Auction Buyback Announced

[MMM20]

6 hours ago, Cevian said:

I'm really upset about this. I got charged a huge 25% withholding tax as I'm a foreign investor. I really wasn't expecting a dutch auction to result in a portion of the proceed to be deemed a dividend. Very disappointing. Let me know if anyone has found a way around this.

Ouch. what percentage of your total Fairfax position did you tender? 

 

 

 

 

 

[KPO]

1 hour ago, MMM20 said:

Anyone else (US residents?) still waiting on half the tender cash to hit all their accounts? 

Check again. Mine just came through at Fidelity. 

[MMM20]

26 minutes ago, KPO said:

Check again. Mine just came through at Fidelity. 

Oh yeah, mine too. Thanks. Turns out everything I sold to load up on FRFHF to tender is also up about 10% over the past few weeks. Why couldn’t BRK have been down 10%? I was told life was fair. 

Edited January 5, 2022 by MMM20

[backtothebeach]

IB came through, too. My effective selling price was CAD 589.50, after a 15% withholding it appears, which is what I expected thanks to this thread.

 

I only tendered 50 shares, surprised that only 45 got sold, I thought odd lots would go through as tendered? Not complaining.

[TwoCitiesCapital]

3 hours ago, MMM20 said:

Anyone else (US residents?) still waiting on half the tender cash to hit all their accounts? 

 

Still waiting for the other half of cash to hit my Schwab account. IB paid out in cash today for the whole receivable. 

 

58 minutes ago, backtothebeach said:

IB came through, too. My effective selling price was CAD 589.50, after a 15% withholding it appears, which is what I expected thanks to this thread.

 

I only tendered 50 shares, surprised that only 45 got sold, I thought odd lots would go through as tendered? Not complaining.

 

Weird. I also only had a handful of shares at IB - tendered all of them and received a full fill. 

[MMM20]

18 minutes ago, TwoCitiesCapital said:

 

Still waiting for the other half of cash to hit my Schwab account. IB paid out in cash today for the whole receivable. 

 

 

Weird. I also only had a handful of shares at IB - tendered all of them and received a full fill. 

I just chatted with Schwab and they said the pay date was today and cash should hit accounts tomorrow morning. They can confirm the amounts now if you, like me, can’t wait til tomorrow to find out if you got hit with the tax. I didnt… FWIW- US resident, submitted 100% in all accounts, mostly but not all taxable accounts)

Edited January 5, 2022 by MMM20

[KPO]

 

2 hours ago, backtothebeach said:

IB came through, too. My effective selling price was CAD 589.50, after a 15% withholding it appears, which is what I expected thanks to this thread.

 

I only tendered 50 shares, surprised that only 45 got sold, I thought odd lots would go through as tendered? Not complaining.

 

Yeah, they haircut my tendered shared by ~10% in my accounts with round lots, but I tendered for several friends/family with odd lots, which were tendered at 100%.

[MMM20]

10 hours ago, ICUMD said:

Can you claim a capital loss if your adjusted capital base is more than $252 USD?

 

Overall, it does seem to me that the shareholders are paying tax on the deemed dividend at their own expense and in favor of Fairfax.  (Unless you are in a tax exempt account).

 

 

I believe this is what I’m trying to understand too (I just realized that the shares I tendered in my taxable account actually did have 15% tax withheld… oops)

 

So, in the end, the tender shows up as a huge realized capital loss on the first chunk of cash we got, for 2021 (12/31/2021), and then 15% withholding tax on the second chunk, the deemed dividend, in 2022 (1/5/2022).
 

Unless Schwab is just accounting for this wrong, the 2021 capital loss the tender generated on the first chunk is so big that I might have come out way ahead on my personal taxes by tendering if it really will offset my capital gains from elsewhere in 2021 (plus a tax loss carryforward in my case).

 

Is anyone else seeing something similar? It seems like a quirk of the transaction being split across years and into capital gains/losses (2021) and dividend (2022).

Could have big tax ramifications for people that I assume many didn’t expect…

Am I missing something?

Edited January 6, 2022 by MMM20

[Cevian]

I've reached out to Canadian tax accountants to see if there is something that can be done to reclaim some of the withholding back.

 

Never did I expect that a dividend can be paid to some and not all shareholders. From my perspective a transaction took place where I gave them something I owned and expected cash/value of $500 in return. Why would I as a shareholder received a "dividend" because I tendered my shares while my brother not received a "dividend" because he didn't tender his shares? Mental note never to do anything like this again. If it takes 66 pages to describe a transaction, maybe I should stay away. I could have just sold now at the pop.

