Rothmans: Going, Going, Gone

by Mr. Cheap

I wrote at the beginning of August about Philip Morris’ (aka Altria) interest in purchasing Rothmans. It was a friendly takeover offer. The Rothmans board of directors recommended accepting the offer of $30 / share, a significant premium over the previous share price, and the highest price its ever been sold at (at the time of the offer).

My understanding was there were three possible reactions a shareholder could take:

  • Sell the shares when it shot up in price on news of the offer (briefly it went above $30 in hopes that their may be a higher offer int he future)
  • Accept the $30 / share bid and sell to Philip Morris
  • Fight the takeover and try to keep Rothmans an independent company

I was fairly sympathetic to each of these views.

  • There was a chance the deal might fall through: in this case, I think the share price would have dropped significantly (since they accepted a massive legal liability at the same time they announced the take over bid).
  • There was a chance that the deal might be improved:  Jarislowsky, Fraser Limited owned a big chunk of stock and had some valid reasons for demanding a little sweetner
  • There was a chance that the deal would go through as offered: In which case it made sense to either sell and get the cash ASAP or just wait it out and get the money when the deal closed.

Telly decided to get out while the getting was good, another blogger (who shall remain nameless since I don’t think they’ve publicly acknowledged being a ROC shareholder) thought that PM was “attempting to rip us off” (and wanted to get a better deal or would have been content to have the deal fall through and things go back to how they were before the offer).

In the end, I let my laziness handle the decision for me.  I did nothing (I didn’t even vote on the offer, I’m such a naughty shareholder).  The deal has gone through.  Philip Morris has extended their offer to tender shares for 10 days.  Unsure about the ramifications for shareholders, I called E*Trade and Rothmans’ investor relations on Sept 17th and got the following information out of them.

I asked Rothmans what would happen if we didn’t sell or accept the tender offer (which I was worried they’d treat me like an idiot, but the woman said it was a good question and had to put me on hold as she went to find out).  She told me that if we don’t accept the extended tender offer, after the end of the month we’ll continue being a shareholder, just like before.  The MAJOR change will be that Philip-Morris will be a majority shareholder, and as such can basically do what they want with the company.  When I asked her about the dividend policy, she laughed and said that’s the big question, Philip-Morris will basically be setting it after that point.  She also says that it will continue to trade on the TSX, but PM may take it private at some point in the future.

This DEFINITELY doesn’t sound like the type of company I want to own.  Philip Morris has extended their offer until the end of the month (to buy shares off of any shareholders for $30 / share) and today I called up E*Trade and accepted it.

I could have also sold my shares on the “open market”, which was offering $29.92 today (the $30 / share will come through at the end of September).  I decided to sell to PM because selling to them I don’t have to pay E*Trade’s trading fee ($20 for me), and I’ll get an extra $56.40 for my shares (705 of them).  I’m willing to wait 2 weeks to get an extra $80.

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