# GWO and PWF Share Buyback



## jimbob.seeker (Sep 12, 2013)

Does anyone have any opinions on the recently announced GWO and PWF share buyback?

Lately, I have become concerned about the long term viability of Investor's Group, a major part of PWF. I don't believe that their high-fee mutual fund business will withstand the test of time.

GWO, as far as I can tell, should be stable in the long run.

I am inclined to sell my PWF shares and keep GWO.

I would appreciate any and all comments.

Thanks,
JimBob


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## AltaRed (Jun 8, 2009)

I only know a bit about PWF since I also own PWF shares. Power Corp obviously think PWF shares are undervalued at a price up to $34, at which they will pay no more than that. 

They also obviously "hope" some investors may "bite" at $29 given the trading range the past 12 months, but I suspect they probably don't really think so. They may be targeting $31-32 as the likely sweet spot given the slide from ~$36 since late 2017 and the likelihood some investors may be weary of the long stock price slide through December. I think they are being highly opportunistic in the timing of their offer given the pummeling in December.

What will investors do? I have no idea but I think most that are willing to participate in the dutch auction will price their offering in the $31-32 range and that Desmarais will be successful buying $1.65B of stock back in this price range.

I am going to sit back and watch what PWF market price will do for the next few weeks. If it happens to exceed $33-33.50, I will likely sell on the open market. If it does not go there before Apr 12th, I may put in an offer in the mid-$33 range and see if it goes. The issue of course is the prorationing of offers so it is highly unlikely I'd sell much of what I have at that price so a reason not to participate. OTOH, I might just sit it out and be a more significant shareholder on the premise that the buyback will create some momentum in this stock and I will be able to sell later in 2019 at a higher price that I want.

Anecdote: I didn't tender shares in the TRI cash + share offer in late 2018, so only got taken out for the cash portion of the tender. Since that time, my residual TRI shares have taken off beyond the highest dutch auction price and I am a happy owner of the 90.7% of the TRI shares that I still hold.


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## OptsyEagle (Nov 29, 2009)

I think they are both long term holds, but that does mean much. If you want to get out the Dutch Offer sounds like a good one.

Keep in mind a few things:

1) Whenever you are thinking like this assume that you have a lot of company. One of the reasons for the most recent strength in these companies is the Dutch Offer (DO). Why sell PWF today at $31 when you can perhaps get as high as $34 on April 12th waiting for the DO. Since that attitude reduces current selling, the price will have current upward bias. It also indicates that it will probably have a downward bias, right after this offer, from all the greedy tenders that don't get taken up. More on that in a moment.

2) They are going to get rid of a lot of those discontented shareholders, that have been selling these shares and keeping them depressed for so many years, by buying so much stock, in the DO. $1.65 Billion can get rid of a lot of discontented shareholders.

Those two kind of counter each other and take away ones assessment of the stock price immediately after the DO.

3) If anyone knows the prospects of GWO and IG, you have to assume the Demarais family does, since they control them both and they are currently trying to buy up $5 Billion dollars of their stock.

4) If you decide to tender the DO you need to decide on a price to tender at. Obviously with PWF, $34 is better then any other offered price but somehow I suspect you will have a lot of company with your tenders and anyone at $34 will probably not get sold. Keep in mind that with a DO, if you tender at $32 and PWF needs to go to $33.10 to get $1.65 Billion of stock, you will get $33.10 per share for your holdings. It is the people at $33.20 and above that will be left out and the people at exactly $33.10 will get prorated. That is my understanding. It is designed to give the sellers incentive to lower their bid. Now if many go in at $32, that is the price you will get and if many undercut you, it will be you who is left out.

That is how it works and that about all I can say.

I own both GWO and PWF in small amounts in various accounts with myself and my wife and if I did tender it would only be in the hopes of buying them back quickly at a lower price. Since that might be more nimble then I can pull off, I might just sit it out. That is me and I am quite often wrong, so good luck to you.

*PS:* I would not write off Investors Group quite so quickly. They have been around for many, many decades and made many successful changes throughout their life, when required. The anger you hear about them, on this board, is not the majority of their current customers, and if high anger towards various selling practices was a sign of a dying company, you could say goodbye to BCE and many others just like them. I imagine all of them will be just fine. Anger is usually the response a customer has who finds it difficult to leave a particular business. That is usually a sign of a good business, not a bad one. Just my opinion, of course.


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## jimbob.seeker (Sep 12, 2013)

Thank you, AltaRed and OptsyEagle, for your very informative and timely comments.

Regards,
JimBob


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## l1quidfinance (Mar 17, 2017)

All I know Is that I decided to purchase POW at the start of the year. 