[MMM20]

4 hours ago, Cevian said:

I've reached out to Canadian tax accountants to see if there is something that can be done to reclaim some of the withholding back.

 

Never did I expect that a dividend can be paid to some and not all shareholders. From my perspective a transaction took place where I gave them something I owned and expected cash/value of $500 in return. Why would I as a shareholder received a "dividend" because I tendered my shares while my brother not received a "dividend" because he didn't tender his shares? Mental note never to do anything like this again. If it takes 66 pages to describe a transaction, maybe I should stay away. I could have just sold now at the pop.

Are you seeing a 2021 realized capital loss generated by the first part of the transaction?

 

My point is that, rough math, the big capital losses generated by the first part of the deal seem to roughly offset the dividend withholding tax paid… in my case at least.

Looks like Canadian Tax Form NR7 is the one to apply for a refund on the withholding tax if you should’ve been exempt.

 

I am not a tax guy though. agreed it’s a headache. Ive already spent too much life energy reading the docs and worrying about Canadian tax!

 

[Cevian]

1 hour ago, MMM20 said:

Are you seeing a 2021 realized capital loss generated by the first part of the transaction?

 

My point is that, rough math, the big capital losses generated by the first part of the deal seem to roughly offset the dividend withholding tax paid… in my case at least.

Looks like Canadian Tax Form NR7 is the one to apply for a refund on the withholding tax if you should’ve been exempt.

 

I am not a tax guy though. agreed it’s a headache. Ive already spent too much life energy reading the docs and worrying about Canadian tax!

 

 

I like your logic on the 1) tax loss in 2021, 2) subsequent dividend in 2022. I'll bring this up with the tax guys but I would expect Canadian tax to have rules such as "part of the same transaction or event" so as to somehow be considered together.

[MMM20]

6 minutes ago, Cevian said:

 

I like your logic on the 1) tax loss in 2021, 2) subsequent dividend in 2022. I'll bring this up with the tax guys but I would expect Canadian tax to have rules such as "part of the same transaction or event" so as to somehow be considered together.

Right. I’m curious what others are seeing (foreigners who tendered in taxable accounts). Maybe Schwab screwed it up and will change it later. But seems like I come out ahead here vs if it were short term cap gains. please report back any general findings from the Canadian accountant, if you would be so kind…

[mcliu]

7 hours ago, Cevian said:

I've reached out to Canadian tax accountants to see if there is something that can be done to reclaim some of the withholding back.

 

Never did I expect that a dividend can be paid to some and not all shareholders. From my perspective a transaction took place where I gave them something I owned and expected cash/value of $500 in return. Why would I as a shareholder received a "dividend" because I tendered my shares while my brother not received a "dividend" because he didn't tender his shares? Mental note never to do anything like this again. If it takes 66 pages to describe a transaction, maybe I should stay away. I could have just sold now at the pop.

Since Canadian companies are allowed to return contributed capital on a tax-free basis and capital gains are taxed at a preferable rate (vs dividends) due to a 50% inclusion rate, the deemed dividend rule (section 84) is meant to prevent companies from converting what are essentially dividends into capital gains or capital returns.

[MMM20]

On 1/6/2022 at 8:15 AM, Cevian said:

 

I like your logic on the 1) tax loss in 2021, 2) subsequent dividend in 2022. I'll bring this up with the tax guys but I would expect Canadian tax to have rules such as "part of the same transaction or event" so as to somehow be considered together.

Ok, so I was able to speak with the head of Canadian tax structuring in prime brokerage at one of the big US investment banks. I should’ve done it 2 weeks ago… whatever, lesson learned.
 

Apparently, it’s typical to split things over two chunks like this one… the unusual thing was that this spanned 2 different years, indeed generating a big capital loss “now” (2021) and a qualified dividend “later” (2022), which may naturally invite scrutiny from the tax authorities.
 

Anyway, the structure+timing makes more sense to me now… beyond the obvious taking out a chunk of shares on a low volume stock.
 

After doing the analysis, it seems I’m going to end up paying about half as much tax on a net basis, vs  regular old short term capital gains. Lucky break, I guess? I assume others are in the same boat unless they had a super low cost basis.

i believe I spoke with one of the top experts in these issues, so I feel good about it, but does anyone disagree / think I’m missing something?
 

