Post by
thetis88 on Dec 30, 2021 6:35pm
Issuer Bid
My first post in years. I have a large concentrated portfolio with 9.5% of it invested in Stelco.
I have been holding my Stelco shares since June of last year and have no plans to sell.
Like almost all on this board I think the stock is undervalued. But, I have a different view as to why the Issuer Bid was priced from 31 to 37 dollars. I think Stelco has been wanting to buy the 9.9% holding of shares held by Bedrock for a while ,but the parties could not agree on price. As you might recall, on the last buy back, Bedrock sold at a 26% discount. This issuer bid, in my view, is solely to buy back the Bedrock shares and they have no intent to buy back any other shareholder's shares. Period.
The Board of Stelco has found a very clever way to set the price of the buy back by holding a Dutch Auction at a range from 31 to 37 dollars. A lot of investors are thinking the price was a mistake, or something about short selling, or the Board of Directors do not know what they are doing etc.
However, lets say the price of the stock remains at 40 dollars or more on January 26 th, the day the bid expries. Then, Bedrock will offer all their stock at the top of the range at 37 dollars a share. Stelco will then buy exactly 9.9 percent of their shares at 37 dollars as no retail sharehders would ever submit their shares to get 37 bucks a share.when its trading at 40.bucks. Its no coincidence that the Issuer bid was rounded to 250 million or 10.2% percent of shares outstanding, just over the 9.9 % that Bedrock holds.
If the stock drops say to 35 bucks on January 26th then both sides win. Now Bedrock submits their bid at say $33.50 a share - some $1.50 less than market to recognize the reality of the new price of the stock. . As all the retail holders would bid 35 dollars or more ,and none below 35 dollars, then once again Stelco gets all of Bedrocks shares ( 9.9% ) and and has .3 % for retail if any are crazy to submit at $33.50. Thats the way a Dutch Auction works- it takes the lowest price until it fills up to 250 million dollars of shares and then stops.
I realize this might be hard to follow, but Stelco cant lose, nor can Bedrock. What ever the price the stock is a month from now a deal can be done- always at say a 5- 8% discount to the current price.
If I were on the Board of Dirctors of Stelco I would be strongly voting yes for this initiative. Its not stupid at all.
My view is, once its disclosed, the buy back of all of Bedrocks shares will drive the price of the stock up about 10% at the end of Jan., just like the last one did.
So, I would not knock Stelco. The bid is not for your shares- its aimed at just one shareholder- Bedroock
A month from now we will see if I am right-i hope so-but have been dead wrong a few times lately so we will see.
Comment by
Blueswin on Dec 30, 2021 7:08pm
And how do you see the agreement where Bedrock was not allowed to sell their remaining 9.9% for a year from their last sale?
Comment by
thetis88 on Dec 30, 2021 7:32pm
Read the small print The agreement says that Bedrock can only sell their shares during the lock up period if they get prior written consent from the Board of Directors of Stelco. Since I am speculating that the Dutch Auction is solely for the purpose of buying Bedrock's shares, then it follows that the Board would have already given Bedrock consent in writing to sell.
Comment by
fishcarrier on Dec 31, 2021 8:00am
Dead on!! Happy New Year in more ways than one!