Very happy with that decision so far and this buy back seems to be helping give some upwards momentum and it is still yielding 5%


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## OptsyEagle (Nov 29, 2009)

OK. So I guess assuming things is certainly not a substitute for diligent reading. Take a look at this from the Dutch Offer circular of Power Financial:

https://www.powerfinancial.com/medi...-4987-be81-144a939e85a6/pfc_circular_-_en.pdf



> A Canadian Resident Shareholder who sells Shares to Power Financial pursuant to the Offer will be deemed
> to receive a taxable dividend equal to the excess, if any, of the amount paid by Power Financial for the Shares over
> their paid-up capital for purposes of the Tax Act. Power Financial estimates that the paid-up capital per Share as of
> the date hereof is approximately $1.11 (and following the Expiration Date, Power Financial will advise Shareholders
> ...


Fairly important for anyone tendering shares that are held within a non-registered account (taxable account). It might be an opportunity, it might be a kick in the kahoonies. It will vary from investor to investor, but I thought I should point it out for anyone that might find reading a 54 page circular, a little boring.


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## OptsyEagle (Nov 29, 2009)

So what I believe they are saying, is that if you own PWF shares and decide to tender the tax consequences to you are as follows:

1) Held inside an RRSP/RRIF/TFSA - no tax consequences at all

2) Held in cash or margin account: Here we go.

Lets say you bought your shares for $28 and you get $33 from the Dutch Offer.

You will get a t-slip for $33.00 minus $1.11 = *$31.89 will be an eligible Canadian Dividend *eligible for the gross up and dividend tax credit.
Your new adjusted cost base will now be $28.00 plus $31.89 = $59.89.
So, therefore you will also have a capital loss of $59.89 - $33.00 = *$26.89 Capital loss

*As opposed to a capital gain of $5. I think I did that right and I think I am reading it right but if anyone else has some other thoughts, please let us know.


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## OptsyEagle (Nov 29, 2009)

For your information the *PUC number for GWO is $6.79*. So you can do your own tax math for that and you can look up Power Corp yourself. 

Obviously anyone close to OAS clawback and things where increases in taxable income hurts severely and capital losses are of little use, might find it much better to simply sell their shares on the open market, then tendering to this dutch offer.

Anyone who is in a very low tax bracket and will not pay much tax on a Canadian Dividend AND can use the large capital loss to offset realized capital gains or wants to carry it back to realized capital gains of the last 3 years, when they were in a much higher tax bracket, might find this a unique tax opportunity.

So have fun with it. Good luck.


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## AltaRed (Jun 8, 2009)

Good for pointing out those 'red flags. I will absorb the circular when it comes, but generally speaking I don't participate in these offers. There are often unintended consequences and I'd want a significant premium to screw around with it.


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## OptsyEagle (Nov 29, 2009)

For anyone that does not understand taxes, maybe you might understand this. If you tender 1000 shares and get $33 for your shares, even if you only made a couple of dollars in gain or even had a loss, your taxable income in 2019 will be exactly $44,008 higher.

This is not insignificant, so don't take it lightly.

(the math being $31.89 x 1000 share, grossed up by 38% = $44,008)


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## hboy54 (Sep 16, 2016)

AltaRed said:


> Good for pointing out those 'red flags. I will absorb the circular when it comes, but generally speaking I don't participate in these offers. There are often unintended consequences and I'd want a significant premium to screw around with it.


Me neither. There is a much easier way to unload shares, a market order for $9.99. That whole dividend and capital loss business is nuts.


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## Mechanic (Oct 29, 2013)

I have POW in my non-reg and was actually just pondering selling it before I got the info today. Think I will just watch it and see where the price goes. If I like it I may sell on the market but otherwise, will hold it till after the dutch auction is over and see where it goes. I have a good chunk of IG too but that has not done great. Pays a decent div so will be holding on to it for a while longer.


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## Mechanic (Oct 29, 2013)

hboy54 said:


> Me neither. There is a much easier way to unload shares, a market order for $9.99. That whole dividend and capital loss business is nuts.


Same here. Sold at 31.25 and will now watch the show


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## RBull (Jan 20, 2013)

When I receive something that takes 50 pages to explain I typically avoid it. GWO fundamentally is a long term hold for me with tax consequences so pretty simple answer. No. 

Also my past experience is if its too difficult to understand an offer and all the various potential consequences its not been a good experience. This looks like it fits into that category for me. Placing a limit order sometime when/if seems like a simpler solution.


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## agent99 (Sep 11, 2013)

I own some PWF and won't be tendering either. 

Regarding tax implications, I can't see how the proceeds of tendering would affect acb if it is to be considered a dividend. The capital amount of $1.11 or whatever it is would. 

