$750,000,000 shelf prospectusIt is intriguing to think about this announcement.
(1) $750,000,000 (or up to) is huge compared to shareholders equity of $670,000,000 or market capital of $2,000,000,000.
(2) It is unlikely that Soloway or Marsh would have any interest in participating in warrants or offers to purchase more shares, and a major share warrant to purchase offering would not succeed.
(3) It is also unlikely that Soloway and Marsh are interested in having their common share equity diluted by a direct common share purchase offer to the general public .
(4) If there is a need for increasing their capital ratios in the future with expansion needs exceeding their ability to attract sufficient customer deposits or to finance an acquisition purchase, HCG will need to increase shareholder equity.
Increased debt will not do it.
(5) There is a 25 month life on a shelf prospectus.
(6) Do they need the funds for a major acquisition? The only logical opportunity is to take a run at Equitable Trust - possibly a great opportunity to benefit from amalgamation and reduction of overhead costs per mortgage therefrom. ETC's much higher dividend payout will be one of many obstacles in arriving at an acceptable share purchase offer.
Conclusion:
If (4) rules the day, a series of preferred share offerings would be the way to go, if management is satisfied that the after tax increase in profits will exceed the preferred share dividend requirements. If (6) rules the day, then a onetime preferred share issue would be the route, subject to the same profitability requirements.
What do readers think?