Auction Buyback Announced

[treasurehunt]

Just now, treasurehunt said:

 

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!

 

Forgot to mention - the Fidelity rep told me that they would not withhold any taxes on the deemed dividend.

[Sullivcd]

https://www.globenewswire.com/news-release/2021/12/24/2357748/0/en/Fairfax-Announces-Preliminary-Results-of-Substantial-Issuer-Bid.html

[Daphne]

Based on preliminary results, 2,208,578 Shares were validly tendered and were not withdrawn pursuant to the Offer (including Shares tendered by notice of guaranteed delivery). As the Offer was oversubscribed, it is expected that shareholders who made auction tenders at or below US$500.00 per Share and purchase price tenders will have the number of Shares purchased by Fairfax prorated to approximately 90.4% of their successfully tendered Shares following the determination of the final results of the Offer (other than “odd lot” tenders, which are not subject to proration).

The full details of the Offer are described in the offer to purchase and issuer bid circular dated November 18, 2021, as well as the related letter of transmittal and notice of guaranteed delivery, copies of which were filed and are available on SEDAR at www.sedar.com and were also filed on a Schedule 13E-4F with the U.S. Securities and Exchange Commission and made available on EDGAR at www.sec.gov (the “Offer Documents”).

The number of Shares to be purchased under the Offer, the Purchase Price and the proration factor referred to above are preliminary, remain subject to verification by the Depositary and assume that all Shares tendered through notice of guaranteed delivery will be delivered within the two trading day settlement period. Fairfax will announce the final results of the Offer following completion of take-up of the Shares.

[steph]

Not bad.  They sold 10% of Odyssey for 900 million and with almost the same amount they buy back 7% of the entire group. 

[glider3834]

Amazing - it was oversubscribed! Happy with the result.

[StubbleJumper]

So, we will be pro-rated by 10 percent-ish, but the price looks to be US$500?  Okay, that works for me!  I'll have a few extra FFH shares laying around for the next couple of months, and then I'll trim my position back to what it was in November.

 

 

SJ

[Thrifty3000]

Would be nice to know what kind of annual interest payment is attached to that Odyssey deal.

 

if there’s no interest then this increases look through earnings per remaining FFH share by $4 or so dollars. (A very good outcome. Spending $40 per share to pick up a growing $4 per share.)

 

If the interest rate is in the 10% range then look through only increases by maybe $1 per share. (A good outcome if non-Odyssey earnings grow a lot faster than Odyssey’s earnings.)

Edited December 24, 2021 by Thrifty3000

[steph]

14 minutes ago, Thrifty3000 said:

Would be nice to know what kind of annual interest payment is attached to that Odyssey deal.

 

if there’s no interest then this increases look through earnings per remaining FFH share by $4 or so dollars. (A very good outcome. Spending $40 per share to pick up a growing $4 per share.)

 

If the interest rate is in the 10% range then look through only increases by maybe $1 per share. (A good outcome if non-Odyssey earnings grow a lot faster than Odyssey’s earning.)

Earnings are quite volatile and not always very useful for a company such as FFH.  What I like is that they sell Odyssey at 2 times book and buy back FFH at 0,8 times book (Digit and others at actual price).  

 

[StubbleJumper]

4 minutes ago, steph said:

Earnings are quite volatile and not always very useful for a company such as FFH.  What I like is that they sell Odyssey at 2 times book and buy back FFH at 0,8 times book (Digit and others at actual price).  

 

 

 

Well, IMO, they didn't actually sell equity in Odyssey.  They seem to have borrowed some money created some sort of preferred shares that are more akin to debt than equity.  My guess is that they'll end up paying a coupon dividend of 9% or 10% on this funny security they've created, so it's really something that I'd like to see them re-pay buy-back reasonably soon.  If you think your shares are truly worth 1.2x BV and you run a tender at 0.8x BV, you've created considerable value for continuing shareholders even if you are financing it at 10%, as long as you don't pay that 10% for too many years.

 

 

SJ

[Thrifty3000]

15 minutes ago, StubbleJumper said:

 

 

Well, IMO, they didn't actually sell equity in Odyssey.  They seem to have borrowed some money created some sort of preferred shares that are more akin to debt than equity.  My guess is that they'll end up paying a coupon dividend of 9% or 10% on this funny security they've created, so it's really something that I'd like to see them re-pay buy-back reasonably soon.  If you think your shares are truly worth 1.2x BV and you run a tender at 0.8x BV, you've created considerable value for continuing shareholders even if you are financing it at 10%, as long as you don't pay that 10% for too many years.

 

 

SJ

I agree. No way that deal is interest free. I’m hoping it’s more in the 5% or 6% range though.

[cwericb]

Did I read somewhere a few weeks ago that it was 9%? Or am I imagining that?

 

[MMM20]

Even if it’s 9% borrowing, it seems to me that their implied cost of equity is still about 20-30% even at $500, so a good move for shareholders and possibly more to come if the stock stays so cheap 

Edited December 24, 2021 by MMM20

[StubbleJumper]

8 minutes ago, cwericb said:

Did I read somewhere a few weeks ago that it was 9%? Or am I imagining that?

 

 

I don't think that anyone has found a filing that confirms the rate.  However, there has been plenty of chatter about past deals with OMERS where the return has been 9%.  Based on those past deals, people have been speculating that FFH will once again be paying a dividend in the neighbourhood of 8-10%.  At some point there will be enough filings available that we will be able to discover the true cost of this financing, but suffice to say that OMERS doesn't provide its capital for free!