So your acb is $28 and you tender for $33 . They say the buyback will be considered mostly a dividend, except for something like $1.11. So you end up with a net loss of $26.89 per share ($28.00-$1.11). Depends on individual's tax situation, I guess, as to whether that is good or bad. 

As I said, I am not in the game, so do your own homework


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## OptsyEagle (Nov 29, 2009)

agent99 said:


> I own some PWF and won't be tendering either.
> 
> Regarding tax implications, I can't see how the proceeds of tendering would affect acb if it is to be considered a dividend. The capital amount of $1.11 or whatever it is would.
> 
> ...


It's the governments way of making sure when a company takes their earned income and gives it to their shareholders that those shareholders have to pay tax on it, above what those original shareholders invested in the company. It would probably become more clearer if it was a small, family owned business, but it would appear CRA is not distinguishing between the size. As far as they are concerned, the original shareholders have a capital investment (paid up capital) of $1.11 per share and any money the company distributes to those shareholders, above that amount, must garner a dividend tax to be fair to all taxpayers.

It is there way of cutting out shenanigans, but in this case it basically creates them. As I said, one can now use these rules for their own advantage, although some may get snookered. The real victims are the ones who never read the 50 page info circular or don't understand it. I read them because I sometimes make a little money from these things and I really, really hate being broadsided. 

As for avoiding the Dutch Offer because you can sell them any time without one. Obviously one would check the current market price, before they make a tender, and unless they are stupid would probably tender at a higher price then what the current market is offering. I can't think of why one would ever tender below. So you are being paid to participate in the Dutch Offer and all you have to do for this extra money is read this info circular, and since I did and informed everyone of this catch, it is even a little easier on investors. Yeahhhh CMF!

Anyway, that is what is going on. I will watch things and calculate things and if I can make a buck, I will act, and if I cannot I will not. In my perfect world a lazy investor will make their decision based on incorrect information and I will get to make their bucks too. Usually Goldman Sachs takes that money but I have occasionally pocketed a few of those dollars as well. Easy money, is easy money.


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## like_to_retire (Oct 9, 2016)

OptsyEagle said:


> It's the governments way of making sure when a company takes their earned income and gives it to their shareholders that those shareholders have to pay tax on it, above what those original shareholders invested in the company. It would probably become more clearer if it was a small, family owned business, but it would appear CRA is not distinguishing between the size. As far as they are concerned, the original shareholders have a capital investment (paid up capital) of $1.11 per share and any money the company distributes to those shareholders, above that amount, must garner a dividend tax to be fair to all taxpayers.


Sounds like the same tax decision I've made in the past several times when a company redeems preferred shares. The company redemption price is $26 and they're also trading on the market at $26, but if you go the redemption route, the $26 is divided up with $25 Paid Up Capital (PUC) and $1 Deemed Dividend. So the better route to take depends on your cost base and tax bracket you're in. Takes a bit of math to determine the price you'd need on the market to make that route the better option.

ltr


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## Mechanic (Oct 29, 2013)

Got rid of my GWO today as well for a small profit. Deployed the proceeds into another divvy payer.


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## My Own Advisor (Sep 24, 2012)

jimbob.seeker said:


> Does anyone have any opinions on the recently announced GWO and PWF share buyback?
> 
> Lately, I have become concerned about the long term viability of Investor's Group, a major part of PWF. I don't believe that their high-fee mutual fund business will withstand the test of time.
> 
> ...


I think this is a good think long-term. This is another sign/way to increase shareholder return - count me in (did not and will not tender shares).


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## like_to_retire (Oct 9, 2016)

My Own Advisor said:


> I think this is a good think long-term. This is another sign/way to increase shareholder return - count me in (did not and will not tender shares).


Haven't heard anyone talking about POW in this thread. 

I own POW and have read over the corporate action auction papers they sent, and am not really interested in selling as POW has been a very long term hold of mine, but I wonder what will eventually be the results of these three stocks (POW,PWF,GWO) involved in the auction. 

Someone must have to pay for all the accountants involved in such a massive undertaking?

I have personally considered POW akin to a preferred share over the years. Solid dividend, lucky if it increases, and a stagnant share price.

ltr


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## Mechanic (Oct 29, 2013)

POW has had quite the run up since the paperwork came out. I sold mine and made a nice little profit. I would say it is highly likely that the price will drop after the end of the auction.


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## AltaRed (Jun 8, 2009)

Mechanic said:


> POW has had quite the run up since the paperwork came out. I sold mine and made a nice little profit. I would say it is highly likely that the price will drop after the end of the auction.


Remains to be seen. Partly depends on degree of take up and at what price. Valuation metrics will be higher on a per share basis once the dust settles.


