great move there TCC
That said, i think FIH is a bit of a different beast than FFH. It is hard to see FIH discount ever close meaningfully (unless something happens transactionally; best hope is that BV inches higher and pulls its MV kicking and screaming higher inch by inch even with its yawning gap), but it is not hard to see FFH discount to eventually collapse (especially in a higher rate environment)

 

 

When it first IPOd, there were plenty who made the case why a 20+% premium to NAV made sense (I wasn't one of them BTW - quite the contrary). 

 

Now, despite years of killing it performance wise, we've swung full spectrum to where people seem to believe only a discount is a justified due to some vague notion of fees as if this portfolio could be replicated in public markets. 

 

All I know is a NAV valuation has absolutely been justifiable post-fees with their historical performance and at some point sentiment will change and get them there. Likely even a small premium. 

 

I don't view FFH any differently. Might be a hair harder to make the case for why a discount of this size is justified, but FIH also doesn't have years of underperformance to come out from under. In both cases, it's entirely sentiment driven and not forward looking IMO and I doubt the sentiment changes in the next month. It is a risk though. 

Edited December 21, 2021 by TwoCitiesCapital

[MMM20]

I had to call Fidelity to tender my shares. It took almost an hour - they had to walk through the terms in painstaking detail and get multiple approvals. I'm guessing this will be enough of a barrier for many people that my chances of a full fill at $500 are higher than I thought an hour ago.

[TwoCitiesCapital]

2 hours ago, MMM20 said:

I had to call Fidelity to tender my shares. It took almost an hour - they had to walk through the terms in painstaking detail and get multiple approvals. I'm guessing this will be enough of a barrier for many people that my chances of a full fill at $500 are higher than I thought an hour ago.

 

Dang. At Schwab and IB it was clicking a box to participate, entering the number of shares, and the tender price. Was done in less than 20 seconds. Send them some feedback about how ridiculous that is. 

[MMM20]

43 minutes ago, TwoCitiesCapital said:

 

Dang. At Schwab and IB it was clicking a box to participate, entering the number of shares, and the tender price. Was done in less than 20 seconds. Send them some feedback about how ridiculous that is. 

 

Well, good thing Fidelity is (I think?) the biggest US retail brokerage then!

[treasurehunt]

20 hours ago, MMM20 said:

I had to call Fidelity to tender my shares. It took almost an hour - they had to walk through the terms in painstaking detail and get multiple approvals. I'm guessing this will be enough of a barrier for many people that my chances of a full fill at $500 are higher than I thought an hour ago.

 

Interesting. I called Fidelity yesterday as well to tender the shares in my IRA and the process only took 15 minutes or so. Maybe your call paved the way for a smoother experience for me.  Thanks, MMM20!