 

 

Edited January 7, 2022 by MMM20

[valuesource]

21 hours ago, MMM20 said:

Ok, so I was able to speak with the head of Canadian tax structuring in prime brokerage at one of the big US investment banks. I should’ve done it 2 weeks ago… whatever, lesson learned.
 

Apparently, it’s typical to split things over two chunks like this one… the unusual thing was that this spanned 2 different years, indeed generating a big capital loss “now” (2021) and a qualified dividend “later” (2022), which may naturally invite scrutiny from the tax authorities.
 

Anyway, the structure+timing makes more sense to me now… beyond the obvious taking out a chunk of shares on a low volume stock.
 

After doing the analysis, it seems I’m going to end up paying about half as much tax on a net basis, vs  regular old short term capital gains. Lucky break, I guess? I assume others are in the same boat unless they had a super low cost basis.

i believe I spoke with one of the top experts in these issues, so I feel good about it, but does anyone disagree / think I’m missing something?
 

 

 

Some good work here MMM. I called Fairfax on Dec 30 to get some colour on the timing of the USD Cash proceeds from the Tender. It was received by Computershare in the AM on Dec 29th. On Dec 30th, CDS confirmed the total amount they would pay (PM). We received Cash on Dec 31 shortly after 3:00pm. That was disastrous timing. There were a lot of entries here. Odd Lots & Board Lots were entered separately and the Dividend vs PUC were separate too. That’s 4 separate entries in addition to the repurchases I made on the half day in Canada and the 2 full days OTC in US (Dec 27/28). I managed to buy a fair amount OTC on Dec 27th. 
 

In terms of the timing, my entries were booked as of Dec 31 (both PUC & Deemed Dividend) but weren’t actually completed until yesterday. I would assume both the Deemed Dividend and Capital Gain/Loss would be taxable events in 2021. Fairfax will account for this in 2021. They did confirm that on Dec 30th. 
 

My situation may be different since I only Tendered shares from RRSP and TFSA a/cs. I have an extremely low cost base in most a/cs due to the exercise of Jan 2008 $140 USD Call Options. In the case of higher income people ~216k+ in Canada, Dividends are taxed at about 40% while Capital Gains max out at about 27%. I didn’t think it made a lot of sense to A) Trigger a Capital Gain, when I might continue holding the stock and B) Have exposure to a massive amount of Dividend Tax. In Canada, the Gross Up would make a modest amount of Dividends quite Tax efficient. In fact, up to about 70k of total income, the Tax on Dividends would be negative. I suspect there are some different situations. 
 

On Capital Gains, there is no differentiation between Short Term & Long Term Capital Gains in Canada. Even at full Capital Gains rate in Canada, I think you guys are correct. It would make more sense to have simply sold the stock where it’s been trading. However, on Dec 23rd FFH was trading at $595 CAD. That’s the info we had at the time to make a decision. 

[StubbleJumper]

FFH is trading at US$508 as I type.  I kind of wish that the tender offer had been even more oversubscribed!  The ~10% of shares that they didn't take up in the tender look like they'll be more profitable than those take up!

 

 

SJ

[Viking]

I was not sure how shares would trade once the dutch auction had completed. I am pleasantly surprised they are trading higher than US$500 (although i was hoping they would drop back to the US$450-$460).  Perhaps the period of severe undervaluation of Fairfax shares that we have seen the past 22 months is over. And now we are entering a more normal just ‘undervalued’ phase. 
 

If the shares continue to move higher in 2022 the dutch auction may prove to be one of Fairfax’s best decisions in 2021. 2 million shares at US$500; something to file away. 
 

Share buybacks should be done when the stock is trading below intrinsic value. Looks like Fairfax nailed this one. Just another of many examples from the past couple of years of much better decision making from Fairfax’s management team. Chug, chug, chug…

[TwoCitiesCapital]

36 minutes ago, Viking said:

I was not sure how shares would trade once the dutch auction had completed. I am pleasantly surprised they are trading higher than US$500 (although i was hoping they would drop back to the US$450-$460).  Perhaps the period of severe undervaluation of Fairfax shares that we have seen the past 22 months is over. And now we are entering a more normal just ‘undervalued’ phase. 
 

If the shares continue to move higher in 2022 the dutch auction may prove to be one of Fairfax’s best decisions in 2021. 2 million shares at US$500; something to file away. 
 

