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.

Be Sociable, Share!

{ 14 comments… read them below or add one }

1 Four Pillars

Interesting description – I’ve never been a part of this process before.

What was your ACB on the shares? (I’m only asking because I know you did well on this one) :)

2 MoneyGrubbingLawyer

Glad to hear things worked out for you.

I chickened out and sold after the annoucement for a little under $30 as I was concerned that the deal may not proceed, based on some pretty intense opposition from a sector of shareholders.

For what it’s worth, I took my proceeds and dumped them into MO- those cigarette (dividends) are addictive :).

3 Mr. Cheap

Mike: Its the first time for me too. My ACB was $21.73, so I did quite well with it. My BMO is down over 30% (and I bought more of it because I figured it was “safer”), so it all evens out :-)

MGL: I think things have worked out for all of us (selling early and getting close to 30 is as good as having to wait for the payment in my book). In this case I don’t think there was a bad option (although, as mentioned in the post, I’d be nervous to continue being a shareholder next month).

They certainly are! :-) The only problem is it’ll be an American dividend instead of Canadian dividend :-(. For me, the proceeds are going directly to my margin debt.

4 The RAT

Personally, I think you made an excellent and wise decision. Whenever the dividend is possibly in jeopardy or there are some key, unanswered uncertainties as a shareholder in terms of overall direction- hit the high road. I was recently in a somewhat related situation with a trust conversion decision (I have a post on it on my website from a few weeks back) whereby the dividend would be affected in a negative direction. My decision was much clearer however. Based on the fact that this offer has been extended to you until the end of the month, my opinion is that you made a great move. Rothmans, despite the fact that I had never held a position in the ‘sin’ stock (although i probably should have as a past smoker to recuperate all the money I spent!) coupled with the fact that there are now major structural changes, on a positive light – they have handsomely rewarded shareholders such as yourself – especially via the lucrative dividend yield it often offered.
Cheers

5 MoneyGrubbingLawyer

Mr. Cheap: The tax on US dividends does eat into returns a little bit, but I keep my American dividend-paying stocks in an RRSP, so it doesn’t make a difference.

6 Matt

Thanks for sharing – we all hear about mergers and takeovers but I’ve never heard the account from the shareholders point of view. Interesting.

7 Jerry Hung

And I was considering buying Altria Group (MO), who is the holding company of PM :p

Glad you did well, I wish I ran into more Mergers to profit

8 ThickenMyWallet

I guess even with all the recommendations not to take the offer most of us would like the bird in the hand in these times.

9 Blogging About Money

You should also consider moving your funds to Vector Group. They’re a smaller tobacco company, but they yield 14% dividends (9% cash dividends and an annual 5% stock dividend)…not a bad deal for your money.

10 Mr. Cheap

Apparently it’s going to be removed from the market as of Friday.

11 Mr. Cheap

Kevin: A bold, well-argued position. I salute you!

12 Blogging About Money

Mr. Cheap, Rothmans is only being removed from the TSX Index, not from the exchange. The stock will continue to trade for now.

13 The RAT

Totally forgot about the fact that there is a 15% withholding tax with US dividends – which sucks even more when you like getting paid!

14 Mr. Cheap

BAM: Ahh, gotcha… thanks for catching my misunderstanding!

Leave a Comment

Current ye@r *

Previous post:

Next post: