The not-so-pleasant choices faced by RONA’s preferred shareholders [RON.PR.A]

Barry Critchley was kind enough to quote me in his piece titled The not-so-pleasant choices faced by RONA’s preferred shareholders. First he gives some space to an argument I don’t understand:

According to some holders, agreeing to that low price would set a bad precedent given that there are a slew of rate-reset prefs which are trading at a substantial discount to their purchase price. If one issuer gets away with such a deal, others will follow suit.

Accordingly, it is not in the interests of pref share holders, who put up $25 when the issue came to market in the expectation they would get $25 of value when the time rolled around for the rates to be reset, to encourage such behaviour. So Lowe’s bid $20 – which represented a premium to the recent trading price but a total acquisition savings of $34.5 million – knowing that if it’s rejected it will be required to remain a reporting issuer.

I don’t get it. It’s a vote. You can vote yes or you can vote no. One likes to imagine that good proposals will succeed and bad proposals will fail. The above argument is equivalent to saying that you have to vote Conservative in the Federal election, because if you vote Liberal this time you’ll have to vote Liberal every time. It makes no sense.

But after that, it’s my turn:

James Hymas, of Hymas Investment Management, has a different take, arguing RONA pref shareholders could tender and redeploy the proceeds in other rate reset prefs that generate about the same cash flow.

Hymas, who does not own RONA preferreds either personally or through the funds he manages, argues that if the $20 a share offer is turned down, the price of the RONA prefs will fall below $20. In other words: make the trade.

For more detail regarding my views, see RON.PR.A Vote: Yes or No?.

Mr. Critchley also commented on the Stirling Funds joke:

Numerous attempts have been made to reach Stirling and its Swedish-based advisor ÖstVäst Advisory to find out its next steps. The first call elicited the response that it had received numerous responses from holders. Since then nothing.

He also pointed out one little nugget of information:

But there may be another twist given that as of the end of 2015, Fidelity Investments owned more than 10 per cent of the issue — more than three times what it owned at the end of the first quarter of 2015. We couldn’t reach Fidelity for a comment.

Well done Fidelity! That’s a trade that has worked out very nicely indeed!

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