DC.PR.B : Dutch Auction Issuer Bid

Dundee Corporation has announced:

that it intends to commence a substantial issuer bid (the “Offer”) to purchase for cancellation from the holders thereof who choose to participate up to C$44,000,000 in value of its Cumulative 5-Year Rate Reset First Preference Shares, Series 2 in the capital of the Corporation (the “Series 2 Shares”). The Offer is being made by way of a modified Dutch auction”, which will allow holders who choose to participate in the Offer to individually select the price, within a price range of not less than C$16.00 and not more than C$18.50 per Series 2 Share (in increments of C$0.10 per Share), at which they will tender their Series 2 Shares to the Offer. Upon expiry of the Offer, the Corporation will determine the lowest purchase price (the “Purchase Price”) (which will not be less than C$16.00 and not more than C$18.50 per Series 2 Share) based on all tenders validly deposited and not properly withdrawn pursuant to the Offer that will allow it to purchase the maximum number of Series 2 Shares tendered to the Offer, having an aggregate purchase price not exceeding C$44,000,000.

In addition to the Purchase Price, Shareholders who have Series 2 Shares taken up and paid for by the Corporation pursuant to the Offer will be entitled to receive the portion of any quarterly cash dividend declared by the Board of Directors on such Series 2 Shares for the quarter ended September 30, 2020, with such portion of the quarterly cash dividend per Series 2 Share being equal to the amount obtained when the amount of any quarterly dividend that would otherwise have been payable in respect of the dividend period is multiplied by a fraction, the numerator of which is the number of calendar days in such dividend period that such Series 2 Share has been outstanding (to but excluding the date of being taken up) and the denominator of which is the number of calendar days in such dividend period. As an example, assuming the Offer expires on August 27, 2020, the Series 2 Shares are taken up and paid for by the Corporation on August 31, 2020 and a dividend consistent with the prior quarter was declared on the Series 2 Shares, the accrued dividend amount payable per Series 2 Share validly tendered, taken up and paid for under the Offer is estimated to be approximately C$0.22.

The Offer will expire at 5:00 p.m. (Toronto time) on August 27, 2020 or such later time and date to which the Offer may be extended by Dundee, unless varied or withdrawn by Dundee.

“In this current and ongoing low interest rate environment we believe this is an effective way to lower our cost of capital and reduce our overall cash outflows by purchasing the more expensive Series 2 Shares tendered as part of this Offer compared to the Series 3 Shares,” said Robert Sellars, Executive Vice President and Chief Financial Officer.

The Board of Directors of the Corporation will continue to review various options for the allocation of capital, including any portion of the C$44,000,000 under the Offer remaining in excess of the aggregate purchase price payable pursuant to the Offer, with such options including, but not limited to, further repurchases of the Corporation’s securities, including without limitation, its Class A Subordinate Voting Shares and Cumulative Floating Rate First Preference Shares, Series 3 (“Series 3 Shares”). Throughout 2019 and during 2020 to date, the Corporation has continued to implement its strategy of rationalizing its portfolio of investments and monetizing non-core assets as it exits business lines which are no longer deemed to be aligned with its longer-term strategy, while remaining committed to creating value for the Corporation and considering opportunities that might present themselves, including potential returns to shareholders of the Corporation. In line with the Corporation’s longer-term strategy and commitment to creating value for the Corporation, the Board believes that the purchase of Series 2 Shares under the Offer represents an attractive investment opportunity for Dundee and will be welcomed by certain holders of Series 2 Shares who may wish to reduce their share ownership positions.

Additional Details of the Offer

If the Purchase Price is determined to be C$16.00 per Series 2 Share (which is the minimum Purchase Price under the Offer), the maximum number of Series 2 Shares that may be purchased by the Corporation under the Offer is 2,750,000 Series 2 Shares, which represents approximately 88.25% of the Series 2 Shares issued and outstanding as at July 21, 2020. If the Purchase Price is determined to be C$18.50 per Series 2 Share (which is the maximum Purchase Price under the Offer), the maximum number of Series 2 Shares that may be purchased by the Corporation under the Offer is 2,378,378 Series 2 Shares, which represents approximately 76.33% of the Series 2 Shares issued and outstanding as at July 21, 2020.

If Series 2 Shares with an aggregate purchase price of more than C$44,000,000 are properly tendered and not properly withdrawn, the Corporation will purchase the Series 2 Shares on a pro rata basis after giving effect to “odd lot” tenders (of holders beneficially owning fewer than 100 Series 2 Shares), which will not be subject to pro-ration. In that case, all Series 2 Shares tendered at or below the finally determined Purchase Price will be purchased, subject to pro-ration, at the same Purchase Price determined pursuant to the terms of the Offer. Series 2 Shares that are not purchased, including all Series 2 Shares tendered pursuant to auction tenders at prices above the Purchase Price, will be returned to shareholders.

The Offer and all deposits of Series 2 Shares are subject to the terms and conditions set forth in the offer to purchase, the accompanying issuer bid circular and the related letter of transmittal and notice of guaranteed delivery (all such documents, as amended or supplemented from time to time, collectively constitute and are herein referred to as, the “Offer Documents”). Further details of the Offer, including the terms and conditions thereof and instructions for tendering Series 2 Shares, are included in the Offer Documents. The Offer Documents will be mailed to shareholders, filed with the applicable Canadian securities regulatory authorities and made available without charge on SEDAR at www.sedar.com in accordance with applicable securities laws, as well as being posted on the Corporation’s website at www.dundeecorp.com, on the date of this news release.