 

 

SJ

[cwericb]

20 minutes ago, StubbleJumper said:

 

I don't think that anyone has found a filing that confirms the rate.  However, there has been plenty of chatter about past deals with OMERS where the return has been 9%.  Based on those past deals, people have been speculating that FFH will once again be paying a dividend in the neighbourhood of 8-10%.  At some point there will be enough filings available that we will be able to discover the true cost of this financing, but suffice to say that OMERS doesn't provide its capital for free!

 

 

SJ

Yes I think the 9% was probably was speculation. And yes, I doubt that OMERS sees Fairfax as a charity.   Nice jump in FFH share price today.

[Viking]

5 hours ago, Daphne said:

Based on preliminary results, 2,208,578 Shares were validly tendered and were not withdrawn pursuant to the Offer (including Shares tendered by notice of guaranteed delivery). As the Offer was oversubscribed, it is expected that shareholders who made auction tenders at or below US$500.00 per Share and purchase price tenders will have the number of Shares purchased by Fairfax prorated to approximately 90.4% of their successfully tendered Shares following the determination of the final results of the Offer (other than “odd lot” tenders, which are not subject to proration).

The full details of the Offer are described in the offer to purchase and issuer bid circular dated November 18, 2021, as well as the related letter of transmittal and notice of guaranteed delivery, copies of which were filed and are available on SEDAR at www.sedar.com and were also filed on a Schedule 13E-4F with the U.S. Securities and Exchange Commission and made available on EDGAR at www.sec.gov (the “Offer Documents”).

The number of Shares to be purchased under the Offer, the Purchase Price and the proration factor referred to above are preliminary, remain subject to verification by the Depositary and assume that all Shares tendered through notice of guaranteed delivery will be delivered within the two trading day settlement period. Fairfax will announce the final results of the Offer following completion of take-up of the Shares.

Well it certainly will be a Merry Christmas for Fairfax shareholders who were able to tender some shares. Crazy to think Fairfax shares were trading at US$400 in early November. Given how the overall stock market has traded the past couple of months the tender certainly was a great catalyst for Fairfax’s share price. Not sure why Fairfax shares are up big today? @StubbleJumper thank you very much for your insights into how the Dutch auction would play out - very helpful  

[Gregmal]

Weird how this whole stonks going up thing works. Almost like there’s some sort of rhyme or reason and thus predictability to it all….

[Santayana]

Really happy to be getting the $500 on the shares I tendered.   What held me back from tendering more is the delay in receiving the cash.    The way Fairfax tends to move in big jumps, it wouldn't shock me if we get a !0% pop and have the shares trading over $500 by the time everything settles.

[TwoCitiesCapital]

13 minutes ago, Santayana said:

Really happy to be getting the $500 on the shares I tendered.   What held me back from tendering more is the delay in receiving the cash.    The way Fairfax tends to move in big jumps, it wouldn't shock me if we get a !0% pop and have the shares trading over $500 by the time everything settles.

 

That is the risk. 

 

Strarted repurchasing the shares I tendered yesterday to lock in $460 US kn some of them. 

 

If we get to the point where we approach $500/share, I'll sell other positions to re-establish the whole thing but hoping we stick to $450-480 where we've been ever since the tender was announced. 

[MMM20]

1 hour ago, TwoCitiesCapital said:

 

That is the risk. 

 

Strarted repurchasing the shares I tendered yesterday to lock in $460 US kn some of them. 

 

If we get to the point where we approach $500/share, I'll sell other positions to re-establish the whole thing but hoping we stick to $450-480 where we've been ever since the tender was announced. 

We have reached the “stock might go up too fast for me to buy it” phase.

Maybe 2022 will be Prem’s year.

[MMM20]

2 hours ago, Gregmal said:

Weird how this whole stonks going up thing works. Almost like there’s some sort of rhyme or reason and thus predictability to it all….

Following Prem’s personal $150M purchase in June 2020 has turned out to be a good call so far.
 

The stock is arguably cheaper now.

[Daphne]

Some things to factor in to your calculations re eventual cost of odyssey re transaction 
1) FFH will have realized a capital gain of about $450M on the sale of its 10%
2) FFH’s dividend obligation in January will be reduced by $20M

[StubbleJumper]

13 minutes ago, Daphne said:

Some things to factor in to your calculations re eventual cost of odyssey re transaction 
1) FFH will have realized a capital gain of about $450M on the sale of its 10%
2) FFH’s dividend obligation in January will be reduced by $20M

 

1) A gain on the sale is a paper phenomenon and leaves shareholders neither better off nor worse off if the sale is made at a "fair" price.  It will look good on the quarterly EPS numbers and the annual ROE, but it is not an economic gain.

 

2) The annual dividend savings is a real, cash phenomenon and should definitely be considered.  

 

 

SJ

[Santayana]

Might not be a direct economic gain, but those things may very well lead to an improved P/B multiple.

[glider3834]

7 hours ago, Thrifty3000 said:

I agree. No way that deal is interest free. I’m hoping it’s more in the 5% or 6% range though.

if (?) they have structured it as a preferred, then I agree I think that is more realistic than 9 or 10% but I am still not sure what the structure is.

[glider3834]

8 minutes ago, glider3834 said:

7 hours ago, Thrifty3000 said:

I agree. No way that deal is interest free. I’m hoping it’s more in the 5% or 6% range though.

if (?) they have structured it as a preferred, then I agree I think that is more realistic than 9 or 10% but I am still not sure what the structure is.

 

https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-the-markets/mi-guide-to-the-markets-us.pdf