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## OptsyEagle (Nov 29, 2009)

Mechanic said:


> POW has had quite the run up since the paperwork came out. I sold mine and made a nice little profit. I would say it is highly likely that the price will drop after the end of the auction.


No one can say what will happen, after the Dutch Offer, but I would not want to be making any substantial bet on the stock trending down, after completion.

It seems intuitive that it would trend back down. GWO for example, is up almost 10% since the offer was announced, that compares to less then 2% for the TSX. If the Dutch Offer made it go up, and it did, then once the Dutch Offer is over, it should go back down. Shouldn't it?

No one can see into the future, but once one puts logic into motion, the certainty of that becomes much less certain. First of all, the reason it went up is because of a few reasons:

1) Why would sellers sell in the market at $30 when GWO is offering a possible $35 a month later. They would hesitate in selling and hence less selling usually pushes stocks upward.
2) Why sell at $30 when management thinks it is a bargain all the way up to $35. Again less selling and this might produce some additional buying.

This offer would have less of effect on reducing buyers, hence the 10% upward move.

Now think about life AFTER the offer. Those two issues above are now gone BUT:

1) Most of the disgruntled investors are also gone, using the Dutch Offer to exit. This creates less sellers going forward. Less sellers does not make a stock go down.
2) Many of the disgruntled might have changed their minds. Investors are very fickle. 
3) Analysts will start to do some new calculations. The earnings estimates will need to rise. Whatever profit these companies were going to earn, having less shares outstanding cannot help but improve them.
4) Analysts upward revisions tend to produce more buyers and less sellers.

Anyway, since I can't quantify much of the above, it is a coin flip, but one where I believe one side of the coin is a little heavier then the other. If I had to wager a bet, I think the path of least resistance will be up, after the Dutch Offer is over.


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## m3s (Apr 3, 2010)

I added POW @ $28 to non-reg in 2018

I haven't seen any documents as Cdn mail goes to my parents. I thought I was getting everything electronically (votes, annual reports etc)

Anyways it seems to keep hitting new 52 wk highs so I think I'll watch until next Friday


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## like_to_retire (Oct 9, 2016)

m3s said:


> I added POW @ $28 to non-reg in 2018
> 
> I haven't seen any documents as Cdn mail goes to my parents. I thought I was getting everything electronically (votes, annual reports etc)
> 
> Anyways it seems to keep hitting new 52 wk highs so I think I'll watch until next Friday


You should have received the Corporate Action Notice documents in March with regards to the Dutch Auction Event. You'll have to look into that I guess.

Whether you feel this recent uptick is reason to sell or hold depends on a lot of things.

As I recently mentioned, POW is a reliable dividend payer that doesn't change its stock price much over many, many years.

I look at a chart shown below and it was paying $34 in 2015, so not a lot to see here unless you're a trader.









ltr


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## OptsyEagle (Nov 29, 2009)

A little Dutch Offer Arbitrage going on today, I would think. 

That being where a person tenders their shares to the Dutch Offer and then quickly attempts to buy them all back at a lower price. Hopefully they know about the taxation involved with this maneuver.

As for the offer itself. Looks like they got rid of around 6-7% of the shares, depending on the company. Not bad. Beats the heck out of those buybacks where you are lucky to see 0.1% of the float eliminated.


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## AltaRed (Jun 8, 2009)

I agree. For PWF, it looks like $33 was the tipping point. Market close today was up 56 cents to $32.55. Still a good arbitrage in registered accounts. As I mentioned earlier, I had no interest in participating.



> Power Financial announced today that, in accordance with the terms and conditions of the PFC Offer and based on a preliminary count by Computershare Trust Company of Canada, as depositary for the PFC Offer, of the approximately 484.1 million Shares deposited to the PFC Offer (including those deposited by shareholders tendering on a proportionate basis) the Corporation expects to take up and purchase for cancellation approximately 50.0 million Shares (including Shares tendered by notice of guaranteed delivery) at a purchase price of $33.00 per Share. Shares expected to be purchased under the PFC Offer represent approximately 7.0% of the issued and outstanding Shares on a non-diluted basis at the time that the PFC Offer was announced. After giving effect to the PFC Offer, approximately 664.1 million Shares are expected to be issued and outstanding.
> 
> As the PFC Offer was oversubscribed, shareholders who made auction tenders at or at less than $33.00 and purchase price tenders are expected to have approximately 99% of their maximum take-up of Shares purchased by the Corporation, other than "odd lot" tenders, which are not subject to proration. Shareholders who made auction tenders above $33.00 are not expected to have any of their Shares taken-up and purchased by the Corporation.


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## jimbob.seeker (Sep 12, 2013)

Thanks to all who participated in this discussion. The information shared is invaluable.


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## Mechanic (Oct 29, 2013)

POW looks like a buy. Just raised the div too.


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