January 18th, 2011 by Potato

Note: I’ll be updating this post through the night and next few days as I try to process the transaction…

It was almost exactly a year ago that I called Canexus my “ace in the hole”. With a ~28% return, it wasn’t too shabby, but others have outperformed it. Part of that was based on the business itself, and part was on the theory that if Nexen was trying to sell its ~65% stake, it might lead to a buyer taking out the whole thing for a tidy return.

Now though, it’s been announced that Nexen has sold it’s portion of Canexus to a group of underwriters in a bought deal for a secondary offering. What that means is that the risk of selling all those shares (way more than is currently in the public’s hands) lies with the banks now. Because of that, they usually get a sweetheart price, in this case $6.40 (it closed at $7 yesterday, but was down to $6.80 today — with the trading volume, it looks like there was a leak of the news).

So, I had figured instead of a secondary offering to the public, one big company (or pension fund) would try to take over the whole of Canexus. I figured it was worth at least $8 in such a scenario (and given the cash they spin off, probably still worth that in a few years).

Now I have to ask myself, even though I already own a fair bit of Canexus (it’s something like 10% of my portfolio), do I want to take the opportunity to buy more in this offering at $6.40-ish? The cashflow and yield are still there, though part of me does feel cheated that the offering price is “so low”.

Update: Well, the take-up went well, with Canexus almost immediately trading above the offering price. I still think it offers good value, and the latest results indicated that it is going to convert to a corporation, so that distribution will become an even more tax-efficient dividend, without any cut!

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