Share buybacks should be done when the stock is trading below intrinsic value. Looks like Fairfax nailed this one. Just another of many examples from the past couple of years of much better decision making from Fairfax’s management team. Chug, chug, chug…

 

In coming around to that idea myself. Was hoping/thinking it'd be similar to FIH and languish again, but may have been wrong. 

 

Repurchased ~75% of my position between $480-$490. Might give it another 2-3 weeks and throw in the towel and purchase the remainder of we don't dip again. 

[Viking]

The US$10 dividend payment coming soon (record date Jan 20) is likely pushing shares a little higher. And then early Feb will be all about earnings for P&C and then Fairfax (as FFH usually reports later than WRB CB etc). Lots to be digested over the next 3-4 weeks.

[valuesource]

On 1/12/2022 at 7:50 PM, Viking said:

The US$10 dividend payment coming soon (record date Jan 20) is likely pushing shares a little higher. And then early Feb will be all about earnings for P&C and then Fairfax (as FFH usually reports later than WRB CB etc). Lots to be digested over the next 3-4 weeks.

WRB is indeed a good bellweather. Also, did you notice IFC pre-released cat losses of $0.80 which had no negative impact on the stock. IFC reports on or about Feb 8th, so likely a day or two before FFH. My system expects FFH to report on Feb 9th but I am thinking it’s going to be Feb 10th (the Thurs). 

[Crip1]

Guessing that part of the decline today is due to Wednesday being the ex-Divvy date. So far the strategy of tendering shares hoping to buy back 10-20% lower like folks did with FFI was not looking too good, but a few more days like to day and that's going to start looking better.

 

-Crip

[TwoCitiesCapital]

1 hour ago, Crip1 said:

Guessing that part of the decline today is due to Wednesday being the ex-Divvy date. So far the strategy of tendering shares hoping to buy back 10-20% lower like folks did with FFI was not looking too good, but a few more days like to day and that's going to start looking better.

 

-Crip

 

Yes, buying back 10-20% below may not happen, but so far I've replaced ~75% of my position with shares that were below $500 USD. I think my average cost or so is $485-ish and I'm waiting to see if goes lower before adding more. So there is some semblance of a double dip on the same profits as intended and absolutely saw the quick 10% gain I envisaged by buying the shares to tender. 

 

If you had cash to put to work rebuying the stock BEFORE the cash from the tender hit your account, you could've been repurchasing shares as low as $460-480 AFTER tender results had been announced. I'm hoping we see those levels again post dividend to have even more cash to roll into cheap shares before earnings. 

[TwoCitiesCapital]

On 1/21/2022 at 1:06 PM, TwoCitiesCapital said:

 

Yes, buying back 10-20% below may not happen, but so far I've replaced ~75% of my position with shares that were below $500 USD. I think my average cost or so is $485-ish and I'm waiting to see if goes lower before adding more. So there is some semblance of a double dip on the same profits as intended and absolutely saw the quick 10% gain I envisaged by buying the shares to tender. 

 

If you had cash to put to work rebuying the stock BEFORE the cash from the tender hit your account, you could've been repurchasing shares as low as $460-480 AFTER tender results had been announced. I'm hoping we see those levels again post dividend to have even more cash to roll into cheap shares before earnings. 

 

Who knows if it would've happened anyways, but the pullback in markets gave us $465/share USD on Fairfax again.

 

Hopefully it stays here a minute for the dividend to pay and for me to reinvest along with other cash I free up along the way. 

[valuesource]

On 1/24/2022 at 11:15 AM, TwoCitiesCapital said:

 

Who knows if it would've happened anyways, but the pullback in markets gave us $465/share USD on Fairfax again.

 

Hopefully it stays here a minute for the dividend to pay and for me to reinvest along with other cash I free up along the way. 

I think we need to strip out the Blocks going through at 9:30am most days, to arrive at a normalized volume. I suppose these could have been tax loss repurchases. It seems Bullish to me because the pricing on Blocks seems to be at higher levels. 

[Phoenix01]

22 hours ago, valuesource said:

I think we need to strip out the Blocks going through at 9:30am most days, to arrive at a normalized volume. I suppose these could have been tax loss repurchases. It seems Bullish to me because the pricing on Blocks seems to be at higher levels. 

Fairfax might have bought more TRS and the counter party might be covering their exposure.  We will find out in a couple of weeks...

Edited January 31, 2022 by Phoenix01
Clarification