As at July 21, 2020, the Corporation had 3,115,978 Series 2 Shares issued and outstanding. The Series 2 Shares are listed and posted for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “DC.PR.B”. On July 21, 2020, the last full trading day prior to the day the terms of the Offer were publicly announced, the closing price of the Series 2 Shares on the TSX was C$16.26.

The Corporation expects to fund any purchases of Series 2 Shares under the Offer using the Corporation’s available cash on hand. All Series 2 Shares purchased by the Corporation under the Offer will be cancelled.

The Offer is not conditional upon any minimum number of Series 2 Shares being deposited. However, the Offer is subject to certain conditions that are customary for transactions of this nature.

DC.PR.B closed at 17.75 today, near the top of the range for the offer and up 9.16% on the day.

There was a very long thread of comments about Dundee and its preferreds on an unrelated thread in mid-May, 2020.

I find it fascinating that they are leaving the issue’s FloatingReset counterparts, DC.PR.D, out of the offer. The dividend on DC.PR.D is a little more than that of DC.PR.B at the moment ($0.35777 vs. $0.33025 as of June 4, according to their recent dividend announcement) although I confess I don’t quite see how that works, given that the five-year Canada yield was well above 1% at the end of August, 2019, when the reset rate was calculated. Regardless, I would have thought that the additional offerings they would get by taking the DC.PR.D on equal terms (or maybe at some discount) with DC.PR.B would lower the total price sufficiently to outweigh any such short-term concerns.

Update2020-7-24: Regarding the dividend rate on DC.PR.D … the quarterly period ending June 30 commenced on the last day of March, 2020, and the rate was calculated 30 days prior to this. The Bank of Canada reports a 3-Month T-Bill yield of 1.61% on February 26, and 1.14% on March 4, 2020, before dropping even further, so the dividend quoted for the Series 3, DC.PR.D, is not unreasonable. The next one will be a lot lower!

DC.PR.B is a FixedReset, 5.688%+410, that commenced trading 2009-9-15 with a 6.75% coupon after being announced 2009-8-25. It reset to 5.688% effective 2014-09-30. I made no recommendation regarding conversion. Now, DC.PR.B will reset at 5.284% effective September 30, 2019. I recommended retaining, or converting to, DC.PR.B. Instead, there was a small net conversion to DC.PR.D leaving DC.PR.B with about 61% of the total. The issue is tracked by HIMIPref™ but is relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

DC.PR.D is a FloatingReset, +410, that came into existence via a partial conversion from DC.PR.B. It is tracked by HIMIPref™ but relegated to the Scraps – FloatingReset subindex on credit concerns.

6 Responses to “DC.PR.B : Dutch Auction Issuer Bid”

  1. Dan Good says:

    I find it ironic that they would only offer for one series and not the other. I know the closed end fund Ravensource owns a lot of series 3 where no offer was made and Edgepoint funds hold a lot of the series 2. Investors would be wise to tender their shares as the trading price upon expiration will likely be substantially less than the price they will receive on their tendered shares. An offer of $44 million must have been pulled from the air and the benefit of tendering “as historical trading patterns have been choppy” will only get worse as the remaining shares will even “run the risk of being delisted”. Like holding a gun to your head to tender. Dundee at $18.50 will get the benefit of buying these shares $6.50 less than showing on the books and will profit in the neighbourhood of $13 million? With Dundee Precious Metals trading above the $8 option price Dundee is likely to receive substantially more cash for their remaining DPM shares within a year and I would not be surprised to see a follow up offer for the series 3 outstanding. For disclosure I have sold all my series 2 shares and have purchased more series 3. You still get a yield near 9% still fully backed by cash. I am waiting to see what Ravensource has to say as they send out a June 30th letter to shareholders usually in August. They must be livid! Or maybe they are holding out for $25?

  2. Avoid the Herd says:


    Dan, how do you figure a 9% yield on DC.pr.D?
    By my calculation, with the 3 month T Bill rate under 0.20%, the current yield for the series 3 issue is approx 7%.

  3. Dan Good says:

    I stand corrected. I was just using the last dividend payment in the calculation. I honestly did not realize t-bill rates had dropped that significantly in 3 months. Hopefully this is an aboration and rates can normalize closer to 1% in the short term. Whatever normal will be. Realistically I can wait a month until the series 2 shares are taken up and should be able to buy them at a discounted price due to their illiquid nature. Dundee cannot be serious about leaving such a small float on the market. Emberrassing actually.

  4. Dan Good says:

    I guess EDGEPOINT held out for a “fairer” price. The Dutch auction has been modified and the price has been increased to $19,50 for all the shares. Here is also a teaser in their news release for doing something for the other preferreds left outstanding.

  5. Dan Good says:

    The Board of Directors of the Corporation will continue to review various options for the allocation of capital.

  6. Dan Good says:

    You can also view Ravensource’s discussion on the Dundee preferreds in their June 30th letter to shareholders. I love their wording: “To repeat: most investors hate preferred shares, and they really hate Dundee”. Gives me warm and fuzzy feelings. Better to invest in unloved areas of the market than those most popular.

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